<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1996
REGISTRATION NUMBER 333-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MARINER ENERGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 86-0460233
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
580 WESTLAKE PARK BLVD., SUITE 1300
HOUSTON, TEXAS 77079
(713) 584-5500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
JAMES M. FITZPATRICK
VICE PRESIDENT OF LAND AND LEGAL AND CORPORATE SECRETARY
MARINER ENERGY, INC.
580 WESTLAKE PARK BLVD., SUITE 1300
HOUSTON, TEXAS 77079
(713) 584-5500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
CHARLES H. STILL
FULBRIGHT & JAWORSKI L.L.P.
1301 MCKINNEY, SUITE 5100
HOUSTON, TEXAS 77010-3095
(713) 651-5151
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
10 1/2% Senior Subordinated Notes Due 2006,
Series B..................................... $100,000,000 100.75% $100,750,000 $34,742
==========================================================================================================
</TABLE>
(1) Represents the maximum principal amount of notes exchangeable in the
exchange offer described herein.
(2) Pursuant to Rule 457(f) under the Securities Act of 1933, the registration
fee has been calculated based on the average of the bid and asked prices as
of September 23, 1996, in the Private Offerings, Resales and Trading through
Automated Linkages (PORTAL) market, of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, Series A, for which the securities registered
hereby will be exchanged.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
CROSS-REFERENCE SHEET
(PURSUANT TO RULE 404(A) UNDER THE SECURITIES ACT OF 1933)
<TABLE>
<CAPTION>
FORM S-4 ITEM AND CAPTION LOCATION OR PROSPECTUS CAPTION
------------------------- ------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover Outside Front Cover Page
Page of Prospectus..........................................
2. Inside Front and Outside Back Cover Pages of Prospectus....... Inside Front Cover Page, Page 3
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Summary; Risk Factors; Pro Forma
Information................................................. Financial Data; Selected
Historical Data
4. Terms of the Transaction...................................... Summary; The Exchange Offer;
Description of the Exchange
Notes; Certain U.S. Federal Tax
Considerations
5. Pro Forma Financial Information............................... Pro Forma Financial Data
6. Material Contacts with the Company Being Acquired............. Not applicable
7. Additional Information Required for Reoffering by Persons and Not applicable
Parties Deemed to Be Underwriters...........................
8. Interests of Named Experts and Counsel........................ Not applicable
9. Disclosure of Commission Position on Indemnification for Not applicable
Securities Act Liabilities..................................
10. Information with Respect to S-3 Registrants................... Not applicable
11. Incorporation of Certain Information by Reference............. Not applicable
12. Information with Respect to S-2 or S-3 Registrants............ Not applicable
13. Incorporation of Certain Information by Reference............. Not applicable
14. Information with Respect to Registrants Other Than S-3 or S-2 Summary; Business; Selected
Registrants................................................. Historical Data; Management's
Discussion and Analysis of
Financial Condition and Results
of Operation; Financial
Statements
15. Information with Respect to S-3 Companies..................... Not applicable
16. Information with Respect to S-2 or S-3 Companies.............. Not applicable
17. Information with Respect to Companies Other Than S-3 or S-2 Not applicable
Companies...................................................
18. Information if Proxies, Consents or Authorizations are to be Not applicable
Solicited...................................................
19. Information if Proxies, Consents or Authorizations are not to Ownership of Securities; Certain
be Solicited or in an Exchange Offer........................ Transactions
</TABLE>
<PAGE> 3
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B
($100,000,000 PRINCIPAL AMOUNT)
OF
[MARINER LOGO]
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
, 1996, UNLESS EXTENDED.
------------------------
Mariner Energy, Inc., a Delaware corporation (the "Company"), hereby makes
an offer (the "Exchange Offer"), on the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal"), to exchange up to an aggregate principal amount of
$100,000,000 of its 10 1/2% Senior Subordinated Notes Due 2006, Series B (the
"Exchange Notes"), for an equal principal amount of its outstanding 10 1/2%
Senior Subordinated Notes Due 2006, Series A (the "Outstanding Notes"), in
integral multiples of $1,000. The Exchange Notes will be subordinated to all
existing and future Senior Indebtedness (as defined herein) of the Company and
are substantially identical (including principal amount, interest rate, maturity
and redemption rights) to the Outstanding Notes for which they may be exchanged
pursuant to the Exchange Offer, except for certain transfer restrictions and
registration rights relating to the Outstanding Notes and except for certain
interest provisions relating to such rights. The Outstanding Notes have been,
and the Exchange Notes will be, issued under an Indenture dated as of August 1,
1996 (the "Indenture"), between the Company and United States Trust Company of
New York, as trustee (the "Trustee"). See "Description of the Exchange Notes".
There will be no proceeds to the Company from this offering; however, pursuant
to a Registration Agreement dated as of August 9, 1996 (the "Registration
Agreement"), among the Company and the Placement Agents (as defined herein), the
Company will bear certain offering expenses.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act of 1933 (the
"Securities Act"). This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Outstanding Notes where such Outstanding
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date (as defined herein), it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution".
The Company will accept for exchange any and all validly tendered
Outstanding Notes before 12:00 midnight, New York City time, on ,
1996, unless that date is extended (the "Expiration Date"). Tenders of
Outstanding Notes may be withdrawn at any time before 12:00 midnight, New York
City time, on the Expiration Date; otherwise tenders are irrevocable. United
States Trust Company of New York is acting as Exchange Agent in connection with
the Exchange Offer. The Exchange Offer is not conditioned on any minimum
principal amount of Outstanding Notes being tendered for exchange, but is
otherwise subject to certain customary conditions.
(continued on page 3)
------------------------
SEE "RISK FACTORS", BEGINNING ON PAGE 16, FOR A DISCUSSION OF CERTAIN
FACTORS TO BE CONSIDERED BY HOLDERS WHO TENDER OUTSTANDING NOTES IN THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
(COLOR MAP HERE)
UNTIL , 1997 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
2
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................... 5
Risk Factors.............................. 16
The Exchange Offer........................ 24
Use of Proceeds........................... 33
Capitalization............................ 34
Pro Forma Financial Data.................. 35
Selected Historical Data.................. 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 40
Business.................................. 48
The Transactions.......................... 64
Management................................ 67
Ownership of Securities................... 77
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PAGE
----
<S> <C>
Certain Transactions...................... 78
Description of Revolving Credit
Facility................................ 82
Description of the Exchange Notes......... 83
Certain U.S. Federal Tax Considerations... 112
Plan of Distribution...................... 114
Legal Matters............................. 115
Independent Auditors...................... 115
Independent Petroleum Engineers........... 116
Available Information..................... 116
Incorporation of Certain Documents........ 116
Glossary.................................. 118
Index to Financial Statements............. F-1
</TABLE>
---------------------
(continued from cover page)
The Exchange Notes will bear interest from the date of issuance (or the
most recent Interest Payment Date (as defined herein) to which interest has been
paid), at a rate equal to 10 1/2% per annum and on the same terms as the
Outstanding Notes. Interest on the Exchange Notes will be payable in arrears
semiannually on February 1 and August 1 of each year, commencing February 1,
1997. Accrued interest on the Outstanding Notes that are tendered in exchange
for the Exchange Notes will be payable on or before February 1, 1997.
Outstanding Notes that are accepted for exchange will cease to accrue interest
on and after the date on which interest on the Exchange Notes begins to accrue.
The Outstanding Notes were sold by the Company on August 14, 1996, to
Morgan Stanley & Co. Incorporated, ECT Securities Corp. and NationsBanc Capital
Markets, Inc. (the "Placement Agents") in transactions not registered under the
Securities Act in reliance on the exemption provided in Section 4(2) of the
Securities Act. The Placement Agents subsequently placed the Outstanding Notes
with qualified institutional buyers in reliance on Rule 144A under the
Securities Act, in offshore transactions in reliance on Regulation S under the
Securities Act and with two institutional "accredited investors" (as defined in
Rule 501(a)(1),(2),(3) or (7) under the Securities Act ("Institutional
Accredited Investors")). Accordingly, the Outstanding Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the registration requirements of the Securities Act or unless
an exemption from such registration requirements is available. The Exchange
Notes are being offered hereunder to satisfy the obligations of the Company
under the Registration Agreement. See "The Exchange Offer".
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to this
Exchange Offer may be offered for resale, resold and otherwise transferred by a
holder who is not an affiliate of the Company without compliance with the
registration and prospectus delivery provisions of the Securities Act, if the
holder acquires the Exchange Notes in its ordinary course of business and is not
participating in and has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. Persons wishing to exchange Outstanding Notes in the
Exchange Offer must represent to the Company that such conditions have been met.
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. Although certain
of the Placement Agents have advised the Company that, following consummation of
the Exchange Offer, they currently intend to make a market in the Exchange
Notes, they are not obligated to do so, and any market-making activity with
respect to the Exchange Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
3
<PAGE> 6
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Outstanding Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered
Outstanding Notes could be adversely affected. Following consummation of the
Exchange Offer, the holders of Outstanding Notes will continue to be subject to
the existing restrictions on transfer thereof.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer will be issued in the form of a Global Exchange Note (as defined
under the caption "Description of the Exchange Notes"), which will be deposited
with, or on behalf of, The Depository Trust Company (the "DTC") and registered
in its name or in the name of Cede & Co., the DTC's nominee. Beneficial
interests in the Global Exchange Note representing the Exchange Notes will be
shown on, and transfers thereof to qualified institutional buyers will be
effected through, records maintained by the DTC and its participants. After the
initial issuance of the Global Exchange Note, Exchange Notes in certificated
form will be issued in exchange for the Global Exchange Note on the terms set
forth in the Indenture. See "Description of the Exchange Notes -- Book-Entry;
Delivery and Form".
------------------------
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the Exchange Notes offered hereby, nor does it constitute an offer to
sell or the solicitation of an offer to buy any of the Exchange Notes to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
------------------------
This Prospectus includes "forward-looking statements" within the meaning of
various provisions of the Securities Act and the Securities Exchange Act of 1934
(the "Exchange Act"). All statements, other than statements of historical facts,
included in this Prospectus which address activities, events or developments
which the Company expects or anticipates will or may occur in the future,
including such things as estimated future net revenues from oil and gas reserves
and the present value thereof, future capital expenditures (including the amount
and nature thereof), business strategy and measures to implement strategy,
competitive advantages, goals, expansion and growth of the Company's business
and operations, plans, references to future success and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
including the risk factors discussed in this Prospectus; general economic,
market or business conditions; the opportunities (or lack thereof) that may be
presented to and pursued by the Company; competitive actions by other oil and
gas companies; changes in laws or regulations; and other factors, many of which
are beyond the control of the Company. Consequently, all of the forward-looking
statements made in this Prospectus are qualified by these cautionary statements
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company or
its business or operations.
4
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, financial statements and
notes thereto and other data included elsewhere in this Prospectus. As used
herein, references to the "Company" or "Mariner" mean Mariner Energy, Inc., a
Delaware corporation. Certain oil and gas terms used in this Prospectus are
defined in the "Glossary" included herein. Unless otherwise noted herein, all
information contained in this Prospectus gives effect to (i) the recent purchase
of all the outstanding common stock of the Company by Mariner Holdings, Inc., a
Delaware corporation ("Mariner Holdings"), (ii) the incurrence of $50.0 million
of indebtedness under the Revolving Credit Facility (as defined herein), (iii)
the payment of an aggregate of $92.0 million in dividends to Mariner Holdings
and (iv) the issuance of the Outstanding Notes and the application of the
proceeds therefrom, including repayment of amounts outstanding under the
Revolving Credit Facility. Joint Energy Development Investments Limited
Partnership ("JEDI"), a limited partnership between the California Public
Employees' Retirement System ("CalPERS") and an affiliate of Enron Capital &
Trade Resources Corp. ("ECT"), owns approximately 96% of the stock of Mariner
Holdings with the remaining approximate 4% thereof being owned by key personnel
of the Company. ECT is a subsidiary of Enron Corp. ("Enron"), and an affiliate
of ECT is the general partner of JEDI.
THE COMPANY
Mariner is an independent energy company engaged in oil and gas
exploration, exploitation, development and production in three geographic areas:
the shallow water or "shelf" (less than 600 feet deep) of the U.S. Gulf of
Mexico (the "Gulf") and onshore areas near the Gulf; Gulf deepwater (greater
than 600 feet deep); and the Permian Basin of West Texas. At March 31, 1996,
approximately 85% in value (based on the present value of estimated future net
revenues) of the Company's oil and gas reserves and most of its current efforts
were located in or near the Gulf, which historically has been a prolific
hydrocarbon producing area. The Company utilizes advanced evaluation and,
particularly in the Gulf, advanced completion technologies to explore for and
produce oil and natural gas.
On March 31, 1996, the Company had proved reserves of 6.8 Mmbbls of oil and
96.3 Bcf of natural gas, aggregating 137.3 Bcfe, with approximately 70% of the
Company's proved reserves attributable to natural gas. At such date, the present
value of estimated future net revenues attributable to the Company's proved
reserves was approximately $161.0 million, of which approximately $150.0 million
was attributable to proved developed reserves. In addition to its properties
holding proved reserves, the Company had an inventory of 21 specific prospects
as of June 30, 1996, which it expects will account for most of its exploratory
and exploitation drilling activities over the next two years. In the aggregate,
the Company has a total undeveloped leasehold inventory of approximately 124,000
net acres, including 63 undeveloped Gulf blocks, and holds under license or
other arrangement approximately 5,800 square miles of 3-D seismic data and
approximately 140,000 linear miles of 2-D seismic data.
From June 1, 1989 (when under new ownership the Company began to focus its
efforts on the Gulf), through June 30, 1996, the Company drilled 224 gross (71.7
net) wells, including 74 gross (24.3 net) exploratory and deepwater exploitation
wells. Of such wells, 23 were completed (21 in Gulf shallow water or onshore and
two in Gulf deepwater), representing a 31% success rate on its exploration and
deepwater exploitation activities. During the same period, the Company completed
approximately 92% of its development wells. At June 30, 1996, the Company was in
the process of drilling one gross (0.3 net) development well.
As a result of its successful exploration and exploitation efforts, from
January 1, 1990, through March 31, 1996, the Company had increases in proved
reserves of 48% to approximately 137 Bcfe and increases in production of 182% to
approximately 70 Mmcfe per day. The Company achieved a 184% average annual
reserve replacement ratio for the five years ended December 31, 1995, at an
average finding and development cost of $0.99 per Mcfe of proved reserves.
Between November 1, 1995 and June 30, 1996, average daily production increased
58% due to six new wells being brought online; 71% of this production increase
was attributable to the Company's three deepwater Gulf wells and 29% to
activities in Gulf shallow water and near
5
<PAGE> 8
onshore areas. Consistent with this recent increase in production, for the three
months ended June 30, 1996, compared to the three months ended June 30, 1995,
the Company's total revenues increased 106% to $15.9 million from $7.7 million,
and the Company's EBITDA increased 133% to $12.6 million from $5.4 million.
STRATEGY
Mariner's strategy is to increase reserves, production and cash flows in a
cost effective manner primarily "through the drillbit". Mariner emphasizes
internal growth through exploration, exploitation and development of internally
generated prospects and prefers to operate the wells in which it participates
and to hold substantial working interests therein.
The Company applies a "portfolio management" approach to its drilling
activities that is directed at balancing (i) its views as to the moderate risks
of its exploration program in the Gulf and near onshore areas, the relatively
lower risk of exploitation in Gulf deepwater and the still lower risk of
development of the Company's interests in the Permian Basin of West Texas with
(ii) its views as to the potential for adding significant value from such
activities, particularly in the shallow water and deepwater of the Gulf.
In Gulf shallow water and near onshore fields, the Company focuses on
prospects with attractive value-adding potential and attractive rates of return
resulting from expected short production lead times, quick payout periods, low
lease operating expenses and favorable leasehold costs. At March 31, 1996,
approximately 68% in value of the Company's reserves, and as of June 30, 1996,
approximately 68% of the Company's average daily production, were located in
Gulf shallow water and near onshore fields.
Mariner's Gulf deepwater operations have been focused on the exploitation
of previously discovered reservoirs which the Company believes are too small to
be of interest to large oil companies. The Company believes that its deepwater
expertise and low operating costs enable it to develop small and midsize fields
in deeper water of the Gulf profitably. At March 31, 1996, approximately 17% in
value of the Company's reserves, and as of June 30, 1996, approximately 26% of
the Company's average daily production, were located in Gulf deepwater. The
Company recently decided to expand its efforts in Gulf deepwater to include
moderate risk exploration for undrilled reservoirs because of (i) the large
reserve potential (relative to the Company's size) that it believes can be found
in deepwater areas targeted by it, (ii) the relative immaturity of these
exploration activities compared to other Gulf activities and (iii) the limited
competition for the Company's targeted reservoir sizes.
The Company's operations in the Spraberry Trend of the Permian Basin of
West Texas, which, at March 31, 1996, accounted for approximately 15% in value
of the Company's reserves and, as of June 30, 1996, approximately 6% of the
Company's average daily production, have been important to the Company's
internal growth strategy by providing a consistent source of cash flow for use
in the Company's other activities.
The Company currently plans to focus the majority of its prospect
acquisition, exploration, exploitation and development efforts in the shallow
water and deepwater of the Gulf. In furtherance of its leasehold acquisition
program in such areas, Mariner acquired 19 offshore blocks in 1995 through lease
sales and farm-ins and was the successful bidder on eight additional blocks in
the Gulf in April 1996.
COMPETITIVE ADVANTAGES
Mariner believes that the following competitive advantages, which it
endeavors to emphasize in the implementation of its strategy, distinguish it
from other independent oil and gas companies and are responsible to a
significant extent for the Company's success in recent years.
Geographic Focus. A substantial portion of the Company's activities is
concentrated in the Gulf where the Company has been successful in developing
valuable reserves. The Company believes that exploration and development in
shallow water of the Gulf offer attractive returns because of short production
lead times, high production rates and relatively low capital and operating
costs. The Company believes that its activities in Gulf deepwater offer
attractive returns because of (i) large reserve potential, (ii) technological
developments,
6
<PAGE> 9
(iii) the early stages of development in the area and (iv) a favorable
competitive niche directed at exploiting small to moderate potential fields
previously discovered by large oil companies but bypassed for exploitation by
them as they search for larger fields -- a niche which few other independent oil
companies of the Company's size are pursuing because of the significant
technological and capital expenditure requirements. With a significant portion
of its reserves in the Gulf, the Company benefits from the lower lease operating
expenses associated with offshore wells which are generally more productive than
typical onshore wells and allow for concentration of labor and equipment. In
addition, production from such wells is not burdened by severance or ad valorem
taxes, and royalties paid on Gulf oil and gas production to the federal
government are generally lower than royalties paid in respect of onshore
production to private landowners. Moreover, gas produced in the Gulf and near
onshore areas usually receives top current prices because of its quality and
proximity to competitive pipeline transportation, and oil produced in the areas
of the Company's geographic focus is usually of good quality (as opposed to
heavy crude or high sulfur content crude oil which require special processing)
and typically carries prices which reflect such quality.
Concentration of Reserves and Efficient Operations. The Company actively
manages its portfolio of producing reserves to optimize concentration within its
geographic areas of focus. At March 31, 1996, approximately 85% by value of the
Company's reserves were located in six fields. This concentration enables the
Company to achieve efficiencies in its operations and to control its general and
administrative expenses relative to competitors that have more widespread
operations. For the twelve months ended December 31, 1995, the Company's direct
operating costs (consisting of lease operating expenses and general and
administrative expenses) were $0.57 per Mcfe produced. Consistent with its
emphasis on reserve concentration and low cost of operations, the Company
regularly reviews its properties and, when appropriate, sells properties that
are marginally profitable or outside of its areas of concentration.
Application of Technology. The Company applies state-of-the-art technology
to minimize exploration risk and maximize returns. Although the Company's
database includes extensive 2-D and 3-D seismic data, virtually all of the
Company's exploration and exploitation prospects are generated using 3-D seismic
data. While 2-D seismic data, which historically has been used by oil and gas
exploration companies, is still an important exploration tool, the use of 3-D
data lowers the risk of dry holes and optimizes exploitation and development
spending. The Company also utilizes state-of-the-art subsea production
technology to lower the level of capital expenditures that might otherwise be
associated with deepwater developments (for example, the construction of
additional production platforms). The ability to utilize these and other
technologies often allows the Company economically to pursue attractive projects
below the size thresholds of large oil companies.
Disciplined Approach to Exploration. The Company employs careful risk
analysis to determine its drilling priorities, balancing the required capital
outlay against the expected value of the well. Having confidence in its staff of
explorationists, the Company typically has generated its own prospects and
conducted its own risk analysis. The exploration, exploitation and development
of internally generated prospects accounted for 80% by value of the Company's
reserves at March 31, 1996. The Company attempts to focus its exploration and
exploitation efforts on prospects with high value-adding potential while at the
same time managing its risks by drilling approximately 10 to 12 exploitation and
exploratory wells per year. Furthermore, the Company generally keeps its working
interests at or below 50% by seeking industry participants in its exploitation
and exploration activities in order to reduce its exposure on any single
undertaking.
Experienced Management with Significant Equity Incentives. The Company has
a management team that has considerable expertise in the oil and gas industry
and significant experience working with the Company. All present key employees
of, and consultants to, the Company are eligible to participate in a management
incentive program which provides overriding royalty interests in successful
projects. The Company believes that its overriding royalty program provides a
strong alignment of management's and investors' interests. In addition, the
Company believes that this program is a significant reason why the Company has
been able to retain the services of the members of its senior management team,
most of whom have been working together at the Company for over 10 years. In
connection with the Acquisition (as defined below), certain members of
management and other key personnel of the Company (the "Management
Stockholders") also purchased
7
<PAGE> 10
approximately 4% of the common stock of Mariner Holdings (the "Management
Investment") and acquired options to purchase an additional 11% of the common
stock of Mariner Holdings.
THE TRANSACTIONS
Pursuant to a Stock Purchase Agreement dated as of April 1, 1996 (the
"Purchase Agreement"), by and among Hardy Oil & Gas plc ("Hardy plc") and its
wholly owned subsidiary Hardy Holdings Inc., on the one hand, and ECT and
Mariner Holdings, on the other hand, Mariner Holdings acquired, effective as of
such date, all the capital stock of the Company from Hardy Holdings Inc. (the
"Acquisition") for an aggregate purchase price of approximately $185.5 million,
including $14.5 million for net working capital of the Company. In connection
with the Acquisition, substantial intercompany indebtedness and receivables and
other third party indebtedness of the Company were eliminated. The Acquisition
was financed by a $92.0 million bridge loan from JEDI (the "JEDI Bridge Loan")
and $95.0 million in equity from JEDI (the "JEDI Equity"). In connection with
the Acquisition, ECT, Mariner Holdings and certain persons entered into a
Stockholders' Agreement dated April 2, 1996 (as amended, the "Stockholders'
Agreement"), pursuant to which the Management Stockholders made the Management
Investment.
In connection with the Acquisition, which was accounted for as a purchase
transaction, the Company incurred a "ceiling test" writedown under full cost
accounting requirements of approximately $22.5 million. The "ceiling test" is
applied, in general, to reduce the carrying value of oil and gas properties to
an amount not greater than the present value of estimated future net revenues
determined in accordance with the requirements of the Commission -- based in
this instance on prices in effect as to the Company's oil and gas production on
the closing date of the Acquisition. The writedown is an accounting charge and
as such did not affect the Company's cash flow from operating activities.
On June 28, 1996, the Company entered into a Credit Agreement (the
"Revolving Credit Facility") with NationsBank of Texas, N.A., as agent for a
group of banks (the "Lenders"), and borrowed $50.0 million thereunder to pay a
dividend to Mariner Holdings (the "Mariner Dividend"), which was used by Mariner
Holdings to partially repay the JEDI Bridge Loan (the "JEDI Bridge Repayment").
On August 14, 1996, the Company issued the Outstanding Notes to the
Placement Agents (the "Note Offering") pursuant to a Placement Agreement dated
August 9, 1996 (the "Placement Agreement"). Of the net proceeds of the Note
Offering, $42.0 million was used to pay a dividend to Mariner Holdings, which in
turn used the dividend to repay the remaining balance of the JEDI Bridge Loan,
and $50.0 million was used to repay all indebtedness outstanding under the
Revolving Credit Facility.
The Acquisition, the JEDI Equity, the JEDI Bridge Loan, the Management
Investment, the Mariner Dividend, the JEDI Bridge Repayment and the Note
Offering and the application of the proceeds therefrom are collectively referred
to as the "Transactions". See "Use of Proceeds" and "The Transactions".
---------------------
The Company was incorporated in Delaware in 1983. The Company's executive
offices are located at 580 WestLake Park Blvd., Suite 1300, Houston, Texas
77079, and its telephone number is (713) 584-5500.
8
<PAGE> 11
THE NOTE OFFERING
THE OUTSTANDING NOTES...... The Outstanding Notes were sold by the Company on
August 14, 1996, to the Placement Agents pursuant
to a Placement Agreement. The Placement Agents
subsequently resold the Outstanding Notes to
qualified institutional buyers in reliance on Rule
144A under the Securities Act, in offshore
transactions in reliance on Regulation S under the
Securities Act and to Institutional Accredited
Investors.
REGISTRATION AGREEMENT..... The Company and the Placement Agents have entered
into the Registration Agreement, which grants the
holders of the Outstanding Notes certain exchange
and registration rights. The Exchange Offer is
intended to satisfy such exchange rights, which
terminate on the consummation of the Exchange
Offer. If applicable law or applicable
interpretations of the staff of the Commission do
not permit the Company to effect the Exchange
Offer, or in certain other circumstances, the
Company has agreed to file a shelf registration
statement (the "Shelf Registration Statement")
covering resales of Transfer Restricted Notes (as
defined in the Registration Agreement). See "The
Exchange Offer -- Resale of Exchange Notes".
THE EXCHANGE OFFER
SECURITIES OFFERED......... $100,000,000 aggregate principal amount of 10 1/2%
Senior Subordinated Notes Due 2006, Series B.
THE EXCHANGE OFFER......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Outstanding Notes. As of the date hereof,
$100,000,000 aggregate principal amount of
Outstanding Notes are outstanding. The Company will
issue the Exchange Notes as soon as practicable
after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which is
an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or a
Participating Broker-Dealer) without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that
such Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each Participating Broker-Dealer must acknowledge
that it will deliver a prospectus in connection
with any resale of Exchange Notes. A broker-dealer
that delivers a prospectus to purchasers in
connection with such resales will be subject to
certain of the civil liability provisions under the
Securities Act and will be bound by the provisions
of the Registration Agreement (including certain
indemnification rights and obligations). This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes
received in exchange for Outstanding Notes where
such Outstanding Notes were acquired by such
broker-dealer as a result of
9
<PAGE> 12
market-making activities or other trading
activities. The Company has agreed that, for a
period of 90 days after the Expiration Date (as
defined herein), it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution".
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes may not rely on the position of the staff of
the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan
Stanley & Co. Incorporated (available June 5, 1991)
or similar no-action letters and, in the absence of
an exemption from applicable legislative
requirements, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with the resale transaction.
Failure to comply with such requirements in those
instances may result in the holder incurring
liability under the Securities Act for which the
holder is not indemnified by the Company.
EXPIRATION DATE............ 12:00 midnight, New York City time, on
, 1996, unless that date is extended.
INTEREST ON THE EXCHANGE
NOTES.................... The Exchange Notes will bear interest from the date
of issuance of the Exchange Notes. Interest on the
Outstanding Notes that are tendered in exchange for
the Exchange Notes that has accrued from August 14,
1996, the date of issuance of the Outstanding
Notes, until the date of issuance of the Exchange
Notes will be payable on or before February 1,
1997.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES........ Each holder of Outstanding Notes wishing to accept
the Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Outstanding Notes and
any other required documentation, to the Exchange
Agent at the address set forth herein. By executing
the Letter of Transmittal, each holder will
represent to the Company that, among other things,
the holder or the person receiving Exchange Notes,
whether or not such person is the holder, is
acquiring the Exchange Notes in the ordinary course
of business and that neither the holder nor any
such other person has any arrangement or
understanding with any person to participate in the
distribution of the Exchange Notes. In lieu of
physical delivery of the certificates representing
Outstanding Notes, tendering holders may transfer
notes pursuant to the procedure for book-entry
transfer as set forth under "The Exchange
Offer -- Procedures for Tendering".
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Outstanding Notes are
registered in the name of a broker-dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact the registered
holder promptly and instruct the registered holder
to tender on the beneficial owner's behalf. If the
beneficial owner wishes to tender on the beneficial
owner's own behalf, it must, before completing and
executing the Letter of Transmittal and delivering
its Outstanding Notes, either make appro-
10
<PAGE> 13
priate arrangements to register ownership of the
Outstanding Notes in its name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Outstanding Notes who wish to tender
their Outstanding Notes and whose Outstanding Notes
are not immediately available or who cannot deliver
their Outstanding Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) on or
before the Expiration Date must tender their
Outstanding Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures".
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time before 12:00
midnight, New York City time, on the Expiration
Date pursuant to the procedures described under
"The Exchange Offer -- Withdrawal of Tenders".
ACCEPTANCE OF OUTSTANDING
NOTES AND DELIVERY OF
EXCHANGE NOTES........... Subject to certain conditions, the Company will
accept for exchange any and all Outstanding Notes
that are properly tendered in the Exchange Offer
before 12:00 midnight, New York City time, on the
Expiration Date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered on the date
of issuance of the Exchange Notes. See "The
Exchange Offer -- Terms of the Exchange Offer".
FEDERAL INCOME TAX
CONSEQUENCES............. The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain U.S. Federal Tax
Considerations".
EFFECT ON HOLDERS OF
OUTSTANDING NOTES.......... As a result of the making of this Exchange Offer,
the Company will have fulfilled one of its
obligations under the Registration Agreement, and,
with certain exceptions noted below, holders of
Outstanding Notes who do not tender their
Outstanding Notes will not have any further
registration rights under the Registration
Agreement or otherwise. They will continue to hold
the untendered Outstanding Notes and will be
entitled to all the rights and subject to all the
limitations applicable thereto under the Indenture,
except to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Outstanding Notes will continue to
be subject to certain restrictions on transfer.
Accordingly, if any Outstanding Notes are tendered
and accepted in the Exchange Offer, the trading
market of the untendered Outstanding Notes could be
adversely affected.
SHELF REGISTRATION
STATEMENT.................. If (i) the Company determines that the Exchange
Offer may not be consummated as soon as practicable
after the Expiration Date because it would violate
applicable law or the applicable interpretations of
the staff of the Commission, (ii) the Exchange
Offer is not consummated within 180 days of the
date of the Registration Agreement, (iii) the
Placement Agents so request with respect to the
Outstanding Notes not eligible to be exchanged for
Exchange Notes in the Exchange Offer and held by
them following consummation of the Exchange Offer
or (iv) any holder
11
<PAGE> 14
of an Outstanding Note (other than an Exchanging
Dealer (as defined in the Registration Agreement))
is not eligible to participate in the Exchange
Offer or, in the case of any holder of Outstanding
Notes (other than an Exchanging Dealer) that
participates in the Exchange Offer, the holder does
not receive freely tradable Exchange Notes on the
date of the exchange for validly tendered (and not
withdrawn) Outstanding Notes, the Company has
agreed to file and maintain a shelf registration
statement that would allow resales of transfer
restricted Outstanding Notes or Exchange Notes
owned by such holders.
EXCHANGE AGENT............. United States Trust Company of New York.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
ISSUER..................... Mariner Energy, Inc.
SECURITIES OFFERED......... $100,000,000 aggregate principal amount of 10 1/2%
Senior Subordinated Notes Due 2006, Series B.
MATURITY................... August 1, 2006.
INTEREST................... Payable semiannually in cash, on February 1 and
August 1, commencing on February 1, 1997.
OPTIONAL REDEMPTION BY
COMPANY.................. The Exchange Notes are redeemable at the option of
the Company, in whole or in part, at any time on or
after August 1, 2001, initially at 105.25% of their
principal amount, plus accrued interest, declining
ratably to 100% of their principal amount, plus
accrued interest, on or after August 1, 2003.
In addition, at the option of the Company, at any
time prior to August 1, 1999, the Exchange Notes
will be redeemable from the net proceeds of one or
more Public Equity Offerings (as defined under the
caption "Description of the Exchange Notes"), at
110.5% of their principal amount, plus accrued
interest; provided, however, that at least $65.0
million in aggregate principal amount of Exchange
Notes, together with the Outstanding Notes, must
remain outstanding immediately after the occurrence
of any such redemption. See "Description of the
Exchange Notes -- Optional Redemption".
CHANGE OF CONTROL.......... Upon a Change of Control (as defined under the
caption "Description of the Exchange Notes"), each
holder of Exchange Notes (a "Holder") will have the
right to require the Company to repurchase all or
any portion of such Holder's Exchange Notes at a
purchase price equal to 101% of the principal
amount thereof, plus accrued interest. See
"Description of the Exchange Notes -- Certain
Covenants -- Change of Control".
RANKING.................... The Exchange Notes will be unsecured, general
obligations of the Company, subordinated in right
of payment to all existing and future Senior
Indebtedness (as defined under the caption
"Description of the Exchange Notes") of the
Company, including indebtedness under the Revolving
Credit Facility. The Exchange Notes will rank pari
passu in right of payment with any future senior
subordinated indebtedness of the Company and will
be senior in right of payment to all other future
subordinated indebtedness of the Company. In
addition, the Exchange
12
<PAGE> 15
Notes will be effectively subordinated to all
liabilities of the Company's subsidiaries,
including trade payables. As of the date of this
Prospectus, the Company's only outstanding
indebtedness for money borrowed is the Outstanding
Notes. However, the Company expects to incur
substantial indebtedness under the Revolving Credit
Facility in the future, and such indebtedness will
constitute Senior Indebtedness. See "Risk
Factors -- Subordination of the Exchange Notes" and
"Description of the Exchange Notes -- Ranking".
CERTAIN COVENANTS.......... The indenture pursuant to which the Exchange Notes
will be issued contains certain covenants for the
benefit of the Holders, including, among others,
covenants limiting the incurrence of additional
indebtedness, the payment of dividends, the
redemption of capital stock, the making of certain
investments, the issuance of capital stock of
subsidiaries, the creation of dividend and other
restrictions affecting subsidiaries, transactions
with affiliates, asset sales and certain mergers
and consolidations. However, these limitations will
be subject to a number of important qualifications
and exceptions. See "Description of the Exchange
Notes -- Certain Covenants".
BOOK-ENTRY; DELIVERY AND
FORM..................... The Exchange Notes will be represented by one
permanent Global Exchange Note in definitive, fully
registered form deposited with the Trustee as
custodian for, and registered in the name of a
nominee of, DTC. See "Description of the Exchange
Notes -- Book-Entry; Delivery and Form".
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN MATTERS RELATING TO
AN INVESTMENT IN THE EXCHANGE NOTES. SEE "RISK FACTORS".
13
<PAGE> 16
SUMMARY INFORMATION
The following table sets forth for the periods indicated certain summary
historical financial, operating and reserve data of the Company and certain pro
forma financial data. See "Pro Forma Financial Data", "Selected Historical Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations". The historical data should be read in conjunction with the
Financial Statements of the Company included elsewhere in this Prospectus. As a
part of the Transactions, Mariner Holdings consummated the Acquisition on May
16, 1996; however, for accounting purposes, the Acquisition is treated as if it
had occurred on April 1, 1996. The Acquisition has been accounted for using the
purchase method of accounting, and Mariner Holdings' cost of acquiring the
Company has been allocated to the assets and liabilities of the Company based on
estimated fair values. As a result, the Company's financial position and
operating results subsequent to the Acquisition reflect a new basis of
accounting and are not comparable to prior periods. The pro forma information,
which reflects the Transactions, should be read in conjunction with "Pro Forma
Financial Data". Neither the historical results nor the pro forma results are
necessarily indicative of the Company's future operations or financial results.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1)
--------------------------------------------------------------------------
HISTORICAL
YEAR ENDED DECEMBER 31, ------------------------------ PRO FORMA
----------------------------------------------------- SIX THREE THREE SIX
MONTHS MONTHS MONTHS MONTHS
HISTORICAL PRO ENDED ENDED ENDED ENDED
-------------------------------------------- FORMA JUNE 30, MARCH 31, JUNE 30, JUNE 30,
1991 1992 1993 1994 1995 1995(2) 1995 1996 1996 1996(2)
-------- ------- ------- ------- ------- ------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $ 21,587 $20,972 $34,295 $35,856 $33,309 $33,309 $ 15,425 $13,778 $ 15,949 $29,727
Lease operating expenses...... 6,310 6,312 7,746 7,118 7,331 7,331 3,480 2,872 2,629 5,501
Depreciation, depletion and
amortization................ 9,236 8,572 15,607 16,221 15,635 17,065 7,850 6,309 8,409 15,624
Impairment of oil and gas
properties.................. 16,325 6,296 6,257 22,500
General and administrative
expenses.................... 1,661 1,948 2,242 1,830 2,028 2,028 1,043 712 734 1,446
-------- ------- ------- ------- ------- ------- ------- ------- -------- -------
Operating income (loss)..... (11,945) 4,140 2,404 4,430 8,315 6,885 3,052 3,885 (18,323) 7,156
Interest income............... 172 1,021 1,513 1,084 9,255 783 4,556 2,167 146 206
Interest expense.............. 4,113 4,940 7,358 8,125 12,772 9,286 6,453 3,391 2,681 5,199
Write-off bridge loan fees.... 1,011
-------- ------- ------- ------- ------- ------- ------- ------- -------- -------
Income (loss) before income
taxes..................... $(15,886) $ 221 $(3,441) $(2,611) $ 4,798 $(1,618) $ 1,155 $ 2,661 $(21,869) $ 2,163
======== ======= ======= ======= ======= ======= ======= ======= ======== =======
Net loss per share............ $(21,869)
========
OTHER DATA:
EBITDA(3)..................... $ 13,616 $12,712 $24,307 $26,908 $23,950 $23,950 $ 10,902 $10,194 $ 12,586 $22,780
Ratio of EBITDA to net
interest
expense(4).................. 2.7x 2.5x 3.6x 3.5x 4.3x 2.2x 3.6x 7.4x 3.3x 4.2x
Ratio of net debt to
EBITDA(5)................... 5.8x 7.1x 3.7x 3.9x 2.5x 4.2x
Ratio of earnings to fixed
charges(6).................. 0.9x 0.5x 0.6x 1.3x 0.7x 1.1x 1.7x
CAPITAL EXPENDITURES:
Leasehold and property
acquisition................. $ 5,246 $ 1,694 $ 590 $ 2,521 $ 4,594 $ 3,142 $ 949 $ 3,982
Oil and gas exploration....... 10,240 11,437 11,695 16,495 12,866 6,607 3,903 4,779
Oil and gas development and
other....................... 12,777 14,639 15,681 17,907 24,312 13,464 2,643 1,940
-------- ------- ------- ------- ------- ------- ------- --------
$ 28,263 $27,770 $27,966 $36,923 $41,772 $ 23,213 $ 7,495 $ 10,701
======== ======= ======= ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY AT AT JUNE 30, 1996
DECEMBER 31, 1995 ---------------------------
HISTORICAL HISTORICAL PRO FORMA(1)
----------------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................................ $ 250,726 $ 180,606 $187,685
Long-term receivable from affiliates................................ 106,000
Outstanding Notes................................................... 99,506
Other long-term debt, less current maturities....................... 162,500 92,000
Stockholder's equity................................................ 69,258 73,876 72,449
</TABLE>
14
<PAGE> 17
SUMMARY OPERATING AND RESERVE DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- -------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Oil (Mbbls)..................................... 586 525 470 459 424 379
Natural gas (Mmcf).............................. 5,437 5,896 12,507 14,362 13,770 10,178
Natural gas equivalent (Mmcfe).................. 8,953 9,046 15,327 17,116 16,314 12,452
AVERAGE SALES PRICE PER UNIT:
Oil (per Bbl, including effects of hedging)..... $ 20.58 $ 19.51 $ 17.07 $ 15.86 $ 17.19 $ 18.86
Oil (per Bbl, excluding effects of hedging)..... 20.58 19.51 17.07 15.86 17.19 19.16
Natural gas (per Mcf, including effects of
hedging)...................................... 1.75 1.82 2.10 1.99 1.76(7) 2.22
Natural gas (per Mcf, excluding effects of
hedging)...................................... 1.75 1.94 2.16 1.94 1.70(7) 2.46
Natural gas equivalent (per Mcfe, including
effects of hedging)........................... 2.41 2.32 2.24 2.09 2.04 2.39
COSTS PER MCFE:
Lease operating expense......................... 0.70 0.70 0.51 0.42 0.45 0.44
Depreciation, depletion and amortization........ 1.03 0.95 1.02 0.95 0.96 1.18
General and administrative expense.............. 0.19 0.22 0.15 0.11 0.12 0.12
Average finding and development cost(8)......... 1.03 0.98 1.12 1.02 0.99 1.04
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- -------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
ESTIMATED PROVED RESERVES:
Total proved reserves (Mmcfe).................. 118,264 117,977 127,828 142,045 138,344 137,333
Annual reserve replacement ratio(9)............ 3.9x 1.9x 1.7x 2.0x 1.2x
Estimated reserve life (in years)(10).......... 11.7 8.7 7.8 7.4 6.3 5.2
Present value of estimated future net revenues
(in thousands)(11)........................... $77,140 $100,064 $94,243 $95,318 $173,421 $ 161,048
Standardized measure of discounted net
cash flows(12)............................... 69,716 92,223 90,657 89,604 160,515 152,229
</TABLE>
- ---------------
(1) For purposes of this Prospectus, the term "Predecessor Company" refers to
Mariner Energy, Inc. (formerly named "Hardy Oil & Gas USA Inc.") prior to
the effective date of the Acquisition.
(2) The pro forma Statement of Operations Data reflects the effect of the
Transactions. The pro forma Balance Sheet Data reflects the effect of the
Note Offering. See "Pro Forma Financial Data" for a discussion of the
preparation of the pro forma information. See also "Use of Proceeds", "Pro
Forma Capitalization" and "The Transactions".
(3) EBITDA is calculated as operating income before interest, income taxes,
depletion, depreciation, amortization and impairment of oil and gas
property. EBITDA is not a measure of cash flow as determined by generally
accepted accounting principles ("GAAP"). The Company has included
information concerning EBITDA because EBITDA is a measure used by certain
investors in determining a company's historical ability to service its
indebtedness. EBITDA should not be considered as an alternative to, or more
meaningful than, net income or cash flow as determined in accordance with
GAAP as an indicator of the Company's operating performance or liquidity.
(4) For purposes of computing the ratio of EBITDA to net interest expense, net
interest expense consists of interest expense plus capitalized interest and
reduced by interest income relating to long-term receivables from
affiliates attributable to the fact that the Company was used to provide
financing for its affiliates. In the absence of advances to affiliates
(reflected in long-term receivables from affiliates), total long-term debt,
and the interest expense thereon, would have been reduced.
(5) Net debt has been calculated by reducing total long-term debt by the
long-term receivables from affiliates. In the absence of advances to
affiliates (reflected in long-term receivables from affiliates), total
long-term debt would have been reduced.
(6) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of pretax income from continuing operations plus fixed charges,
excluding capitalized interest. Fixed charges consist of interest expense,
capitalized interest and the amortization of debt expense. For the year
ended December 31, 1991, earnings were insufficient to cover fixed charges
by $16.8 million. For the three months ended June 30, 1996, earnings were
insufficient to cover fixed charges by $22.0 million.
(7) Excludes the settlement of a bankruptcy claim against Columbia Gas
Transmission Company, which is classified as natural gas sales elsewhere
herein.
(8) Average finding and development cost per Mcfe is a rolling average
calculated by dividing capital expenditures (including future capital
expenditures) relating to properties which have been evaluated for the
rolling period by the ultimate reserve additions for the same period. For
the six-month period ended June 30, 1996, and the years ended December 31,
1995, 1994 and 1993, the rolling period is five years, which management
believes is the minimum period for meaningful presentation. As a result of
the demerger of the Company in 1989, for the periods ended December 31,
1992 and 1991, a four year and three year rolling period, respectively,
have been used because less than five years of data were available.
(9) The annual reserve replacement ratio is calculated by dividing total
reserve additions, including revisions, on an Mcfe basis for the year by
actual production on an Mcfe basis for such year.
(10) The estimated reserve life is calculated by dividing the proved reserves on
an Mcfe basis by the forecasted production on an Mcfe basis for the 12
months following the date indicated (both as estimated by the Company's
independent reserve engineers as of December 31 of each year).
(11) Discounted at an annual rate of 10%. See "Glossary" included elsewhere in
this Prospectus for the definition of "present value of estimated future
net revenues".
(12) Represents after-tax present value of estimated future net revenues.
Because the Company had significant net operating loss carry-forwards for
federal income tax purposes, the information presented may not be
representative.
15
<PAGE> 18
RISK FACTORS
Prospective investors should consider carefully the following factors, as
well as the other information contained in this Prospectus, in evaluating an
investment in the Exchange Notes. This Prospectus contains forward-looking
statements of the Company. The Company cautions prospective investors that the
following important factors could affect the Company's actual results in the
future.
SUBSTANTIAL LEVERAGE
As of June 30, 1996, after giving pro forma effect to the Note Offering and
the application of the proceeds therefrom, the Company would have had total
indebtedness for money borrowed of approximately $100.0 million and
stockholders' equity of approximately $72.4 million. The Company intends to
incur additional indebtedness for money borrowed in the future as it executes
its strategy for prospect acquisition, exploration, exploitation and
development. The Company's leverage could have important consequences to the
holders of the Exchange Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired in the
future; (ii) a substantial portion of the Company's cash flow from operations
will be required for the payment of principal and interest on its indebtedness
for money borrowed, thereby reducing the funds available to the Company for its
operations and other purposes; (iii) the Company may be substantially more
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; and (iv) the Company's substantial degree of leverage
may hinder its ability to adjust rapidly to changing market conditions and could
make it more vulnerable in the event of a downturn in general economic
conditions or its business. In addition, certain of the Company's borrowings are
and will continue to be at variable rates of interest, which exposes the Company
to the risk of increased interest rates. See "-- Substantial Capital
Requirements", "Capitalization", "Pro Forma Financial Data", "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Description of Revolving Credit Facility" and "Description of the Exchange
Notes".
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness for money borrowed (including the
Exchange Notes) depends on its future performance and successful strategy
implementation, which is subject not only to its own actions but also to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control, as well as to the prevailing market prices for oil, natural
gas and natural gas liquids. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
credit will be available in an amount sufficient to enable the Company to
service its indebtedness for money borrowed, including the Exchange Notes, or
make necessary capital expenditures. In addition, depending on the levels of its
cash flow and capital expenditures (the latter of which are, to a large extent,
discretionary), the Company may need to refinance a portion of the principal
amount of the Exchange Notes at or prior to their maturity. However, there can
be no assurance that the Company would be able to obtain financing to complete a
refinancing of the Exchange Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
DEPLETION OF RESERVES; NECESSITY OF SUCCESSFUL EXPLORATION AND DEVELOPMENT
Producing oil and natural gas reservoirs generally are characterized by
declining production rates that vary depending upon reservoir characteristics
and other factors. The Company's future oil and natural gas reserves and
production, and, therefore, cash flow and income, are highly dependent upon the
Company's success in efficiently developing and exploiting its current reserves
and economically finding additional reserves that are economically recoverable.
Without reserve additions in excess of production through successful exploration
and development activities, the Company's reserves and production will decline.
There can be no assurance that the Company will be able to find and develop or
acquire additional reserves to replace its current and future production.
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SUBSTANTIAL CAPITAL REQUIREMENTS
The Company is dependent upon its ability to obtain financing for
prospecting, acquiring, exploring, exploiting and developing oil and natural gas
properties beyond its internally generated cash flow. Historically, the Company
has financed these activities primarily with internally generated funds and
capital from its former parent, Hardy plc. The Company currently has plans for
substantial capital expenditures to continue its exploration and development
programs. The Company expects to utilize the Revolving Credit Facility to borrow
funds required from time to time to supplement its own available cash. The
Revolving Credit Facility limits the amounts the Company may borrow thereunder
to amounts determined by the Lenders in their sole discretion, based upon the
Lenders' projected net revenues from the Company's oil and natural gas
properties and other considerations, and restricts the amounts the Company may
borrow under other credit facilities. The Lenders may adjust the borrowings
permitted to be outstanding under the Revolving Credit Facility semiannually and
on one other occasion during each year. The Lenders may require that outstanding
borrowings in excess of the borrowing limit be repaid in two equal
payments -- one three months and one six months following a determination of
such an excess -- and all amounts owed under the Revolving Credit Facility are
due and payable on June 28, 1999. If revenues or the Company's borrowing base
decrease as a result of lower oil and gas prices, operating difficulties or
declines in reserves, the Company may have limited ability to expend the capital
necessary to undertake or complete future activities. No assurances can be given
that the Company will have adequate funds available to it under the Revolving
Credit Facility to carry out its strategy or that the Company will be able to
make any mandatory principal payments required by the Lenders. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". For a description of the
Revolving Credit Facility and its principal terms and conditions, see
"Description of Revolving Credit Facility".
VOLATILITY OF OIL, NATURAL GAS AND NATURAL GAS LIQUIDS PRICES
The Company's financial results are significantly affected by the price
received for the Company's oil, natural gas and natural gas liquids production.
Historically, the markets for oil, natural gas and natural gas liquids have been
volatile and are likely to continue to be volatile in the future. The prices
received by the Company for its oil, natural gas and natural gas liquids
production and the levels of such production are subject to wide fluctuations
and depend on numerous factors beyond the Company's control, including market
uncertainty, changes in global supply of and demand for oil, natural gas and
natural gas liquids, weather conditions, the condition of the United States
economy (particularly the manufacturing sector), the price and quantity of
foreign imports, the price and availability of alternative fuels, political
conditions (including embargoes) in or affecting other oil-producing and natural
gas-producing countries, the actions of the Organization of Petroleum Exporting
Countries and domestic government regulation, legislation and policies. The
Company's future financial condition and results of operations will be
dependent, in part, upon the prices received for the Company's oil and natural
gas production, as well as the costs of finding, developing and producing
reserves. If oil and natural gas prices fall materially below their current
levels, the availability of funds and the Company's ability to repay outstanding
amounts under the Revolving Credit Facility and the Exchange Notes could be
materially adversely affected. See "-- Substantial Capital Requirements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
RESTRICTIVE DEBT COVENANTS
The Revolving Credit Facility and the Indenture each contain a number of
significant covenants that, among other things, restrict the ability of the
Company to dispose of assets, incur additional indebtedness, repay other
indebtedness, pay dividends, enter into certain investments or acquisitions,
repurchase or redeem capital stock, engage in mergers or consolidations, or
engage in certain transactions with subsidiaries and affiliates and that will
otherwise restrict corporate activities. There can be no assurance that such
restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or engage in other business activities that
may be in the interest of the Company. In addition, the Revolving Credit
Facility requires the Company to maintain compliance with certain financial
ratios. The ability of the Company to comply with such ratios may be affected by
events beyond the Company's control. A breach of any of these
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covenants or the inability of the Company to comply with the required financial
ratios could result in a default under the Revolving Credit Facility. In the
event of any such default, the Lenders could elect to declare all borrowings
outstanding under the Revolving Credit Facility, together with accrued interest
and other fees, to be due and payable, to require the Company to apply all of
its available cash to repay such borrowings or to prevent the Company from
making debt service payments on the Exchange Notes. If the indebtedness under
the Revolving Credit Facility or the Exchange Notes were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay such indebtedness in full. See "Description of Revolving Credit Facility"
and "Description of the Exchange Notes".
UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties not only in generating valuable oil and
gas prospects and successfully exploring and developing them but also in
estimating quantities of proved reserves believed to have been discovered and in
projecting future rates of production and the timing of development
expenditures, including many factors beyond the control of the Company. The
reserve data set forth in this Prospectus are only estimates. Reserve estimates
are inherently imprecise and may be expected to change as additional information
becomes available. Furthermore, estimates of oil and gas reserves, of necessity,
are projections based on engineering data, and there are uncertainties inherent
in the interpretation of such data as well as the projection of future rates of
production and the timing of development expenditures. Reserve engineering is a
subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured exactly, and the accuracy of any reserve estimate is
a function of the quality of available data and of engineering and geological
interpretation and judgment. Accordingly, estimates of the economically
recoverable quantities of oil and natural gas attributable to any particular
group of properties, classifications of such reserves based on risk of recovery
and estimates of the future net cash flows expected therefrom prepared by
different engineers or by the same engineers at different times may vary
substantially. There also can be no assurance that the reserves set forth herein
will ultimately be produced or that the proved undeveloped reserves set forth
herein will be developed within the periods anticipated. It is likely that
variances from the estimates will be material. In addition, the estimates of
future net revenues from proved reserves of the Company and the present value
thereof are based upon certain assumptions about future production levels,
prices and costs that may not be correct when judged against actual subsequent
experience. The Company emphasizes with respect to the estimates prepared by
independent petroleum engineers that the discounted future net cash flows should
not be construed as representative of the fair market value of the proved
reserves owned by the Company since discounted future net cash flows are based
upon projected cash flows which do not provide for changes in oil and natural
gas prices from those in effect on the date indicated or for escalation of
expenses and capital costs subsequent to such date. The meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions upon which
they were based. Actual results will differ, and are likely to differ
materially, from the results estimated. Prospective investors in Exchange Notes
are cautioned not to place undue reliance on the reserve data included in this
Prospectus.
BUSINESS RISKS; OPERATING HAZARDS AND UNINSURED RISKS
Oil and gas drilling activities are subject to numerous risks, including
the risk that no commercially viable oil or natural gas production will be
obtained, and many of such risks are beyond the Company's control. The decision
to purchase, explore, develop or otherwise exploit a prospect or property will
depend in part on the evaluation of data obtained through geophysical and
geological analyses, production data and engineering studies, the results of
which are often inconclusive or subject to varying interpretations. See
"Business -- Oil and Natural Gas Reserves". The cost of drilling, completing and
operating wells, including especially offshore wells, is often uncertain, and
overruns in budgeted expenditures are common risks which can make a particular
project uneconomical. Drilling may be curtailed, delayed or canceled as a result
of many factors, including title problems, weather conditions, compliance with
government permitting requirements, shortages of or delays in obtaining
equipment, reductions in product prices and limitations in the market for
products. At present, the level of drilling activity in the Gulf has resulted in
significant increased demand for, and therefore increased costs associated with,
drilling equipment and the services and products of other vendors to the
industry. This circumstance presents the risk to the Company of the
unavailability of necessary equipment and
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services at economical prices. The availability of a ready market for the
Company's oil and natural gas production also depends on a number of factors,
including the demand for and supply of oil and natural gas and the proximity of
reserves to pipelines or trucking and terminal facilities and, offshore, the
proximity and ability to tie into existing production platforms owned or
operated by others and the ability to negotiate commercially satisfactory
arrangements with such owners or operators. Natural gas wells may be shut in for
lack of a market or because of inadequacy or unavailability of natural gas
pipeline or gathering system capacity.
The Company's oil and natural gas business is also subject to all of the
operating risks associated with the drilling for and production of oil and
natural gas, including, but not limited to, uncontrollable flows of oil, natural
gas, brine or well fluids into the environment (including groundwater and
shoreline contamination), blowouts, cratering, mechanical difficulties, fires,
explosions, pollution and other risks, any of which could result in substantial
losses to the Company. Although the Company maintains insurance at levels which
it believes are consistent with industry practices, it is not fully insured
against all risks. Losses and liabilities arising from uninsured and
underinsured events could have a material adverse effect on the financial
condition and operations of the Company.
WRITEDOWNS OF CARRYING VALUES
The Company periodically reviews the carrying value of its oil and gas
properties under the full cost accounting rules of the Commission. Under these
rules, capitalized costs of oil and natural gas properties may not exceed the
present value of estimated future net revenues from proved reserves, discounted
at 10%, plus the lower of cost or fair market value of unproved properties.
Application of this "ceiling" test generally requires pricing future revenue at
the unescalated prices in effect as of the end of each fiscal quarter and
requires a writedown for accounting purposes if the ceiling is exceeded, even if
prices declined for only a short period of time and even if prices increase in
subsequent periods. The risk that the Company will be required to write down the
carrying value of its oil and natural gas properties increases when oil and
natural gas prices are depressed or decline substantially. Any time a writedown
is required, it will result in a charge to earnings but will not affect cash
flow from operating activities.
GOVERNMENT LAWS AND REGULATIONS
The Company's operations are affected from time to time in varying degrees
by political developments and federal and state laws and regulations. In
particular, oil and natural gas production, operations and economics are or have
been affected by price controls, taxes and other laws relating to the oil and
natural gas industry, by changes in such laws and by changes in administrative
regulations. The Company cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or court rulings, whether additional laws
and regulations will be adopted or the effect such changes may have on its
business or financial condition. See "Business -- Regulation".
The Company's operations are subject to complex and constantly changing
environmental laws and regulations adopted by federal, state and local
governmental authorities. The discharge of oil, natural gas, oil and gas
exploration and production wastes or other pollutants into the air, soil or
water may give rise to liabilities on the part of the Company to the government
and third parties and may require the Company to incur costs of remediation. No
assurance can be given that existing environmental laws or regulations, as
currently interpreted or reinterpreted in the future, or future laws or
regulations, will not materially adversely affect the Company's operations and
financial condition or that material indemnity claims will not arise against the
Company with respect to properties acquired or sold by the Company. See
"Business -- Regulation".
RISKS OF HEDGING TRANSACTIONS
The Company regularly enters into hedging transactions for its oil and
natural gas production, and in the future likely will continue to do so. Such
transactions may limit potential gains by the Company if oil and natural gas
prices were to rise substantially over the price established by the hedges and
may expose the
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Company to the risk of financial loss in certain circumstances, including
possibly instances where the Company's production is less than expected or there
is an unexpected event materially affecting prices. The Revolving Credit
Facility imposes certain limitations on the Company's ability to enter into
hedging transactions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations", "Description of
Revolving Credit Facility" and Note 6 to the Financial Statements of the Company
included elsewhere in this Prospectus.
CONFLICTS OF INTEREST
Enron is the parent of ECT, and an affiliate of Enron and ECT is the
general partner of JEDI. Accordingly, Enron may be deemed to control JEDI,
Mariner Holdings and the Company. In addition, five of the Company's directors
are officers of Enron or affiliates of Enron. Enron and certain of its
subsidiaries and other affiliates collectively participate in nearly all phases
of the oil and natural gas industry and are, therefore, competitors of the
Company. In addition, ECT and JEDI have provided, and may in the future provide,
and ECT Securities Corp., another affiliate of Enron, has assisted, and may in
the future assist, in arranging, financing to non-affiliated participants in the
oil and natural gas industry who are or may become competitors of the Company.
Because of these various possible conflicting interests, ECT, the Company, JEDI
and the Management Stockholders have entered into an agreement that is intended
to make clear that Enron and its affiliates have no duty to make business
opportunities available to the Company. The Company has not instituted any
formal plan or arrangement to address potential conflicts of interest that may
arise between the Company and Enron and its affiliates. There can be no
assurance than any conflicts of interest will be resolved in favor of the
Company.
The Company expects that from time to time it will engage in various
commercial transactions and have various commercial relationships with Enron and
certain affiliates of Enron, such as holding and exploring, exploiting or
developing joint working interests in particular prospects and properties,
engaging in hydrocarbon price hedging arrangements and entering into other oil
and gas related or financial transactions. There can be no assurance that the
terms of any future arrangements between the Company and Enron and affiliates of
Enron will be on terms as favorable to the Company as would exist in an
agreement with a third party. See "Certain Transactions -- Enron".
COMPETITION
The Company operates in a highly competitive environment with respect to
acquiring prospects, marketing oil and natural gas and securing trained
personnel. Many of the Company's larger competitors possess and employ financial
and personnel resources substantially greater than those available to the
Company. Such companies may be able to pay more for productive oil and natural
gas properties and exploratory prospects and to define, evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or personnel resources permit. The Company's ability to acquire
additional prospects and to discover reserves in the future will be dependent
upon its ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment. In addition, there is
substantial competition for capital available for investment in the oil and
natural gas industry. There can be no assurance that the Company will be able to
compete successfully in the future in acquiring prospective reserves, developing
reserves, marketing hydrocarbons, attracting and retaining quality personnel,
and raising additional capital.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its operations are dependent to a significant
extent upon the efforts of three members of its senior management and one of its
consultants, most of whom have been with the Company for more than 10 years. The
loss of the services of any of these key individuals could have a material
adverse effect upon the Company.
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SUBORDINATION OF THE EXCHANGE NOTES
The Exchange Notes will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Company, which includes all indebtedness
under the Revolving Credit Facility. As of June 30, 1996, after giving pro forma
effect to the Note Offering and the application of the proceeds therefrom, the
Company would have had no Senior Indebtedness and would have had up to $50.0
million available under the Revolving Credit Facility which, if borrowed, would
be Senior Indebtedness. Although the Company currently does not conduct any
business through subsidiaries, future operations of the Company could be
conducted through subsidiaries. Claims of creditors of subsidiaries, including
trade creditors, secured creditors and creditors holding indebtedness and
guarantees issued by such subsidiaries, and claims of preferred stockholders (if
any) of such subsidiaries, generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of the
Company, including holders of the Exchange Notes, even if such obligations do
not constitute Senior Indebtedness of such subsidiaries. However, in certain
circumstances, the Exchange Notes may be guaranteed by certain subsidiaries of
the Company. See "Description of the Exchange Notes -- Certain
Covenants -- Future Guarantors". Any such guarantees, however, will be
subordinate in right of payment to any Senior Indebtedness of such subsidiaries.
Although the Indenture limits the incurrence of Indebtedness and preferred stock
of certain subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by subsidiaries of liabilities that are not considered Indebtedness
under the Indenture. See "Description of the Exchange Notes -- Certain
Covenants -- Limitation on Indebtedness".
If the Exchange Notes are guaranteed by a subsidiary guarantor, the
obligations of such subsidiary under its guaranty will be senior subordinated
obligations. As such, the rights of Noteholders to receive payment by a
subsidiary guarantor will be subordinated in right of payment to the rights of
holders of Senior Indebtedness of such subsidiary. The terms of the
subordination with respect to the Company's obligations under the Exchange Notes
will apply equally to a subsidiary guarantor and the obligations of such
subsidiary under its guaranty.
In the event of liquidation, dissolution, reorganization, bankruptcy or any
similar proceeding regarding the Company, the assets of the Company will be
available to pay obligations on the Exchange Notes only after the Senior
Indebtedness of the Company has been paid in full. Accordingly, there may not be
sufficient funds remaining to pay amounts due on all or any of the Exchange
Notes. In addition, the subordination provisions of the Indenture provide that
no cash payment may be made with respect to the Exchange Notes during the
continuance of a payment default under any Senior Indebtedness of the Company.
Furthermore, if certain non-payment defaults exist with respect to certain
Senior Indebtedness of the Company, the holders of such Senior Indebtedness will
be able to prevent payments on the Exchange Notes for certain periods of time.
See "Description of the Exchange Notes -- Ranking".
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Exchange
Notes may require the Company to repurchase all or a portion of such holder's
Exchange Notes at 101% of the principal amount of the Exchange Notes, together
with accrued and unpaid interest to the date of repurchase. The Indenture
requires that, prior to such a repurchase, the Company must either repay all
outstanding Senior Indebtedness or obtain any required consents to such
repurchase. Further, under the Revolving Credit Facility, an event of default is
deemed to occur if JEDI, Enron, CalPERS, ECT and affiliates of such entities (or
a combination of such entities) cease to own, directly or indirectly,
outstanding capital stock of the Company (on either an undiluted or fully
diluted basis) that in the aggregate permits such entities to elect a majority
of the Board of Directors of the Company. In such circumstances, the Lenders
could require the repayment of all outstanding borrowings under the Revolving
Credit Facility. If a Change of Control were to occur, the Company may not have
the financial resources to repay all of the Senior Indebtedness, the Exchange
Notes and any other indebtedness that would become payable upon the occurrence
of such Change of Control. See "-- Subordination of the Exchange Notes" and
"Description of the Exchange Notes -- Certain Covenants -- Change of Control".
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FRAUDULENT CONVEYANCE LAWS
A portion of the proceeds of the Note Offering was used to repay
outstanding indebtedness incurred to pay a cash dividend to Mariner Holdings,
and a portion of the proceeds of the Note Offering was used to pay an additional
cash dividend to Mariner Holdings. Mariner Holdings has used those dividends to
repay the JEDI Bridge Loan. Under federal or state fraudulent transfer laws, if
a court of competent jurisdiction were to find, in a lawsuit by an unpaid
creditor or a representative of creditors, such as a trustee in bankruptcy or a
debtor-in-possession, that the Company paid such dividend or incurred such
indebtedness with the intent to hinder, delay or defraud present or future
creditors, or received less than a reasonably equivalent value or fair
consideration for any such indebtedness or payment, and at the time of such
incurrence or payment (i) was insolvent, (ii) was rendered insolvent by reason
of such incurrence or payment, (iii) was engaged or about to engage in a
business or transaction for which its remaining assets constituted unreasonably
small capital to carry on its business or (iv) intended to incur, or believed or
reasonably should have believed that it would incur, debts beyond its ability to
pay as such debts matured, such court could avoid the Company's obligations to
the holders of the Exchange Notes, subordinate the Company's obligations to the
holders of the Exchange Notes to all other indebtedness of the Company or take
other action detrimental to the holders of the Exchange Notes. In that event,
there can be no assurance that any repayment on the Exchange Notes could ever be
recovered by the holders of the Exchange Notes. Any guarantee of the Exchange
Notes by a subsidiary of the Company required pursuant to the terms of the
Indenture may also be subject to challenge under fraudulent transfer laws and,
in any case, will be limited to amounts that any such subsidiary can guarantee
without violating such laws. See "Description of the Exchange Notes -- Certain
Definitions -- Subsidiary Guaranty".
LACK OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Outstanding Notes currently are owned by a relatively small number of
beneficial owners. The Outstanding Notes have not been registered under the
Securities Act and will be subject to significant restrictions on resale. The
Exchange Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the Outstanding Notes or the
Exchange Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. Although certain Placement Agents have advised the Company
that, following consummation of the Exchange Offer, they currently intend to
make a market in the Exchange Notes, they are not obligated to do so, and any
market making activity with respect to the Exchange Notes may be discontinued at
any time without notice. In addition, such market making activity will be
subject to the limits imposed in the Exchange Act, and may be limited during the
Exchange Offer or the pendency of the Shelf Registration Statement. Accordingly,
no assurance can be given that an active public or other market will develop for
the Exchange Notes or as to the liquidity of or the trading market for the
Exchange Notes.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Outstanding Notes pursuant
to the Exchange Offer will be made only after a timely receipt by the Company of
the Outstanding Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the
Outstanding Notes desiring to tender their Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to the tenders of Outstanding Notes for exchange. Outstanding Notes that
are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions on transfer thereof. On consummation of the Exchange Offer, the
registration rights under the Registration Agreement will terminate except that
if (i) the Company determines that the Exchange Offer may not be consummated as
soon as practicable after the Expiration Date because it would violate
applicable law or the applicable interpretations of the staff of the Commission,
(ii) the Exchange Offer is not consummated within 180 days of the date of the
Registration Agreement, (iii) the Placement Agents so request with respect to
the Outstanding Notes not eligible to be exchanged for Exchange Notes in the
Exchange Offer and held by them following consummation of the Exchange Offer or
(iv) any holder of an
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Outstanding Note (other than an Exchanging Dealer) is not eligible to
participate in the Exchange Offer or, in the case of any holder of Outstanding
Notes (other than an Exchanging Dealer) that participates in the Exchange Offer,
such holder does not receive freely tradeable Exchange Notes on the date of the
exchange for validly tendered (and not withdrawn) Outstanding Notes, the Company
has agreed to file and maintain the Shelf Registration Statement that would
allow resales or transfer of restricted Outstanding Notes or Exchange Notes
owned by such holders. In addition, any holder of Outstanding Notes who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Outstanding Notes that were acquired by the broker-dealer as a result of
market-making activities or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of the Exchange Notes.
See "Plan of Distribution". To the extent that Outstanding Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Outstanding Notes could be adversely affected. See "The
Exchange Offer".
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF OUTSTANDING NOTES
The Company intends for the Exchange Offer to satisfy its registration
obligations under the Registration Agreement. If the Exchange Offer is
consummated, the Company does not, except in very limited circumstances set
forth in the Registration Agreement, intend to file additional registration
statements for the sale or other disposition of Outstanding Notes. Consequently,
following completion of the Exchange Offer, holders of Outstanding Notes seeking
liquidity in their investment would have to rely on an exemption from the
registration requirements of applicable securities laws, including the
Securities Act, with respect to any sale or other disposition of Outstanding
Notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on August 14, 1996, to the
Placement Agents pursuant to the Placement Agreement. The Placement Agents
subsequently placed the Outstanding Notes with qualified institutional buyers in
reliance on Rule 144A under the Securities Act in offshore transactions, in
reliance on Regulation S under the Securities Act and with two Institutional
Accredited Investors. In conjunction with the Placement Agreement, the Company
entered into the Registration Agreement with the Placement Agents, which
requires, among other things, that the Company file with the Commission a
registration statement under the Securities Act with respect to an offer by the
Company to the holders of the Outstanding Notes to issue and deliver to such
holders, in exchange for Outstanding Notes, a like principal amount of Exchange
Notes. The Company is required to use its best efforts to cause the registration
statement relating to the Exchange Offer to be declared effective by the
Commission under the Securities Act, to commence the Exchange Offer and to
issue, on or prior to the Exchange Date, the Exchange Notes. The Exchange Notes
will be issued without a restrictive legend and may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act (other
than a holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act or a Participating Broker-Dealer). A copy of the
Registration Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The term "Holder" with respect to
the Exchange Offer means any person in whose name the Outstanding Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Outstanding
Notes, where such Outstanding Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution".
TERMS OF THE EXCHANGE OFFER
On the terms and subject to the conditions set forth in this Prospectus and
in the Letter of Transmittal, the Company will accept any and all Outstanding
Notes validly tendered and not withdrawn before 12:00 midnight, New York City
time, on the Expiration Date. As soon as practicable after the Expiration Date,
the Company will issue $1,000 principal amount of Exchange Notes in exchange for
$1,000 principal amount of Outstanding Notes accepted in the Exchange Offer.
Holders may tender some or all of their Outstanding Notes pursuant to the
Exchange Offer; however, Outstanding Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (ii) the holders of the Exchange Notes will not be entitled
to certain rights under the Registration Agreement. The Exchange Notes will
evidence the same debt as the Outstanding Notes and will be entitled to the
benefits of the Indenture.
As of the date of this Prospectus, $99,250,000 aggregate principal amount
of the Outstanding Notes was outstanding and registered in the name of Cede &
Co., as nominee for the DTC, and $750,000 aggregate principal amount of the
Outstanding Notes was outstanding and registered in the name of two other
holders. The Company has fixed the close of business of , 1996, as the
record date for the Exchange Offer for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed initially.
Holders of Outstanding Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Indenture in connection with the Exchange Offer. The Company intends to conduct
the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission thereunder,
including Rule 14e-1 thereunder.
24
<PAGE> 27
The Company shall be deemed to have accepted validly tendered Outstanding
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 12:00 midnight, New York City time,
on , 1996, unless the Company, in its sole discretion, extends the
expiration date for the Exchange Offer, in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended.
To extend the expiration date for the Exchange Offer, the Company will
notify the Exchange Agent of the extension by oral or written notice, will mail
to the registered Holders an announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date and will make a public announcement of the extension.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Outstanding Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under
"-- Conditions" shall not have been satisfied, by giving oral or written notice
of such delay, extension or termination to the Exchange Agent or (ii) to amend
the terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered Holders, and,
depending on the significance of the amendment and the manner of disclosure to
the registered Holders, the Company will extend the Exchange Offer for a period
of five to 10 business days if the Exchange Offer would otherwise expire during
such five to 10 business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the date of issuance of the
Exchange Notes. Interest on the Outstanding Notes that are tendered in exchange
for the Exchange Notes that has accrued from August 14, 1996, the date of
issuance of the Outstanding Notes, until the Exchange Date will be payable on or
before February 1, 1997. Interest on the Exchange Notes will be payable
semi-annually on each February 1 and August 1, commencing February 1, 1997.
PROCEDURES FOR TENDERING
Only a Holder of Outstanding Notes may tender them in the Exchange Offer.
To tender in the Exchange Offer, a Holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver the Letter of Transmittal or facsimile, together with the Outstanding
Notes and any other required documents, to the
25
<PAGE> 28
Exchange Agent before 12:00 midnight, New York City time, on the Expiration
Date. To be tendered effectively, the Outstanding Notes, Letter of Transmittal
and other required documents must be received by the Exchange Agent at the
address set forth below under "Exchange Agent" before 12:00 midnight, New York
City time, on the Expiration Date. Delivery of the Outstanding Notes may be made
by book-entry transfer in accordance with the procedures described below.
Confirmation of book-entry transfer must be received by the Exchange Agent
before the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "Resale of Exchange Notes".
The tender by a Holder and the acceptance thereof by the Company will
constitute agreement between the Holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THE HOLDERS.
A beneficial owner whose Outstanding Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct the
registered Holder to tender on the beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Outstanding Notes tendered thereby are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, the guaranty must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Outstanding Notes listed therein, the Outstanding Notes
must be endorsed or accompanied by a properly completed bond power, signed by
the registered Holder as the registered Holder's name appears on the Outstanding
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Exchange Notes at the DTC (the "Book-Entry Transfer Facility") for the
purpose of facilitating the Exchange Offer, and, subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of the Outstanding Notes
by causing the Book-Entry Transfer Facility to transfer the Outstanding Notes
into the Exchange Agent's account with respect to the Outstanding Notes in
accordance with the Book-Entry Transfer Facility's procedures for transfer.
Although delivery of the Outstanding Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility,
an
26
<PAGE> 29
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guaranty and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or before the Expiration Date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures; provided, however, that a participant in the DTC's
book-entry system may, in accordance with DTC's Automated Tender Offer Program
procedures and in lieu of physical delivery to the Exchange Agent of a Letter of
Transmittal, electronically acknowledge its receipt of, and agreement to be
bound by, the terms of the Letter of Transmittal. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes and any notices relating thereto will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Outstanding Notes
not properly tendered or any Outstanding Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Outstanding Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Outstanding Notes must
be cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Outstanding Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification. Tenders
of Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders as soon as practicable following the Expiration
Date.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution".
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent or complete the procedures for book-entry transfer prior to
the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the number(s) of such
Outstanding Notes and the principal amount of Outstanding Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Outstanding Notes (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Outstanding Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility) and all other documents
required by the Letter of Transmittal, are
27
<PAGE> 30
received by the Exchange Agent within five New York Stock Exchange trading
days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 12:00 midnight, New York City time, on the
Expiration Date.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 12:00 midnight, New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Outstanding Notes to be withdrawn (the
"Depositor"), (ii) identify the Outstanding Notes to be withdrawn (including the
certificate number(s) and principal amount of such Outstanding Notes, or, in the
case of Outstanding Notes transferred by book-entry transfer, the name and
number of the account at the Book-Entry Transfer Facility to be credited), (iii)
be signed by the Holder in the same manner as the original signature on the
Letter of Transmittal by which such Outstanding Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Outstanding Notes register
the transfer of such Outstanding Notes into the name of the person withdrawing
the tender, (iv) specify the name in which any such Outstanding Notes are to be
registered, if different from that of the Depositor, and (v) if applicable
because the Outstanding Notes have been tendered pursuant to book-entry
procedures, specify the name and number of the participant's account at DTC to
be credited, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Outstanding Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Outstanding Notes so withdrawn are
validly retendered. Any Outstanding Notes which have been tendered but which are
not accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Outstanding Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to issue Exchange Notes for, any
Outstanding Notes, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Outstanding Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
that might materially impair the ability of the Company to proceed with the
Exchange Offer or any material adverse development has occurred in any
existing action or proceeding with respect to the Company or any of its
subsidiaries;
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred that might materially impair the ability of the Company to
proceed with the Exchange Offer;
(c) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted that might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(d) there shall occur a change in the current interpretation by the
staff of the Commission that permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Outstanding Notes to be offered for
resale, resold and otherwise transferred by Holders thereof (other than
broker-dealers and
28
<PAGE> 31
any such Holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act; provided that
such Exchange Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes; or
(e) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the Exchange Offer
as contemplated hereby.
If the Company determines in good faith and in the exercise of its
reasonable discretion that any of the conditions are not satisfied, the Company
may (i) refuse to accept any Outstanding Notes and return all tendered
Outstanding Notes to the tendering Holders, (ii) extend the Exchange Offer and
retain all Outstanding Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Outstanding
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Outstanding Notes which have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered Holders, and, depending upon the significance of the waiver and the
manner of disclosure to the registered Holders, the Company will extend the
Exchange Offer for a period of five to 10 business days if the Exchange Offer
would otherwise expire during such five to 10 day period.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for copies of the Notice of Guaranteed Delivery should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Hand Delivery: By Overnight Courier: By Mail:
111 Broadway 770 Broadway Box 843
Lower Level 13th Floor Peter Cooper Station
New York, NY 10005 New York, NY 10003 New York, NY 10276
Attn: Corporate Trust Attn: Corporate Trust Service Attn: Corporate Trust
Window
By Facsimile Transmission: For Information:
(For Eligible Institutions Only) (800) 548-6565
(212) 420-6152
Confirm by Telephone:
(800) 548-6565
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telephone or in person by
officers and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and customary fees for its services and registration expenses,
including fees and expenses of the Trustee, filing fees, blue sky fees and
printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the transfer
and exchange of the Outstanding Notes to it or its order pursuant to the
Exchange Offer. If, however, certificates representing the Exchange Notes or the
Outstanding Notes for the principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the person signing the Letter of
29
<PAGE> 32
Transmittal, or if a transfer tax is imposed for any other reason, other than
the exchange of the Outstanding Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder or
any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, which is face value as adjusted for original issue discount,
as reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer will be amortized over the term of the Exchange
Notes.
RESALE OF EXCHANGE NOTES
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued in the Exchange Offer in exchange for the Outstanding
Notes may be offered for sale, resold or otherwise transferred by any holder
thereof without compliance with the registration and prospectus delivery
requirements of the Securities Act. Based on an interpretation by the staff of
the Commission set forth in no-action letters issued to third parties, the
Company believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder of such Exchange Notes (other than any such holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery provisions of the Securities Act, or an
exemption therefrom, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder does not intend to
participate and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any holder who tenders
in the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes may not rely on the
position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley & Co. Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Outstanding Notes, where such Outstanding Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution".
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such Holder or any such person
incurring liability under the Securities Act for which such Holder and any such
persons are not indemnified by the Company. Further, by tendering in the
Exchange Offer, each Holder or the person receiving the Exchange Note that may
be deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of
the Company will represent to the Company that such Holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder or such other person without registration
under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
offers for resale, resales or other transfers of the Exchange Notes
30
<PAGE> 33
without compliance with the registration and prospectus delivery requirements of
the Securities Act or an exception therefrom.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of making the Exchange Offer, the Company will have fulfilled
one of its obligations under the Registration Agreement, and, except as
described under "-- Shelf Registration Statement", Holders of Outstanding Notes
who do not tender their Outstanding Notes will not have any further registration
rights under the Registration Agreement or otherwise. Accordingly, any Holder of
Outstanding Notes that does not exchange its Outstanding Notes for Exchange
Notes will continue to hold the untendered Outstanding Notes and will be
entitled to all the rights and subject to all the limitations applicable thereto
under the Indenture, except to the extent such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
The Outstanding Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Outstanding Notes may be resold only (i) to the Company or any subsidiary
thereof (upon redemption thereof or otherwise), (ii) pursuant to an effective
registration statement under the Securities Act, (iii) so long as the
Outstanding Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iv) outside the United
States to persons other than U.S. persons pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) to an institutional accredited investor that, prior to such
transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Outstanding Notes evidenced thereby (the form of which letter can be obtained
from the Trustee) or (vi) pursuant to another available exemption from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
Accordingly, to the extent that Outstanding Notes are tendered and accepted
in the Exchange Offer, the trading market for the untendered Outstanding Notes
could be adversely affected.
SHELF REGISTRATION STATEMENT
If (i) the Company determines that the Exchange Offer may not be
consummated as soon as practicable after the Expiration Date because it would
violate applicable law or the applicable interpretations of the staff of the
Commission, (ii) the Exchange Offer is not consummated within 180 days of the
date of the Registration Agreement, (iii) the Placement Agents so request with
respect to the Outstanding Notes not eligible to be exchanged for Exchange Notes
in the Exchange Offer and held by them following consummation of the Exchange
Offer or (iv) any holder of an Outstanding Note (other than an Exchanging
Dealer) is not eligible to participate in the Exchange Offer or, in the case of
any holder of Outstanding Notes (other than an Exchanging Dealer) that
participates in the Exchange Offer, such holder does not receive freely
tradeable Exchange Notes on the date of the exchange for validly tendered (and
not withdrawn) Outstanding Notes, the Company has agreed to file and maintain
the Shelf Registration Statement that would allow resales of transfer restricted
Outstanding Notes or Exchange Notes owned by such holders.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Outstanding Notes are urged
to consult their financial and tax and other professional advisors in making
their own decision on what action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tender be
accepted from or, on behalf of)
31
<PAGE> 34
holders of Outstanding Notes in any jurisdiction in which the making of the
Exchange Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. However, the Company may, at its discretion, take
such action as it may deem necessary to make the Exchange Offer in any such
jurisdiction and extend the Exchange Offer to holders of Outstanding Notes in
such jurisdiction. In any jurisdiction the securities laws or blue sky laws of
which require the Exchange Offer to be made by a licensed broker or dealer, the
Exchange Offer is being made on behalf of the Company by one or more registered
brokers or dealers which are licensed under the laws of such jurisdiction.
The Company may in the future seek to acquire untendered Outstanding Notes
in the open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company has no present plans to acquire any
Outstanding Notes that are not tendered in the Exchange Offer or to file a
registration statement to permit resales of any untendered Outstanding Notes,
except for the filing, if required, of the Shelf Registration Statement.
32
<PAGE> 35
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Agreement. The
Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Outstanding Notes in
like principal amount, the form and terms of which are the same as the form and
terms of the Exchange Notes (which they replace), except as otherwise described
herein. The Outstanding Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company.
The net proceeds of the Note Offering were approximately $97.0 million. Of
such proceeds, $42.0 million was used to pay a dividend to Mariner Holdings,
which in turn used the dividend to repay the remaining balance of the JEDI
Bridge Loan incurred by Mariner Holdings in connection with the acquisition of
the Company.
Of the remaining net proceeds, $50.0 million was used to repay all
indebtedness outstanding under the Revolving Credit Facility (which had an
outstanding balance of $50.0 million at August 14, 1996). The indebtedness under
the Revolving Credit Facility was incurred to pay a dividend to Mariner Holdings
to repay a portion of the JEDI Bridge Loan. The Revolving Credit Facility
matures June 28, 1999, and borrowings thereunder bear interest at a variable
rate per annum of LIBOR plus 0.75% to 1.25%, depending upon the level of
utilization of the borrowing base. Currently $50.0 million is available for
borrowing under the Revolving Credit Facility and, together with the balance of
the net proceeds of the Note Offering of approximately $5.0 million, will be
available for general corporate purposes, including the acquisition,
exploration, development and exploitation of oil and natural gas properties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Revolving
Credit Facility".
The following chart depicts the Company's use of the net proceeds of the
Note Offering.
[NET PROCEEDS CHART]
33
<PAGE> 36
CAPITALIZATION
The following table sets forth the historical and pro forma capitalization
of the Company as of June 30, 1996. The pro forma capitalization is presented
giving effect to the Note Offering and the application of the proceeds
therefrom. See "Pro Forma Financial Data".
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
(IN THOUSANDS)
Long-term debt:
Revolving Credit Facility............................................ $ 50,000 $ --
JEDI Bridge Loan..................................................... 42,000 --
10 1/2% Senior Subordinated Notes Due 2006........................... -- 99,506
---------- ---------
Total long-term debt......................................... 92,000 99,506
---------- ---------
Stockholder's equity:
Common stock......................................................... 1 1
Additional paid-in capital........................................... 95,744 95,744
Accumulated deficit.................................................. (21,869) (23,296)
---------- ---------
Total stockholder's equity................................... 73,876 72,449
---------- ---------
Total capitalization.................................... $ 165,876 $ 171,955
======== ========
</TABLE>
34
<PAGE> 37
PRO FORMA FINANCIAL DATA
The following pro forma financial data are based on the Financial
Statements of the Company included elsewhere in this Prospectus, as adjusted to
give pro forma effect to the Transactions. The pro forma statements of
operations give effect to the Transactions as if they had occurred on January 1,
1995, and the pro forma balance sheet gives effect to the Note Offering and the
application of the proceeds therefrom as if it had occurred on June 30, 1996.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The pro
forma financial information does not purport to represent what the Company's
results of operations or financial position would actually have been had the
Transactions in fact occurred on such dates or to project the Company's results
of operations or financial position for or at any future period or date. The pro
forma financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", "The
Transactions" and the Financial Statements of the Company included elsewhere in
this Prospectus. Because the Exchange Notes are being issued under the same
financial terms and conditions of, and will replace, the Outstanding Notes, the
Exchange Offer has no material impact on the Company's pro forma financial data.
The pro forma information with respect to the Transactions is based on the
Financial Statements of the Company included elsewhere in this Prospectus. The
Acquisition has been accounted for under the purchase method of accounting. The
total purchase price for the Acquisition has been allocated to the tangible and
identifiable intangible assets and liabilities of the Company based upon the
Company's preliminary estimates of their fair values. The allocation of the
purchase price for the Acquisition is preliminary. It is not expected that the
final allocation of the purchase price will produce materially different results
than those presented.
35
<PAGE> 38
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------
THREE THREE
MONTHS MONTHS
ENDED ENDED SIX MONTHS
YEAR ENDED DECEMBER 31, 1995 MARCH 31, JUNE 30, ENDED JUNE
------------------------------------ 1996 1996 30, 1996 PRO
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------- --------- ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas sales.............. $ 33,309 $33,309 $13,778 $ 15,949 $29,727
------- ------- ------- -------- -------
COSTS AND EXPENSES:
Lease operating expenses....... 7,331 7,331 2,872 2,629 5,501
Depreciation, depletion, and
amortization................. 15,635 $ 1,430(1) 17,065 6,309 8,409 $ 906(1) 15,624
Impairment of oil and
gas properties............... 22,500 (22,500)(2)
General and administrative
expenses..................... 2,028 2,028 712 734 1,446
------- -------- ------- ------- -------- -------- -------
Total cost and
expenses............... 24,994 1,430 26,424 9,893 34,272 (21,594) 22,571
------- -------- ------- ------- -------- -------- -------
Operating income (loss)........ 8,315 (1,430) 6,885 3,885 (18,323) 21,594 7,156
------- -------- ------- ------- -------- -------- -------
Interest income................ 9,255 (8,472)(3) 783 2,167 146 (2,107)(3) 206
Interest expense............... 12,772 (3,486)(4) 9,286 3,391 2,681 (873)(4) 5,199
Write-off bridge loan fees..... 1,011 (1,011)(5)
------- -------- ------- ------- -------- -------- -------
Income (loss) before
income taxes................. 4,798 (6,416) (1,618) 2,661 (21,869) 21,371 2,163
Provision for income taxes..... 338 338
------- -------- ------- ------- -------- -------- -------
Net income (loss)........ $ 4,460 $ (6,416) $(1,956) $ 2,661 $(21,869) $ 21,371 $ 2,163
======= ======== ======= ======= ======== ======== =======
</TABLE>
- ---------------
(1) Depreciation, depletion and amortization have been adjusted to reflect the
amount of the purchase price allocated to property and equipment.
(2) To eliminate the writedown of oil and gas properties resulting from the
Acquisition.
(3) Interest income has been eliminated on the intercompany notes receivable
that were repaid in connection with the Acquisition.
(4) Interest expense has been adjusted to reflect the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
10 1/2% Senior Subordinated Notes Due 2006.................. $ 10,500 $ 5,250
Capitalized interest costs.................................. (1,579) (249)
Amortization of debt issuance costs......................... 300 150
Amortization of Outstanding Note discount................... 65 30
Elimination of historical interest expense.................. (13,715) (6,038)
Elimination of historical capitalized interest.............. 1,265 198
Elimination of historical amortization of debt issuance
costs..................................................... (322) (214)
-------- -------
Pro forma interest expense adjustment................... $ (3,486) $ (873)
======== =======
</TABLE>
(5) To eliminate the write-off of debt fees resulting from the refinancing of a
portion of the JEDI Bridge Loan with the Revolving Credit Facility.
36
<PAGE> 39
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 10,396 $ 5,006(1) $ 15,402
Net receivables...................................... 14,405 14,405
Other current assets................................. 757 757
-------- --------- --------
Total current assets......................... 25,558 5,006 30,564
-------- --------- --------
Property and equipment:
Net oil and gas properties........................... 152,264 152,264
Net non oil and gas property equipment............... 1,123 1,123
-------- --------- --------
Total property and equipment................. 153,387 153,387
-------- --------- --------
Other assets........................................... 1,661 3,500(1)
(1,427)(1) 3,734
-------- --------- --------
Total assets....................... $ 180,606 $ 7,079 $ 187,685
======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities............. $ 13,992 $ 1,000(1) $ 14,992
-------- --------- --------
Accrual for future abandonment costs................... 738 738
-------- --------
Long-term debt:
Revolving line of credit............................. 50,000 (50,000)(1)
Other long-term debt................................. 42,000 (42,000)(1)
Outstanding Notes.................................... 99,506(1) 99,506
-------- --------- --------
Total long-term debt......................... 92,000 7,506 99,506
-------- --------- --------
Commitments and contingencies
Stockholder's equity:
Common stock......................................... 1 1
Additional paid-in capital........................... 95,744 95,744
Accumulated deficit.................................. (21,869) (1,427)(1) (23,296)
-------- --------- --------
Total stockholder's equity................... 73,876 (1,427) 72,449
-------- --------- --------
Total liabilities and stockholder's
equity........................... $ 180,606 $ 7,079 $ 187,685
======== ========= ========
</TABLE>
- ---------------
(1) Adjusted to record the issuance of the $100.0 million principal amount of
the Outstanding Notes, the $0.5 million discount on the Outstanding Notes,
the $42.0 million repayment of JEDI Bridge Loan, the writeoff of the
remaining bridge loan fees of $1.4 million (an additional $1.0 million
having been previously written off as a result of the partial repayment of
the JEDI Bridge Loan in connection with the implementation of the Revolving
Credit Facility), the $50.0 million repayment of the indebtedness
outstanding under the Revolving Credit Facility and to record loan costs
related to the Outstanding Notes of $3.5 million.
37
<PAGE> 40
SELECTED HISTORICAL DATA
The following table sets forth for the periods indicated selected
historical operating and financial data of the Company. The selected historical
financial data as of and for each of the years in the five-year period ended
December 31, 1995, have been derived from the historical statements of the
Company, which were audited by Deloitte & Touche LLP, independent auditors. As
part of the Transactions, Mariner Holdings consummated the Acquisition on May
16, 1996; however, for accounting purposes, the Acquisition is treated as if it
had occurred on April 1, 1996. The Acquisition has been accounted for using the
purchase method of accounting, and Mariner Holdings' cost of acquiring the
Company has been allocated to the assets and liabilities of the Company based on
estimated fair values. As a result, the Company's financial position and
operating results subsequent to the Acquisition reflect a new basis of
accounting and are not comparable to prior periods.
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------------------------------
SIX THREE THREE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, MARCH 31, JUNE 30,
-------------------------------------------- -------- --------- --------
1991 1992 1993 1994 1995 1995 1996 1996
-------- ------- ------- ------- ------- -------- --------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................... $ 21,587 $20,972 $34,295 $35,856 $33,309 $15,425 $13,778 $ 15,949
Lease operating expenses..................... 6,310 6,312 7,746 7,118 7,331 3,480 2,872 2,629
Depreciation, depletion and amortization..... 9,236 8,572 15,607 16,221 15,635 7,850 6,309 8,409
Impairment of oil and gas properties......... 16,325 6,296 6,257 22,500
General and administrative expenses.......... 1,661 1,948 2,242 1,830 2,028 1,043 712 734
--------- ------- ------- ------- ------- ------- ------- --------
Operating income (loss).................... (11,945) 4,140 2,404 4,430 8,315 3,052 3,885 (18,323)
Interest income.............................. 172 1,021 1,513 1,084 9,255 4,556 2,167 146
Interest expense............................. 4,113 4,940 7,358 8,125 12,772 6,453 3,391 2,681
Write-off bridge loan fees................... 1,011
--------- ------- ------- ------- ------- ------- ------- --------
Income (loss) before income taxes.......... $(15,886) $ 221 $(3,441) $(2,611) $ 4,798 $ 1,155 $ 2,661 $(21,869)
========= ======= ======= ======= ======= ======= ======= ========
Net loss per share......................... $(21,869)
========
OTHER DATA:
EBITDA (1)................................... $ 13,616 $12,712 $24,307 $26,908 $23,950 $10,902 $10,194 $ 12,586
Ratio of EBITDA to net interest expense
(2)........................................ 2.7x 2.5x 3.6x 3.5x 4.3x 3.6 x 7.4x 3.3x
Ratio of net debt to EBITDA (3).............. 5.8x 7.1x 3.7x 3.9x 2.5x
Ratio of earnings to fixed charges (4)....... 0.9x 0.5x 0.6x 1.3x 1.1 x 1.7x
STATEMENTS OF CASH FLOW DATA:
Net cash flows from operating activities..... (5,361) 12,228 11,268 22,554 21,416 11,888 5,630 13,794
Net cash flows from investing activities..... (28,369) (25,803) (28,058) (33,648) (21,295) (3,183) (7,648) (188,158)
Net cash flows from financing activities..... 34,000 13,000 17,000 14,000 1,000 (2,000) 2,000 184,760
CAPITAL EXPENDITURES:
Leasehold and property acquisition........... $ 5,246 $ 1,694 $ 590 $ 2,521 $ 4,594 $ 3,142 $ 949 $ 3,982
Oil and gas exploration...................... 10,240 11,437 11,695 16,495 12,866 6,607 3,903 4,779
Oil and gas development and other............ 12,777 14,639 15,681 17,907 24,312 13,464 2,643 1,940
--------- ------- ------- ------- ------- ------- ------- --------
$ 28,263 $27,770 $27,966 $36,923 $41,772 $23,213 $ 7,495 $ 10,701
========= ======= ======= ======= ======= ======= ======= ========
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
AT AT
DECEMBER 31, JUNE 30,
1995 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................................................ $250,726 $180,606
Long-term receivable from affiliates................................................ 106,000
Revolving Credit Facility........................................................... 50,000
Other long-term debt, less current maturities....................................... 162,500 42,000
Stockholder's equity................................................................ 69,258 73,876
</TABLE>
- ---------------
(1) EBITDA is calculated as operating income before interest, income taxes,
depletion, depreciation, amortization and impairment of oil and gas
property. EBITDA is not a measure of cash flow as determined by GAAP. The
Company has included information concerning EBITDA because EBITDA is a
measure used by certain investors in determining a company's historical
ability to service its indebtedness. EBITDA should not be considered as an
alternative to, or more meaningful than, net income or cash flow as
determined in accordance with GAAP as an indicator of the Company's
operating performance or liquidity.
(2) For purposes of computing the ratio of EBITDA to net interest expense, net
interest expense consists of interest expense plus capitalized interest and
reduced by interest income relating to long-term receivables from affiliates
attributable to the fact that the Company was used to provide financing for
its affiliates. In the absence of advances to affiliates (reflected in
long-term receivables from affiliates), total long-term debt, and the
interest expense thereon, would have been reduced.
(3) Net debt has been calculated by reducing total long-term debt by the
long-term receivables from affiliates. In the absence of advances to
affiliates (reflected in long-term receivables from affiliates), total
long-term debt would have been reduced.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of pretax income from continuing operations plus fixed charges,
excluding capitalized interest. Fixed charges consist of interest expense,
capitalized interest and the amortization of debt expense. For the year
ended December 31, 1991, earnings were insufficient to cover fixed charges
by $16.8 million. For the three months ended June 30, 1996 earnings were
insufficient to cover fixed charges by $22.0 million.
39
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
information contained in the Financial Statements of the Company included
elsewhere in this Prospectus.
OVERVIEW
The Company is an independent energy company engaged in oil and gas
exploration, exploitation, development and production in three geographic areas:
the shallow water or "shelf" (less than 600 feet deep) of the Gulf and onshore
areas near the Gulf; Gulf deepwater (greater than 600 feet deep); and the
Permian Basin of West Texas.
The Company's strategy is to increase reserves, production and cash flows
in a cost effective manner primarily "through the drillbit". Mariner emphasizes
internal growth through exploration, exploitation and development of internally
generated prospects and prefers to operate the wells in which it participates
and to hold substantial working interests therein.
Mariner Holdings purchased all the capital stock of the Company from Hardy
Holdings Inc. effective April 1, 1996. The Acquisition was financed by the JEDI
Bridge Loan and the JEDI Equity. In June 1996, 24 individuals who are employees
of or consultants to the Company purchased approximately 4% of the common stock
of Mariner Holdings for a consideration valued at approximately $4.0 million and
acquired options to purchase an additional 11% of the common stock of Mariner
Holdings.
In connection with the Acquisition, which was accounted for as a purchase
transaction, the Company incurred a "ceiling test" writedown under full cost
accounting requirements of approximately $22.5 million. The "ceiling test" is
applied, in general, to reduce the carrying value of oil and gas properties to
an amount not greater than the present value of estimated future net revenues
determined in accordance with the requirements of the Commission -- based in
this instance on prices in effect as to the Company's oil and gas production on
the closing date of the Acquisition. The writedown is an accounting charge and
as such did not affect the Company's cash flow from operating activities.
On June 28, 1996, the Company entered into the Revolving Credit Facility
with NationsBank of Texas, N.A., as agent for the Lenders, and borrowed $50.0
million thereunder to pay a dividend to Mariner Holdings, which was used by
Mariner Holdings to partially repay the JEDI Bridge Loan.
On August 14, 1996, the Company issued the Outstanding Notes. Of the net
proceeds of the Note Offering, $42.0 million was used to pay a dividend to
Mariner Holdings, which in turn used the dividend to repay the remaining balance
of the JEDI Bridge Loan, and $50.0 million was used to repay all indebtedness
outstanding under the Revolving Credit Facility.
As part of the Transactions, Mariner Holdings consummated the Acquisition
on May 16, 1996; however, for accounting purposes, the Acquisition is treated as
if it had occurred on April 1, 1996. The Acquisition has been accounted for
using the purchase method of accounting, and Mariner Holdings' cost of acquiring
the Company has been allocated to the assets and liabilities of the Company
based on estimated fair values. As a result, the Company's financial position
and operating results subsequent to the Acquisition reflect a new basis of
accounting and are not comparable to prior periods.
40
<PAGE> 43
RESULTS OF OPERATIONS
The following table sets forth certain operating data regarding the net
production, average sales price and production cost associated with the
Company's oil and natural gas operations for the periods indicated on an
historical basis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net production:
Oil (Mbbls)................................................... 470 459 424 212 379
Natural gas (Mmcf)............................................ 12,507 14,362 13,770 6,666 10,178
Average sales price, including the effects of hedging:
Oil (per Bbl)................................................. $ 17.07 $ 15.86 $ 17.19 $ 17.48 $ 18.86
Natural gas (per Mcf)......................................... 2.10 1.99 1.76 1.76 2.22
Lease operating expense (per Mcfe).............................. 0.51 0.42 0.45 0.44 0.44
Total revenues (in thousands)................................... 34,295 35,856 33,309 15,425 29,727
</TABLE>
Six Months Ended June 30, 1996, Compared to the Six Months Ended June 30, 1995
Total revenues increased 93% to $29.7 million for the six months ended June
30, 1996, from $15.4 million for the six months ended June 30, 1995, due to
higher oil and gas production volumes and prices, partially offset by the
effects of the Company's hedging activities.
Natural gas revenues increased 93% to $22.6 million for the six months
ended June 30, 1996, from $11.7 million for the six months ended June 30, 1995,
as volumes sold increased 53% to 10,178 Mmcf from 6,666 Mmcf. The increase in
volumes was due primarily to new fields that began producing subsequent to June
30, 1995. The average price received per Mcf of natural gas, including the
effects of hedging, increased 26% to $2.22 for the six months ended June 30,
1996, from $1.76 for the six months ended June 30, 1995. Hedging activities of
natural gas for the six months ended June 30, 1996, had the effect of reducing
the average sales price received per Mcf by $0.24 and reducing revenues by $2.4
million, whereas in the six months ended June 30, 1995, such activities had the
effect of increasing the average sales price received per Mcf by $0.14 and
increasing revenues by $0.9 million.
Crude oil revenues increased 92% to $7.1 million for the six months ended
June 30, 1996, from $3.7 million for the six months ended June 30, 1995, as the
volumes sold increased 79% during such period to 379 Mbbls from 212 Mbbls. The
increase in volumes was due primarily to new fields that began producing
subsequent to June 30, 1995. The average price per Bbl received increased 8%
during such period to $18.86 from $17.48. Hedging activities of crude oil which
commenced during the six months ended June 30, 1996 had the effect of reducing
the average sales price received per Bbl by $0.30 and reducing revenues by $0.1
million.
Lease operating expenses increased 57% to $5.5 million for the six months
ended June 30, 1996, from $3.5 million for the six months ended June 30, 1995,
due primarily to new fields that began production subsequent to June 30, 1995.
Depreciation, depletion and amortization expense increased 86% to $14.7
million for the six months ended June 30, 1996, from $7.9 million for the six
months ended June 30, 1995, due primarily to the increase in equivalent volumes
produced.
General and administrative expenses increased 50% to $1.5 million for the
six months ended June 30, 1996, from $1.0 million for the six months ended June
30, 1995 due primarily to expenses incurred in the first quarter of 1996 in
connection with the sale of the predecessor company.
Interest expense decreased 6% to $6.1 million for the six months ended June
30, 1996, from $6.5 million for the six months ended June 30, 1995. During the
six months ended June 30, 1996, the Company wrote off $1.0 million of loan fees
related to the JEDI Bridge Loan as a result of refinancing a portion of the
amount with the Revolving Credit Facility. Interest income decreased 50% to $2.3
million for the six months ended
41
<PAGE> 44
June 30, 1996, from $4.6 million for the six months ended June 30, 1995, due
primarily to the retirement of receivables from affiliates resulting from the
Acquisition.
Income (loss) before income taxes decreased to a $19.2 million loss for the
six months ended June 30, 1996, from $1.2 million income for the six months
ended June 30, 1995. This decrease was due to the $22.5 million impairment of
oil and gas property (i.e., the ceiling test writedown) and higher lease
operating and depreciation expense associated with the increased production,
partially offset by the increase in oil and natural gas production volumes and
prices.
There is no provision for income tax for the six months ended June 30, 1996
compared to $0.2 million of estimated tax payments in the six months ended June
30, 1995, due to the imposition of alternative minimum taxes as a result of a
gain on sale of oil and gas properties in 1995.
Year Ended December 31, 1995, Compared to the Year Ended December 31, 1994
Total revenues decreased 7% to $33.3 million in 1995 from $35.9 million in
1994. Operating revenues decreased primarily as a result of lower natural gas
prices and production volumes, partially offset by higher crude oil prices and
settlement, in 1995, for $1.7 million of a claim in bankruptcy against Columbia
Gas Transmission Company.
Natural gas revenues decreased 15% to $24.3 million (net of the $1.7
million benefit recorded for the Columbia Gas bankruptcy settlement) in 1995
from $28.6 million in 1994, as the volumes sold decreased 4% to 13,770 Mmcf from
14,362 Mmcf. The decrease in volumes was due primarily to depletion of existing
fields and sale of non-strategic properties. The average price received per Mcf
of natural gas, including the effects of hedging, decreased 11% to $1.76 in 1995
from $1.99 in 1994. Hedging activities of natural gas in 1995 had the effect of
increasing the average sales price per Mcf by $0.06 and increasing revenues by
$1.0 million, and in 1994 such activities had the effect of increasing the
average sales price per Mcf by $0.05 and increasing revenues by $0.9 million.
Crude oil revenues remained constant for both periods at $7.3 million. The
8% decrease in volume to 424 Mbbls in 1995 from 459 Mbbls in 1994 was offset by
an 8% increase in the average price per Bbl received to $17.19 from $15.86. The
decrease in volumes was due primarily to depletion of existing fields.
Lease operating expenses increased 3% to $7.3 million in 1995 from $7.1
million in 1994, primarily due to higher direct operating costs of $0.5 million
in 1995, partially offset by lower marketing expenses and production taxes of
$0.3 million.
Depreciation, depletion and amortization expense decreased 4% to $15.6
million in 1995 from $16.2 million in 1994, as a result of lower equivalent
volumes produced, partially offset by an increase in the unit-of-production
depreciation rate for oil and gas properties.
There was no impairment of oil and gas properties in 1995 compared to $6.3
million in 1994.
General and administrative expenses increased 11% to $2.0 million in 1995
from $1.8 million in 1994.
Interest expense increased 58% to $12.8 million in 1995 from $8.1 million
in 1994, due to the issuance of $60 million of senior notes in January 1995.
Interest income increased 745% to $9.3 million in 1995 from $1.1 million in
1994, due to the increase in the long-term receivable from affiliate caused by
the receipt of funds from the issuance of $60 million of senior notes and a $46
million equity contribution from the Company's parent company.
Income (loss) before income taxes was $4.8 million in 1995 compared to a
loss of $2.6 million in 1994. Included in 1995 net income was a $1.7 million
benefit from the proceeds received from the Columbia Gas bankruptcy settlement.
Additionally, the 1994 net loss included a $6.3 million impairment of oil and
gas properties.
Income taxes in 1995 were $0.3 million compared to no provision in 1994,
due to the imposition of alternative minimum taxes as a result of a gain on sale
of oil and gas properties in 1995.
42
<PAGE> 45
Year Ended December 31, 1994, Compared to the Year Ended December 31, 1993
Total revenues increased 5% to $35.9 million in 1994 from $34.3 million in
1993, primarily due to higher natural gas production volumes and the effects of
hedging activities.
Natural gas revenues increased 9% to $28.6 million in 1994 from $26.3
million in 1993, as the volumes sold increased 15% to 14,362 Mmcf from 12,507
Mmcf. The increase in volumes was due primarily to production from new wells.
The average price received per Mcf of natural gas, including the effects of
hedging, decreased 5% to $1.99 in 1994 from $2.10 in 1993. Hedging activities of
natural gas in 1994 had the effect of increasing the average sales price per Mcf
by $0.05 and increasing revenues by $0.9 million, whereas in 1993 such
activities had the effect of decreasing the average sales price per Mcf by $0.06
and decreasing revenues by $0.9 million.
Crude oil revenues decreased 9% to $7.3 million in 1994 from $8.0 million
in 1993, as the average price per Bbl received decreased 7% to $15.86 from
$17.07. Volumes sold decreased 2% to 459 Mbbls in 1994 from 470 Mbbls in 1993.
The decrease in volumes was due primarily to depletion of existing fields,
partially offset by production from new wells.
Lease operating expenses decreased 8% to $7.1 million in 1994 from $7.7
million in 1993, primarily due to lower marketing expenses and direct operating
costs.
Depreciation, depletion and amortization expense increased 4% to $16.2
million in 1994 from $15.6 million in 1993, as a result of higher equivalent
volumes produced, partially offset by a decrease in the unit-of-production
depreciation rate for oil and gas properties.
Impairment of oil and gas properties remained level at $6.3 million in 1994
as compared to 1993.
General and administrative expenses decreased 18% to $1.8 million in 1994
from $2.2 million in 1993.
Interest expense increased 9% to $8.1 million in 1994 from $7.4 million in
1993, due to larger average outstanding borrowings in 1994 compared to 1993.
Interest income decreased 27% to $1.1 million in 1994 from $1.5 million in 1993,
due to a decrease in the long-term receivable from affiliates.
Loss before income taxes decreased 24% to $2.6 million in 1994 from $3.4
million in 1993, primarily due to a positive effect on revenues from hedging
activities and a decrease in lease operating expenses, partially offset by
higher depreciation and interest expenses.
Changes in Prices and Hedging Activities
In an effort to reduce the effects of the volatility of the price of oil
and natural gas on the Company's operations, management has adopted a policy of
hedging oil and natural gas prices through the use of commodity futures, options
and swap agreements. While the use of these hedging arrangements limits the
downside risk of adverse price movements, it may also limit future gains from
favorable movements. The Revolving Credit Facility imposes certain limitations
on the Company's ability to enter into hedging transactions, but such
limitations are not expected to constrain the Company's hedging activities in
any material respect.
The annual average oil and natural gas prices received by the Company have
fluctuated significantly over the past three years. The Company's weighted
average natural gas price received per Mcf (including the effects of hedging
transactions) was $1.76, $1.99 and $2.10 during the years ended December 31,
1995, 1994 and 1993, respectively. Hedging transactions resulted in the
Company's weighted average natural gas price received per Mcf being higher by
$0.06 and $0.05 in 1995 and 1994, respectively, and lower by $0.06 in 1993. The
Company's weighted average oil prices received per Bbl during the years ended
December 31, 1995, 1994 and 1993, were $17.19, $15.86 and $17.07, respectively.
43
<PAGE> 46
The following table sets forth the Company's open hedging contracts for oil
and natural gas and the weighted average NYMEX prices hedged under various swap
agreements as of June 30, 1996.
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BBLS PRICE MMBTU PRICE
------- -------- --------- --------
<S> <C> <C> <C> <C>
July 1996 through November 1996...................... 306,000 $18.55 7,931,900 $ 2.33
December 1996 through February 1997.................. 180,000 18.55 3,346,500 2.36
</TABLE>
The following table sets forth the increase (decrease) in the Company's
natural gas sales as a result of hedging transactions and the effects of hedging
transactions on price per Mcf during the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- ---------------
1993 1994 1995 1995 1996
----- ---- ------ ---- -------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in natural gas sales (in
thousands)........................................... $(882) $877 $1,020 $921 $(2,411)
Decrease in oil sales (in thousands)................... (113)
Effect of hedging transactions on average gas sales
price (per Mcf)...................................... (0.06) 0.05 0.06 0.14 (0.24)
Effect of hedging transactions on average oil sales
price (per Bbl)...................................... (.30)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of June 30, 1996, the Company had cash and cash equivalents aggregating
approximately $10.4 million and working capital of approximately $11.6 million.
Cash provided by operating activities in 1995 was approximately $21.4 million
compared to $22.6 million in 1994. Cash flows used in investing activities
decreased from $33.6 million in 1994 to $21.3 million in 1995, primarily as a
result of the sale of assets in 1994 for approximately $3.5 million compared to
sales of $20.7 million in 1995 which was partially offset by a $4.9 million
increase in 1995 in the total spending on oil and natural gas properties. Cash
flows provided by financing activities decreased to $1.0 million in 1995 from
$14.0 million in 1994, due to lower repayments of long-term receivables from
affiliates and a principal payment on long-term debt. During 1995, the Company
also issued $60.0 million of new senior notes and received a $46.0 million
equity contribution from its parent company. A total of $107.0 million was
advanced to an affiliate during 1995 primarily from these funds. The following
section discusses the expected impact of the Transactions on the Company's
financial position and results of operations.
The Company currently plans to maintain in 1996 its 1995 level of capital
expenditures of approximately $42.0 million, to enable it to continue its
exploration and development programs. The Company expects to use the Revolving
Credit Facility to borrow funds required from time to time to supplement its
available resources.
44
<PAGE> 47
The Acquisition
In contemplation of the consummation of the Acquisition, ECT and Mariner
Holdings entered into certain agreements with representatives of the Company's
management providing for a continuing role of management in the Company after
the Acquisition. The sources and uses of funds related to financing the
Acquisition were as follows:
<TABLE>
<CAPTION>
(IN
MILLIONS)
<S> <C>
Sources of Funds(1):
JEDI Bridge Loan.......................................................... $ 92.0
Common stock purchased by JEDI............................................ 95.0
Working capital provided by the Company................................... 6.0
------
$193.0
======
Uses of Funds:
Acquisition purchase price................................................ $185.5
Acquisition costs and other expenses...................................... 7.5
------
$193.0
======
</TABLE>
- ---------------
(1) The JEDI Bridge Loan was incurred by Mariner Holdings to fund a portion of
the consideration paid in the Acquisition, which has been pushed down for
accounting purposes to the Company. Mariner Holdings repaid $50.0 million of
the original amount it borrowed from JEDI ($92.0 million) from a $50.0
million dividend it received from the Company from proceeds borrowed under
the Revolving Credit Facility. The Company used a portion of the net
proceeds of the Note Offering to (i) pay an additional dividend of $42.0
million to Mariner Holdings, which Mariner Holdings used to pay the
remaining balance of the JEDI Bridge Loan, and (ii) repay the $50.0 million
borrowed under the Revolving Credit Facility. After the Acquisition, the
Management Stockholders purchased approximately 4% of the capital stock of
Mariner Holdings (and thereby acquired beneficial ownership of approximately
4% of the capital stock of the Company) for an aggregate consideration
valued at approximately $4.0 million. Such consideration consisted of
approximately $0.6 million in cash and assignments of portions of their
overriding royalty interests held under the terms of their then existing
arrangements with the Company. The Management Stockholder contributions are
not included in the above sources and uses of funds.
Liquidity
Following the consummation of the Exchange Offer, the Company's liquidity
needs will arise primarily from debt service on the Exchange Notes and any
untendered Outstanding Notes and any amounts borrowed under the Revolving Credit
Facility and from planned capital expenditures. Immediately following the
issuance of the Exchange Notes, the Company's only outstanding indebtedness for
money borrowed will be the Exchange Notes and any untendered Outstanding Notes.
However, the Company expects to incur substantial indebtedness for capital
expenditures under the Revolving Credit Facility after the Exchange Offer. See
"Risk Factors -- Substantial Leverage" and "Risk Factors -- Substantial Capital
Requirements".
Debt Service
The Company incurred substantial indebtedness in connection with the
Acquisition and is significantly leveraged. Interest payments on the Exchange
Notes and any untendered Outstanding Notes and principal and interest payments
on amounts borrowed under the Revolving Credit Facility will represent
significant obligations of the Company affecting its liquidity following
consummation of the Exchange Offer. As of June 30, 1996, after giving pro forma
effect to the Note Offering, the Company would have had total indebtedness for
money borrowed of approximately $100.0 million. Pro forma interest expense for
1995 would have been approximately $9.3 million. See "-- Revolving Credit
Facility". It is expected that the Company's future net interest expense will be
higher and will have a greater proportionate impact on net income in comparison
to pre-Note Offering periods.
Future Financing and Cash Flows
Based upon the Company's current level of operations and anticipated
growth, management of the Company believes that available cash, together with
available borrowings under the Revolving Credit Facility and other sources of
liquidity, will be adequate to meet the Company's anticipated future
requirements for
45
<PAGE> 48
working capital, capital expenditures and scheduled payments of principal of,
and interest on, its indebtedness, including the Exchange Notes and any
untendered Outstanding Notes. There can be no assurance that such anticipated
growth will be realized, that the Company's business will generate sufficient
cash flow from operations or that future borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, including
the Exchange Notes and any untendered Outstanding Notes, or make necessary
capital expenditures. In addition, depending on the levels of its cash flow and
capital expenditures (the latter of which are, to a large extent,
discretionary), the Company may need to refinance a portion of the principal
amount of the Exchange Notes and any untendered Outstanding Notes at or prior to
their maturity. However, there can be no assurance that the Company would be
able to obtain financing to complete a refinancing of the Exchange Notes and any
untendered Outstanding Notes. See "Risk Factors -- Substantial Leverage".
Capital Expenditures
The Company has planned exploration, development and exploitation
activities for all of its primary operating areas. The Company has budgeted
capital spending of approximately $42.0 million in 1996, but is not
contractually committed to expend all of such funds. Historically, the Company
has used its operating cash flow and other indebtedness to fund these
operations. The Company's ability to borrow in the future is subject to
restrictions imposed by the Revolving Credit Facility and the Indenture as more
fully described below. See "Description of Revolving Credit Facility" and
"Description of the Exchange Notes".
Revolving Credit Facility
On June 28, 1996, the Company entered into the Revolving Credit Facility,
which provides for a maximum $150.0 million revolving credit loan and matures
June 28, 1999, at which time all amounts owed under such Facility are due and
payable. The amount of credit available to the Company under the Revolving
Credit Facility (the "Borrowing Base") is currently $50.0 million and is subject
to redetermination every six months (and, at the election of the Lenders, one
additional time per year) by the Lenders at the Lenders' sole discretion and in
accordance with their customary practices and standards in effect from time to
time for oil and natural gas loans to borrowers similar to the Company. The
Lenders may require that outstanding borrowings in excess of the borrowing limit
be repaid in two equal payments -- one three months and one six months following
a determination of such an excess. The Company currently has no indebtedness
outstanding under the Revolving Credit Facility.
So long as no default or event of default (as defined in the Revolving
Credit Facility) is continuing, borrowings under the Revolving Credit Facility
bear interest, at the option of the Company, at either (i) LIBOR plus 0.75% to
1.25% (depending upon the level of utilization of the Borrowing Base) or (ii)
the higher of (a) the agent's prime rate and (b) the federal funds rate plus
0.5%. The Company incurs a quarterly commitment fee ranging from 0.25% to 0.375%
per annum on the average unused portion of the Borrowing Base, depending upon
the level of utilization.
The Revolving Credit Facility contains covenants which, among other things,
restrict the payment of dividends, limit the amount of debt the Company may
incur, limit the Company's ability to make certain loans and investments, limit
the Company's ability to enter into certain hedge transactions and provide that
the Company must maintain a specified relationship between cash flow and fixed
charges and cash flow and interest on indebtedness. See "Description of
Revolving Credit Facility".
The Outstanding Notes and the Exchange Notes
The Indenture contains a number of significant covenants that, among other
things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, repay other indebtedness, pay dividends, enter into
certain investments or acquisitions, repurchase or redeem capital stock, engage
in mergers or consolidations, or engage in certain transactions with
subsidiaries and affiliates and that otherwise restrict corporate activities.
There can be no assurance that such restrictions will not adversely affect the
Company's ability to finance its future operations or capital needs or engage in
other business activities that may be in the interest of the Company. A breach
of any of these covenants could result in a default under the Indenture. In
46
<PAGE> 49
the event of any such default that is not cured or waived, the Trustee or the
holders of at least 25% in aggregate principal amount of the Outstanding Notes
and the Exchange Notes may declare the principal of and accrued but unpaid
interest on all the Outstanding Notes and the Exchange Notes to be immediately
due and payable. If the indebtedness under the Outstanding Notes and the
Exchange Notes were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay such indebtedness in full. See
"Description of the Exchange Notes".
47
<PAGE> 50
BUSINESS
OVERVIEW
Mariner is an independent energy company engaged in oil and gas
exploration, exploitation, development and production in three geographic areas:
the shallow water or "shelf" (less than 600 feet deep) of the Gulf and onshore
areas near the Gulf; Gulf deepwater (greater than 600 feet deep); and the
Permian Basin of West Texas. At March 31, 1996, approximately 85% in value
(based on the present value of estimated future net revenues) of the Company's
oil and gas reserves and most of its current efforts were located in or near the
Gulf, which historically has been a prolific hydrocarbon producing area. The
Company utilizes advanced evaluation and, particularly in the Gulf, advanced
completion technologies to explore for and produce oil and natural gas.
On March 31, 1996, the Company had proved reserves of 6.8 Mmbbls of oil and
96.3 Bcf of natural gas, aggregating 137.3 Bcfe, with approximately 70% of the
Company's proved reserves attributable to natural gas. At such date, the present
value of estimated future net revenues attributable to the Company's proved
reserves was approximately $161.0 million, of which approximately $150.0 million
was attributable to proved developed reserves. In addition to its properties
holding proved reserves, the Company had an inventory of 21 specific prospects
as of June 30, 1996, which it expects will account for most of its exploratory
and exploitation drilling activities over the next two years. In the aggregate,
the Company has a total undeveloped leasehold inventory of approximately 124,000
net acres, including 63 undeveloped Gulf blocks, and holds under license or
other arrangement approximately 5,800 square miles of 3-D seismic data and
approximately 140,000 linear miles of 2-D seismic data.
From June 1, 1989 (when under new ownership the Company began to focus its
efforts on the Gulf), through June 30, 1996, the Company drilled 224 gross (71.7
net) wells, including 74 gross (24.3 net) exploratory and deepwater exploitation
wells. Of such wells, 23 were completed (21 in Gulf shallow water or onshore and
two in Gulf deepwater), representing a 31% success rate on its exploration and
deepwater exploitation activities. During the same period, the Company completed
approximately 92% of its development wells. At June 30, 1996, the Company was in
the process of drilling one gross (0.3 net) development well.
As a result of its successful exploration and exploitation efforts, from
January 1, 1990, through March 31, 1996, the Company had increases in proved
reserves of 48% to approximately 137 Bcfe and increases in production of 182% to
approximately 70 Mmcfe per day. The Company achieved a 184% average annual
reserve replacement ratio for the five years ended December 31, 1995, at an
average finding and development cost of $0.99 per Mcfe of proved reserves.
Between November 1, 1995 and June 30, 1996, average daily production increased
58% due to six new wells being brought online; 71% of this production increase
was attributable to the Company's three deepwater Gulf wells and 29% to
activities in Gulf shallow water and near onshore areas. Consistent with this
recent increase in production, for the three months ended June 30, 1996,
compared to the three months ended June 30, 1995, the Company's total revenues
increased 106% to $15.9 million from $7.7 million, and the Company's EBITDA
increased 133% to $12.6 million from $5.4 million.
The Company began its operations in 1983 as a subsidiary of Trafalgar House
plc, a large U.K. conglomerate. As such, the Company carried on the U.S. oil and
gas operations of the Trafalgar House group. In 1989, Trafalgar House decided to
spinoff to its public shareholders its oil and gas operations in a new company
called Hardy Oil & Gas plc, of which the Company became a subsidiary, and
thereafter the Company carried on the U.S. oil and gas operations of Hardy plc.
The Company's existence as a subsidiary of Hardy plc ended with the Acquisition
in May 1996. See "The Transactions".
48
<PAGE> 51
The following table sets forth certain summary information with respect to
the Company's oil and gas activities and results during the five years ended
December 31, 1995, and the three months ended March 31, 1996. Reserve volumes
and values were determined under the method prescribed by the Commission, which
requires the application of year-end oil and natural gas prices for each year,
held constant throughout the projected reserve life. See "-- Oil and Natural Gas
Reserves" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------------------------------------- ENDED MARCH 31,
1991 1992 1993 1994 1995 1996
------- -------- ------- ------- -------- ---------------
(IN THOUSANDS, EXCEPT RATIOS AND PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Present value of proved
reserves.................... $77,140 $100,064 $94,243 $95,318 $173,421 $ 161,048
Proved reserves
Crude oil and natural gas
liquids (Bbls)............ 7,326 6,190 6,128 6,900 6,669 6,836
Natural gas (Mmcf).......... 74,308 80,837 91,060 100,645 98,330 96,317
Natural gas equivalent
(Mmcfe)................... 118,264 117,977 127,828 142,045 138,344 137,333
Annual reserve replacement
ratio(1).................... 3.9x 1.9x 1.7x 2.0x 1.2x
Total capital costs
incurred.................... $28,263 $ 27,770 $27,966 $36,923 $ 41,772 $ 7,495
Percentage of total capital
costs attributable to:
Prospect exploration........ 36.2% 41.2% 41.8% 44.7% 30.8% 52.1%
Development................. 45.2 52.7 56.0 48.5 58.2 35.3
Acquisition................. 18.6 6.1 2.1 6.8 11.0 12.7
Average crude oil prices per
barrel at end of period
indicated................... $ 17.25 $ 18.25 $ 12.88 $ 16.28 $ 17.78 $ 20.27
Average natural gas prices per
Mcf at end of period
indicated................... 1.81 2.00 2.07 1.67 2.72 2.42
</TABLE>
- ---------------
(1) The annual reserve replacement ratio for a year is calculated by dividing
aggregate reserve additions, including revisions, on an Mcfe basis for the
year by actual production on an Mcfe basis for such year.
STRATEGY
Mariner's strategy is to increase reserves, production and cash flows in a
cost effective manner primarily "through the drillbit". Mariner emphasizes
internal growth through exploration, exploitation and development of internally
generated prospects and prefers to operate the wells in which it participates
and to hold substantial working interests therein.
The Company applies a "portfolio management" approach to its drilling
activities that is directed at balancing (i) its views as to the moderate risks
of its exploration program in the Gulf and near onshore areas, the relatively
lower risk of exploitation in Gulf deepwater and the still lower risk of
development of the Company's interests in the Permian Basin of West Texas with
(ii) its views as to the potential for adding significant value from such
activities, particularly in the shallow water and deepwater of the Gulf.
In Gulf shallow water and near onshore fields, the Company focuses on
prospects with attractive value-adding potential and attractive rates of return
resulting from expected short production lead times, quick payout periods, low
lease operating expenses and favorable leasehold costs. At March 31, 1996,
approximately 68% in value of the Company's reserves, and as of June 30, 1996,
approximately 68% of the Company's average daily production, were located in
Gulf shallow water and near onshore fields.
Mariner's Gulf deepwater operations have been focused on the exploitation
of previously discovered reservoirs which the Company believes are too small to
be of interest to large oil companies. The Company believes that its deepwater
expertise and low operating costs enable it to develop small and midsize fields
in deeper water of the Gulf profitably. At March 31, 1996, approximately 17% in
value of the Company's
49
<PAGE> 52
reserves, and as of June 30, 1996, approximately 26% of the Company's average
daily production, were located in Gulf deepwater. The Company recently decided
to expand its efforts in Gulf deepwater to include moderate risk exploration for
undrilled reservoirs because of (i) the large reserve potential (relative to the
Company's size) that it believes can be found in deepwater areas targeted by it,
(ii) the relative immaturity of these exploration activities compared to other
Gulf activities and (iii) the limited competition for the Company's targeted
reservoir sizes.
The Company's operations in the Spraberry Trend of the Permian Basin of
West Texas, which, at March 31, 1996, accounted for approximately 15% in value
of the Company's reserves, and, as of June 30, 1996, approximately 6% of the
Company's average daily production, have been important to the Company's
internal growth strategy by providing a consistent source of cash flow for use
in the Company's other activities.
The Company currently plans to focus the majority of its prospect
acquisition, exploration, exploitation and development efforts in the shallow
water and deepwater of the Gulf. In furtherance of its leasehold acquisition
program in such areas, Mariner acquired 19 offshore blocks in 1995 through lease
sales and farm-ins and was the successful bidder on eight additional blocks in
the Gulf in April 1996.
COMPETITIVE ADVANTAGES
Mariner believes that the following competitive advantages, which it
endeavors to emphasize in the implementation of its strategy, distinguish it
from other independent oil and gas companies and are responsible to a
significant extent for the Company's success in recent years.
Geographic Focus. A substantial portion of the Company's activities is
concentrated in the Gulf where the Company has been successful in developing
valuable reserves. The Company believes that exploration and development in
shallow water of the Gulf offers attractive returns because of short production
lead times, high production rates and relatively low capital and operating
costs. The Company believes that its activities in Gulf deepwater offer
attractive returns because of (i) large reserve potential, (ii) technological
developments, (iii) the early stages of development in the area and (iv) a
favorable competitive niche directed at exploiting small to moderate potential
fields previously discovered by large oil companies but bypassed for
exploitation by them as they search for larger fields -- a niche which few other
independent oil companies of the Company's size are pursuing because of the
significant technological and capital expenditure requirements. In Gulf
deepwater the Company's experience is that major oil companies are willing to
farmout prospects with potential for small and moderately sized fields and that
a cost effective operator like the Company can economically develop such fields
in such deepwater by generating sound geological and geophysical evaluations and
on that basis bringing in other industry participants to share the necessary
capital expenditures. Deepwater production enjoys a favorable circumstance as to
royalty costs compared to onshore production -- under federal law as to leases
in deepwater there is actually complete relief from royalty obligations for
certain initial volumes of production, depending upon the depth of the water
under a particular lease. The Company has also had success in the traditional
onshore areas of the Gulf, particularly in Texas, where it has operations that
provide a steady cash flow obtained at reasonable costs. With a significant
portion of its reserves in the Gulf, the Company benefits from the lower lease
operating expenses associated with offshore wells which are generally more
productive than typical onshore wells and allow for concentration of labor and
equipment. In addition, production from such wells is not burdened by severance
or ad valorem taxes. Moreover, gas produced in the Gulf and near onshore areas
usually receives top current prices because of its quality and proximity to
competitive pipeline transportation, and oil produced in the areas of the
Company's geographic focus is usually of good quality (as opposed to heavy crude
or high sulfur content crude oil which require special processing) and typically
carries prices which reflect such quality.
Concentration of Reserves and Efficient Operations. The Company actively
manages its portfolio of producing reserves to optimize concentration within its
geographic areas of focus. At March 31, 1996, approximately 85% by value of the
Company's reserves were located in six fields. This concentration enables the
Company to achieve efficiencies in its operations and to control its general and
administrative expenses relative to competitors that have more widespread
operations. For the twelve months ended December 31, 1995, the Company's direct
operating costs (consisting of lease operating expenses and general and
50
<PAGE> 53
administrative expenses) were $0.57 per Mcfe produced. Consistent with its
emphasis on reserve concentration and low cost of operations, the Company
regularly reviews its properties and, when appropriate, sells properties that
are marginally profitable or outside of its areas of concentration.
Application of Technology. The Company applies state-of-the-art technology
to minimize exploration risk and maximize returns. Although the Company's
database includes extensive 2-D and 3-D seismic data, virtually all of the
Company's exploration and exploitation prospects are generated using 3-D seismic
data. While 2-D seismic data, which historically has been used by oil and gas
exploration companies, is still an important exploration tool, the use of 3-D
data lowers the risk of dry holes and optimizes exploitation and development
spending. In addition to seismic data, the Company utilizes and analyzes
existing well data available to it (including data available from government
sources as to offshore prospects) in its exploration and exploitation activities
and combines such information with seismic data to construct subsurface
geological models and make other subsurface comparisons. The Company also
utilizes state-of-the-art subsea production technology to lower the level of
capital expenditures that might otherwise be associated with deepwater
developments (for example, the construction of additional production platforms).
The ability to utilize these and other technologies often allows the Company
economically to pursue attractive projects below the size thresholds of large
oil companies.
Disciplined Approach to Exploration. The Company employs careful risk
analysis to determine its drilling priorities, balancing the required capital
outlay against the expected value of the well. Having confidence in its staff of
explorationists, the Company typically has generated its own prospects and
conducted its own risk analysis. The exploration, exploitation and development
of internally generated prospects accounted for 80% by value of the Company's
reserves at March 31, 1996. The Company attempts to focus its exploration and
exploitation efforts on prospects with high value-adding potential while at the
same time managing its risks by drilling at approximately 10 to 12 exploitation
and exploratory wells per year. Furthermore, the Company generally keeps its
working interests at or below 50% by seeking industry participants in its
exploitation and exploration activities in order to reduce its exposure on any
single undertaking.
Experienced Management with Significant Equity Incentives. The Company has
a management team that has considerable expertise in the oil and gas industry
and significant experience working with the Company. All present key employees
of, and consultants to, the Company are eligible to participate in a management
incentive program which provides overriding royalty interests in successful
projects. The Company believes that its overriding royalty program provides a
strong alignment of management's and investors' interests. In addition, the
Company believes that this program is a significant reason why the Company has
been able to retain the services of the members of its senior management team,
most of whom have been working together at the Company for over 10 years. In
connection with the Acquisition, the Management Stockholders also purchased
approximately 4% of the common stock of Mariner Holdings and acquired options to
purchase an additional 11% of the common stock of Mariner Holdings.
PRINCIPAL PRODUCING PROPERTIES
The Company owns oil and gas properties, both producing and for future
exploration, onshore in Texas and offshore in the Gulf, primarily in federal
waters. The Company currently has six principal producing properties, which in
the aggregate accounted for, as of March 31, 1996, 85% in value of the Company's
proved reserves and which provide a base for the Company's emphasis on growth in
its reserves, production and cash flow.
Gulf of Mexico Deepwater
The following Gulf deepwater operations demonstrate the Company's ability
to utilize state-of-the-art production technology successfully, particularly the
technology of subsea tiebacks.
Green Canyon 136. Green Canyon 136 was generated by the Company and
acquired through a farmout transaction with Texaco, Inc. ("Texaco") and achieved
initial production in 1995. The 5,000 acre block is located offshore Louisiana
at water depths of approximately 840 to 1,040 feet. The Company operated the
property through the date of first production when Texaco became the operator.
The Company has a 25%
51
<PAGE> 54
working interest and an approximate 21.7% net revenue interest. Two producing
wells have been drilled thus far, with no additional drilling currently planned.
At June 30, 1996, gross average daily production was 504 Bbls and 50 Mmcf and
average daily production net to the Company was 109 Bbls and 10.9 Mmcf. As of
March 31, 1996, total estimated net proved reserves and the present value of
estimated future net revenues attributable to the Company's interest in Green
Canyon 136 were 7,395 Mmcfe and $13.3 million, respectively. Green Canyon 136 is
tied back, by a specially laid pipeline and connecting system, to a production
platform operated by Texaco approximately 10 miles from the well sites, and its
production is commingled and marketed with Texaco's production. The field has an
estimated remaining life of nine years.
Garden Banks 240. Garden Banks 240 was generated by the Company and
acquired through a swap transaction with Shell Oil Company and achieved initial
production in January 1996. The 5,760 acre block is located offshore Louisiana
at a water depth of approximately 830 feet. The Company is the operator of the
property and has a 33 1/3% working interest and an approximate 27.2% net revenue
interest. One producing well has been drilled thus far, with no additional
drilling currently planned. Further exploitation is possible by recompletion of
the well at another depth, but no decisions have been made regarding such
activity. At June 30, 1996, gross average daily production was 243 Bbls and 21.5
Mmcf and average daily production net to the Company was 66 Bbls and 5.9 Mmcf.
As of March 31, 1996, total estimated net proved reserves and the present value
of estimated future net revenues attributable to the Company's interest in
Garden Banks 240 were 7,830 Mmcfe and $12.3 million, respectively. Garden Banks
240 is tied back to a production platform operated by Chevron approximately 12
miles from the well site, and its production is commingled and marketed with
Chevron's production. The field has an estimated remaining life of 10 years.
Gulf Shallow Water and Near Onshore Areas
The following properties reflect the results of the Company's Gulf shallow
water and near onshore exploration and development strategy.
Sandy Lake. The Sandy Lake property, located onshore in the Pine Island
Bayou Field of the Texas Gulf Coast, having been generated by the Company,
achieved initial production in 1994. The majority of the 4,870 acre property is
located within the city limits of Beaumont, Texas. The Company is the operator
of the property and has an approximate 48% working interest and an approximate
34.5% net revenue interest. Five wells have been drilled thus far (four of which
are producing and one of which is scheduled to begin production in October
1996), and the drilling of one additional development well is planned during
1996 at an estimated cost to the Company of $1.4 million. The Company also
contemplates increasing the capacity of its gas processing facility at Sandy
Lake, which in effect controls production, by 50% in 1997 -- a measure which is
expected to increase production from the Sandy Lake field significantly. At June
30, 1996, gross average daily production was 3,735 Bbls and 20.5 Mmcf, and
average daily production net to the Company was 1,290 Bbls and 7.1 Mmcf. As of
March 31, 1996, total estimated net proved reserves and the present value of
estimated future net revenues attributable to the Company's interest in the
Sandy Lake property were 22,423 Mmcfe and $41.7 million, respectively. The field
has an estimated remaining life of eight years.
Brazos A-105. Brazos A-105 was generated by the Company and achieved
initial production in 1993. The approximate 4,300 acre block is located offshore
Texas at a water depth of approximately 190 feet. Union Oil Company of
California ("UNOCAL") is the operator of the property, and the Company holds a
12.5% working interest and an approximate 9.9% net revenue interest. Five
producing wells have been drilled thus far, and the drilling of two development
wells is possible in the future, but such activities have not yet been budgeted.
At June 30, 1996, gross average daily production was 175 Bbls and 114.5 Mmcf,
and average daily production net to the Company was 17 Bbls and 11.4 Mmcf. As of
March 31, 1996, total estimated net proved reserves and the present value of
estimated future net revenues attributable to the Company's interest in Brazos
A-105 were 18,528 Mmcfe and $28.3 million, respectively. The field has an
estimated remaining life of 13 years.
Matagorda Island 683/703. Matagorda Island 683 and 703 were acquired by
several companies in a bid group, including the Company, and achieved initial
production in 1993. The two 5,760 acre blocks are located offshore Texas at a
water depth of approximately 125 feet. Vastar Resources, Inc. is the operator of
the
52
<PAGE> 55
property, and the Company holds a 25% working interest and an approximate 19.8%
net revenue interest. Three producing wells have been drilled thus far, with no
additional drilling currently planned. At June 30, 1996, gross average daily
production was 12 Bbls and 26.6 Mmcf, and average daily production net to the
Company was 2 Bbls and 5.3 Mmcf. As of March 31, 1996, total estimated net
proved reserves and the present value of estimated future net revenues
attributable to the Company's interest in Matagorda Island 683 and 703 were
6,765 Mmcfe and $9.4 million, respectively. The field has an estimated remaining
life of 11 years.
The Permian Basin of West Texas
Spraberry Aldwell Unit. In 1985, the Company acquired its interest in the
Aldwell Unit property, which has been producing since 1949. The 15,776 acre
fieldwide unit is located within the Spraberry Trend and produces from the
unitized Spraberry Formation and non-unitized Dean Formation in Reagan County in
West Texas. The Company is the operator of the property and has an approximate
64% working interest and, effectively, an approximate 54% net revenue interest.
The Company implemented an infill well drilling program in 1987, and subsequent
to such date 53 wells have been drilled, all of which are currently producing.
The drilling of 30 to 43 additional infill wells (targeted at bringing into
production proved undeveloped reserves in such property) is planned during the
next three to four years at a projected cost to the Company of approximately
$195,000 per well. At June 30, 1996, gross average daily production was 601 Bbls
and 3.2 Mmcf, and average daily production net to the Company was 343 Bbls and
1.9 Mmcf. As of March 31, 1996, total estimated net proved reserves and the
present value of estimated future net revenues attributable to the Company's
interest in the Spraberry Aldwell Unit property were 38,919 Mmcfe and $22.1
million, respectively. The field has an estimated remaining life of 45 years.
HEDGING
In order to manage its exposure to the volatility of crude oil and natural
gas prices, the Company hedges a substantial portion of its oil and natural gas
production. The Company customarily conducts its hedging strategy through the
use of swap arrangements that establish an index-related price above which the
Company pays the hedging partner and below which the Company is paid by the
hedging partner. Such arrangements represent approximately 70% of the Company's
anticipated average daily production for 1996. Hedging arrangements may expose
the Company to the risk of financial loss in certain circumstances, including
instances where the Company's production, which is in effect hedged, is less
than expected or where there is a sudden, unexpected event materially impacting
prices. The Revolving Credit Facility places certain restrictions on the
Company's use of hedging.
PROSPECT ACQUISITION, EXPLOITATION AND EXPLORATION
The Company seeks to complement its strategy of building the base of its
revenues through development and exploitation of its existing oil and gas
properties by directing a substantial part of its activities and capital
expenditures to (i) the acquisition of promising prospects for future
exploitation or exploration and (ii) the exploitation or exploration of selected
properties from its inventory by drilling thereon.
The Company's oil and gas exploitation or exploration process typically
begins with the selection of a defined geographical area and is followed by the
collection and analysis of various types of data, including seismic data and any
available existing well data, that may provide information as to the existence
and location of potential oil and natural gas reservoirs within the target area.
In recent years the oil and gas industry generally, and the Company
specifically, has focused on reducing risks and costs and increasing
productivity in exploration, exploitation and production. During this same
period, somewhat lower and more volatile oil and gas prices have created
additional impetus for energy companies, including the Company, to find ways to
reduce risks and costs associated with their exploration, exploitation and
development programs. This trend has led to an increasing reliance by energy
companies, including the Company, on sophisticated data gathering, processing
and interpretation techniques such as 3-D analytical techniques. Seismic data
are a principal source of information used by the Company's explorationists to
map potential oil and natural gas bearing formations and their geologic
boundaries. After seismic data
53
<PAGE> 56
are collected, they are processed and analyzed with sophisticated computer
imaging software to assist in the interpretation of the subsurface lithology and
structure. As computing costs have declined and new software has become
available, 3-D analytical techniques previously affordable only to the largest
integrated oil companies have become available to independent oil companies,
including the Company. The Company owns and routinely uses four advanced
computer work stations running state-of-the-art exploration software. By
improving the visualization of subsurface structures, 3-D seismic models are
used by the Company to evaluate prospects before drilling to improve drilling
success rates, to increase the amount of reserves found per well drilled through
optimal location of the well bore and to reduce the number of wells required to
develop a reservoir. In addition to seismic data available to the Company, the
Company uses, particularly in its efforts to exploit reservoirs offshore,
existing well data which is available from governmental sources pursuant to
applicable governmental regulations relating to oil and gas operations on public
lands. The availability of 3-D seismic data, the evolution and enhancement of
computer aided exploration and development programs and the evolution and
improvement in well logging and coring technology and related analysis of well
data have significantly increased the Company's ability to optimize prospect
acquisition, exploitation opportunities, exploratory well location and other
drilling decisions.
After assessing a prospect, the Company formulates a budget for its
acquisition and then attempts to acquire the prospect, or a working interest in
the prospect, from an existing owner (such as pursuant to a farmout agreement)
or, often in the case of new offshore prospects, in a lease auction.
Particularly with respect to offshore lease sales, the Company will acquire
interests in leases as part of bid groups. Prospects are then held in inventory
for future exploration or exploitation possibilities.
At present the Company holds in inventory for possible future exploration
or exploitation 20 offshore prospects, consisting of 286,000 gross acres
(103,290 net acres) and one onshore prospect, consisting of 1,060 gross acres
(530 net acres). In addition, the Company holds under licenses or other
arrangements seismic information as to approximately 5,800 square miles of
property (mostly offshore) which were investigated using 3-D seismic technology
and seismic data as to 140,000 linear miles investigated by more traditional 2-D
seismic techniques. Such seismic data were acquired by the Company over recent
years to enable it to evaluate identified leads and prospects and producing
properties as well as to provide regional background and to use for prospecting
in new areas.
During the last half of 1996, the Company estimates that it will spend
approximately $4.2 million on prospect acquisitions, $2.4 million on geophysical
projects, and $10.4 million on exploratory drilling. While all oil and gas
activities are subject to numerous risks, the risks associated with prospect
acquisitions and offshore exploitation and exploration activities are greater
than those associated with development and exploitation activities in existing
fields, particularly onshore fields. Because of such risks, the Company
historically has solicited (and will continue to do so) industry partners to
participate with it on offshore exploitation and exploration projects on
negotiated terms. Accordingly, the level of the Company's capital expenditures
for its projects, and in particular for any single project, and its working and
revenue interests therein, will vary depending on terms agreed to with other
participating oil companies. In general, the Company prefers that its working
interest on any particular project be in the range of 25% to 50%. The Company
also prefers to operate the wells in which it participates and currently
operates wells representing approximately 53% in value of its proved reserves.
By owning a substantial percentage of the working interest in wells in which it
participates and operating wells to the extent possible, the Company believes it
is able to maintain greater control over (i) timing of, and planning for, future
development, (ii) drilling, completion and operating costs and (iii) marketing
of production.
With respect to its offshore exploration program, the Company typically
targets prospects where it believes that reserves of 30 to 200 Bcfe may be found
and produced -- typically a smaller target than the offshore reserves targeted
by large oil companies.
DRILLING AND COMPLETION ACTIVITIES
After the completion of all necessary geological and geophysical studies,
and assuming ownership of a leasehold or a right to operate thereon (such as
pursuant to a farmout agreement), the next step in the
54
<PAGE> 57
production of oil and gas from the prospect is the drilling of the well at the
specifically selected site. Drilling operations are carried out by independent
contractors engaged for such purposes. Typically drilling contractors are hired
on a day-rate basis under which they are paid for each day the rig is on
location, and they supply the rig, crew and miscellaneous supplies and other
support. In the course of drilling, cuttings from the well bore brought to the
surface are examined and various logging techniques are applied, all for the
purpose of evaluating the well. Assuming that the well is judged to be capable
of commercial production, it is completed by a process that includes setting
casing pipe, applying appropriate cementing and perforating the well so that the
fluids of oil and gas in the formation can flow up through the well bore. The
wellhead is typically capped off with a device (sometimes called a "tree")
containing valves and other equipment that is typically connected to a pipeline
that in turn gathers the production from the well.
Offshore drilling operations in water depths of up to 300 feet ordinarily
are carried out by the use of jack-up rigs and, in deeper waters, by
semi-submersible rigs. Particularly in offshore operations, the Company is
involved in technical planning and supervision of drilling and related
activities. Onshore drilling operations are carried on by traditional rotary rig
contractors and generally require less attention and expertise from the Company.
The completion of undersea wells in particular involves complex
technologies and techniques provided by specialized vendors. Subsea tiebacks in
turn require even more complexity because the site of production and production
control is ordinarily many miles away from the actual site of the wellhead. In
the Company's case, its own experts supervise contracts with, and activities of,
specialized vendors who lay a pipeline and other connecting lines from the
wellhead to an existing production platform a distance away. The Company makes
commercial arrangements with the platform operator to receive, and perform
certain processing measures on, the production from the subsea well.
At present, increased exploration activity in the Gulf has resulted in a
significant tightening of supplies of drilling services and equipment to the
offshore oil and gas exploration and production industry, including a particular
tightening in the availability of semi-submersible rigs. With the increased
demand for offshore vendor services and equipment, day rates for offshore rigs
have risen substantially in recent periods, and there is a lessened availability
of equipment and services which is particularly acute in the case of
semi-submersible rigs capable of drilling in water deeper than 1,500 feet where
much of the existing fleet of such rigs has been contracted for extended periods
by large oil companies. Accordingly, the Company must take into account
increased drilling and completion costs in evaluating offshore projects and must
carefully plan for and arrange the services of its vendors. In the case of
semi-submersible rigs with the deepest capabilities, the Company expects, in the
foreseeable future in order to carry out certain possible deepwater projects, to
be required to look for windows of opportunities to arrange (on a "subrental"
basis) rig availability from larger oil companies which have booked such rigs
for longer periods of time. While the Company has experienced a tightening in
the supply of equipment and services, and a related escalation in prices
therefor, the Company does not at present foresee such circumstances as
materially interfering with its ability to carry on its currently planned
exploitation and exploration activities.
DISPOSITION OF PROPERTIES
The Company periodically evaluates, and, when appropriate, sells, certain
of its producing properties that it considers to be marginally profitable or
outside of its areas of concentration. Such sales enable the Company to maintain
financial flexibility, reduce overhead and redeploy the proceeds therefrom to
activities that the Company believes have a higher potential financial return.
During 1995, the Company sold nonstrategic oil and natural gas properties
located primarily in Louisiana and Arkansas for an aggregate amount of $20.6
million and during 1996 has sold such properties for $7.5 million.
OIL AND NATURAL GAS RESERVES
The following tables set forth certain information with respect to the
Company's reserves. Such reserve volumes and values were determined under the
method prescribed by the Commission which requires the application of year-end
prices for each year, held constant throughout the projected reserve life. The
reserve
55
<PAGE> 58
information as of March 31, 1996, is based in part upon a reserve report
prepared by the independent petroleum consulting firm of Ryder Scott Company.
The following table sets forth the estimated quantities of proved and
proved developed reserves of crude oil (including condensate and natural gas
liquids) and natural gas owned by the Company as of December 31, 1993, 1994 and
1995 and March 31, 1996, and principal components of the changes in the
quantities of reserves for each of the periods then ended.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
-------------------------------------------------------- ENDED MARCH 31,
1993 1994 1995 1996
---------------- ----------------- ----------------- ----------------
OIL GAS OIL GAS OIL GAS OIL GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
------ ------- ------ -------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED RESERVES:
Beginning balance....... 6,190 80,837 6,128 91,060 6,900 100,645 6,669 98,330
Revisions of previous
estimates............ 353 7,266 423 4,241 307 14,113 32 (1,619)
Extensions, discoveries,
improved recovery and
other additions...... 61 15,483 829 21,842 46 2,476 335 4,713
Sale of reserves........ 6 19 21 2,136 160 5,134
Production.............. 470 12,507 459 14,362 424 13,770 200 5,107
----- ------ ----- ------- ----- ------ ----- ------
Ending balance.......... 6,128 91,060 6,900 100,645 6,669 98,330 6,836 96,317
===== ====== ===== ======= ===== ====== ===== ======
PROVED DEVELOPED RESERVES:
Beginning balance....... 3,641 62,329 3,653 67,263 4,037 83,192 4,357 87,843
Ending balance.......... 3,653 67,263 4,037 83,192 4,357 87,843 4,418 85,699
</TABLE>
The following table sets forth the present value of estimated future net
revenues from proved reserves as of December 31, 1993, 1994 and 1995 and March
31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------ AT MARCH 31,
1993 1994 1995 1996
------- ------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Proved developed........................... $88,203 $81,354 $165,784 $ 150,464
Proved undeveloped......................... 6,040 13,964 7,637 10,584
------- ------- -------- ---------
Total proved..................... $94,243 $95,318 $173,421 $ 161,048
======= ======= ======== =========
</TABLE>
Consistent with the Company's strategy of disposing of marginal properties
when appropriate, subsequent to March 31, 1996, the Company sold reserves in the
Permian Basin of West Texas having a present value of estimated future net
revenues at such date of approximately $11.0 million, including $1.2 million in
proved undeveloped reserves, for cash consideration of approximately $7.5
million. Such reserves (which consisted of approximately 1,650 Mbbls of oil and
8,600 Mmcf of natural gas) are included in the above data but were not included
in the report of Ryder Scott Company at March 31, 1996, which otherwise covered
substantially all of the Company's reserves as of such date. The reserves sold
were generally very long-lived and were associated, for the most part, with
approximately 250 marginal wells with high lease operating expenses. The Company
considered these properties to be of marginal value.
There are numerous uncertainties in estimating quantities of proved
reserves believed to have been discovered and in projecting future rates of
production and the timing of development expenditures, including many factors
beyond the control of the Company. The reserve data set forth in this Prospectus
are only estimates. Reserve estimates are inherently imprecise and may be
expected to change as additional information becomes available. Furthermore,
estimates of oil and gas reserves, of necessity, are projections based on
engineering data, and there are uncertainties inherent in the interpretation of
such data as well as the projection of future rates of production and the timing
of development expenditures. Reserve engineering is a subjective process of
estimating underground accumulations of oil and natural gas that cannot be
measured
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<PAGE> 59
exactly, and the accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
Accordingly, estimates of the economically recoverable quantities of oil and
natural gas attributable to any particular group of properties, classifications
of such reserves based on risk of recovery and estimates of the future net cash
flows expected therefrom prepared by different engineers or by the same
engineers at different times may vary substantially. There also can be no
assurance that the reserves set forth herein will ultimately be produced or that
the proved undeveloped reserves set forth herein will be developed within the
periods anticipated. It is likely that variances from the estimates will be
material. In addition, the estimates of future net revenues from proved reserves
of the Company and the present value thereof are based upon certain assumptions
about future production levels, prices and costs that may not be correct when
judged against actual subsequent experience. The Company emphasizes with respect
to the estimates prepared by independent petroleum engineers that the discounted
future net cash flows should not be construed as representative of the fair
market value of the proved reserves owned by the Company since discounted future
net cash flows are based upon projected cash flows which do not provide for
changes in oil and natural gas prices from those in effect on the date indicated
or for escalation of expenses and capital costs subsequent to such date. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based. Actual results will differ, and are
likely to differ materially, from the results estimated. Holders of Outstanding
Notes and prospective holders of Exchange Notes are cautioned not to place undue
reliance on the reserve data included in this Prospectus.
The information set forth in the preceding tables includes revisions of
reserve estimates attributable to proved properties included in the preceding
year's estimates. Such revisions reflect additional information from subsequent
exploitation and development activities, production history of the properties
involved and any adjustments in the projected economic life of such properties
resulting from changes in product prices.
In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from the Company's properties and the present value thereof
are made using oil and natural gas sales prices in effect as of the dates of
such estimates and are held constant throughout the life of the properties.
Since December 31, 1995, the Company has not filed any estimates of total
proved net oil or natural gas reserves with any federal authority or agency. See
Note 9 to the Financial Statements of the Company included elsewhere in this
Prospectus for certain additional information concerning the proved reserves of
the Company.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 1995, the Company had working interests in 90 gross
(66.6 net) active oil wells and 84 gross (12.8 net) active natural gas wells.
These totals do not include the Company's royalty and overriding royalty
interests in approximately 8 gross (0.1 net) producing oil and natural gas
wells.
The following table sets forth certain information with respect to the
developed and undeveloped acreage of the Company as of December 31, 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------------------------
UNDEVELOPED
DEVELOPED ACRES(1) ACRES(2)
------------------ -------------------
GROSS NET GROSS NET
------- ------ ------- -------
<S> <C> <C> <C> <C>
Texas (Onshore)...................................... 33,253 16,611 19,239 9,247
All other states (Onshore)........................... 2,010 336 51,682 14,160
Offshore............................................. 136,880 24,677 311,553 116,111
------- ------ ------- -------
Total...................................... 172,143 41,624 382,474 139,518
======= ====== ======= =======
</TABLE>
- ---------------
(1) Developed acres are acres spaced or assigned to productive wells.
(2) Undeveloped acres are acres on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage
contains proved reserves.
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<PAGE> 60
DRILLING ACTIVITIES
Certain information with regard to the Company's drilling activities during
the years ended December 31, 1993, 1994 and 1995, and the six months ended June
30, 1996, is set forth below.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -------------
1993 1994 1995 1996
-------------- ------------- ------------- -------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ----- ----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory wells:
Oil.................................
Natural gas......................... 6 1.43 1 0.25
Dry................................. 11 3.86 7 3.26 6 2.38 2 0.65
----- ----- ----- ---- ----- ---- ----- ----
Total....................... 11 3.86 13 4.69 6 2.38 3 0.90
===== ===== ===== ==== ===== ==== ===== ====
Development wells:
Oil................................. 19 7.97
Natural gas......................... 5 0.98 6 1.97 3 0.85 1 0.50
Dry................................. 2 0.43 3 1.72
----- ----- ----- ---- ----- ---- ----- ----
Total....................... 26 9.38 9 3.69 3 0.85 1 0.50
===== ===== ===== ==== ===== ==== ===== ====
Total wells:
Producing........................... 24 8.95 12 3.40 3 0.85 2 0.75
Dry................................. 13 4.29 10 4.98 6 2.38 2 0.65
----- ----- ----- ---- ----- ---- ----- ----
Total....................... 37 13.24 22 8.38 9 3.23 4 1.40
===== ===== ===== ==== ===== ==== ===== ====
</TABLE>
At December 31, 1995, the Company was not in the process of drilling any
development or exploratory well. At June 30, 1996, the Company was in the
process of drilling one gross (or 0.3 net) development well.
PRODUCTION AND SALES
The following table presents certain information with respect to oil and
natural gas production attributable to the Company's properties, average sales
price received, average production costs and the revenue derived from the sale
of such production during the three years ended December 31, 1993, 1994 and
1995, and the six months ended June 30, 1996.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------- JUNE 30,
1993 1994 1995 1996
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Production:
Oil (Mbbls)........................................ 470 459 424 379
Natural gas (Mmcf)................................. 12,507 14,362 13,770 10,178
Gas equivalent (per Mmcfe)......................... 15,327 17,116 16,314 12,452
Average sales price including effects of hedging:
Oil (per Bbl)...................................... $ 17.07 $ 15.86 $ 17.19 $ 18.86
Natural gas (per Mcf).............................. 2.10 1.99 1.76 2.22
Gas equivalent (per Mcfe).......................... 2.24 2.09 2.04 2.39
Lease operating expenses (per Mcfe).................. 0.51 0.42 0.45 0.44
Revenue (in thousands):
Oil................................................ $ 8,021 $ 7,281 $ 7,288 $ 7,149
Natural gas........................................ 26,274 28,575 26,021 22,578
-------- -------- -------- --------
Total...................................... $34,295 $35,856 $33,309 $ 29,727
======== ======== ======== ========
</TABLE>
58
<PAGE> 61
PRODUCT MARKETS AND MAJOR CUSTOMERS
The revenues generated by the Company's operations are highly dependent
upon the prices of, and demand for, oil and natural gas. Historically, the
markets for oil, natural gas and natural gas liquids have been volatile and are
likely to continue to be volatile in the future. The prices received by the
Company for its oil, natural gas and natural gas liquids production and the
levels of such production are subject to wide fluctuations and depend on
numerous factors beyond the Company's control, including market uncertainty,
changes in global supply of and demand for oil, natural gas and natural gas
liquids, weather conditions, the condition of the United States economy
(particularly the manufacturing sector), the price and quantity of foreign
imports, the price and availability of alternative fuels, political conditions
(including embargoes) in or affecting other oil-producing and natural
gas-producing countries, the actions of the Organization of Petroleum Exporting
Countries and domestic government regulation, legislation and policies.
Decreases in the prices of oil and natural gas have had, and could have in the
future, an adverse effect on the value of the Company's proved reserves and the
Company's revenues, profitability and cash flow. See "-- Oil and Natural Gas
Reserves".
Certain of the Company's natural gas production has been in the past, and
may be in the future, curtailed from time to time depending on the quality of
the natural gas produced and transportation alternatives. In addition, market,
economic and regulatory factors may in the future adversely affect the Company's
ability to sell its natural gas production.
Before 1985, substantially all of the Company's natural gas production was
sold directly to pipeline companies which were responsible for resale and
transportation of the natural gas to end-users. Since that time, however, with
the adoption of various orders by the Federal Energy Regulatory Commission (the
"FERC") and the deregulation of natural gas pursuant to the Natural Gas Policy
Act of 1978 (the "NGPA") and the Natural Gas Wellhead Decontrol Act of 1989 (the
"Decontrol Act"), the FERC has actively promoted competition in the nationwide
market for natural gas and has encouraged pipelines to reduce significantly
their role as merchants of natural gas and to make transportation services
available on an "open-access", nondiscriminatory basis. See
"-- Regulation -- Transportation and Sale of Natural Gas". Since these
regulatory initiatives were begun, natural gas producers such as the Company
have been able to sell their natural gas supplies directly to utilities and
other end-users.
In addition to the regulatory changes discussed above, deregulation of
natural gas prices under the NGPA and the Decontrol Act has increased
competition and volatility of natural gas prices. Since demand for natural gas
is generally highest during winter months, prices received for the Company's
natural gas are subject to seasonal variations and other fluctuations. All of
the Company's natural gas production is currently sold under various
arrangements which yield prices consistent with current market prices. As to gas
produced from the Aldwell Unit, the Company has a long-term agreement as to the
sale of such gas and the processing thereof which the Company believes to be
reasonably competitive. Similarly, the Company has a gas processing agreement on
its gas production from Sandy Lake which the Company believes has the effect of
pricing its gas production favorably compared to market prices at such location.
The Company routinely enters into financial arrangements to hedge its exposure
to oil and gas price fluctuations. See "-- Hedging".
For the six months ended June 30, 1996, Texaco Natural Gas, Inc., Transco
Gas Marketing Company ("Transco") and Howell Crude Oil Company accounted for
approximately 19%, 16% and 12%, respectively, of the Company's total revenues.
For the year ended December 31, 1995, Seneca Resources Corp, Transco and
Marathon Petroleum Co. ("Marathon") accounted for approximately 20%, 20% and
12%, respectively, of the Company's total revenues. For the year ended December
31, 1994, UNOCAL, Apache Corporation ("Apache") and Marathon accounted for
approximately 25%, 13% and 11%, respectively, of the Company's total revenues.
For the year ended December 31, 1993, Apache, UNOCAL, Lyle Energy Sources and
Marathon accounted for approximately 14%, 14%, 12% and 12%, respectively, of the
Company's total revenues.
COMPETITION
The Company's competitors include major integrated oil and natural gas
companies and numerous independent oil and natural gas companies, individuals
and drilling and income programs. Many of the
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<PAGE> 62
Company's larger competitors possess and employ financial and personnel
resources substantially greater than those available to the Company. Such
companies may be able to pay more for productive oil and natural gas properties
and exploratory prospects and to define, evaluate, bid for and purchase a
greater number of properties and prospects than the Company's financial or
personnel resources permit. The Company's ability to acquire additional
prospects and to discover reserves in the future will be dependent upon its
ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment. In addition, there is
substantial competition for capital available for investment in the oil and
natural gas industry.
REGULATION
The Company's operations are subject to extensive and continually changing
regulation, as legislation affecting the oil and natural gas industry is under
constant review for amendment and expansion. Many departments and agencies, both
federal and state, are authorized by statute to issue and have issued rules and
regulations binding on the oil and natural gas industry and its individual
participants. The failure to comply with such rules and regulations can result
in substantial penalties. The regulatory burden on the oil and natural gas
industry increases the Company's cost of doing business and, consequently,
affects its profitability. However, the Company does not believe that it is
affected in a significantly different manner by these regulations than are its
competitors in the oil and natural gas industry. Because of the myriad and
complex federal and state statutes and regulations which may affect the Company,
directly or indirectly, the following discussion of certain statutes and
regulations should not be relied upon as an exhaustive review of all matters
affecting the Company's operations.
Transportation and Sale of Natural Gas
Prior to January 1, 1993, various aspects of the Company's natural gas
operations were subject to regulations by the FERC under the Natural Gas Act of
1938 (the "NGA") and the NGPA with respect to "first sales" of natural gas,
including price controls and certificate and abandonment authority regulations.
However, as a result of the enactment of the Decontrol Act, the remaining "first
sales" restrictions imposed by the NGA and the NGPA terminated on January 1,
1993.
The FERC regulates interstate natural gas pipeline transportation rates and
service conditions, which affect the marketing of gas produced by the Company,
as well as the revenues received by the Company for sales of such natural gas.
Since the latter part of 1985, the FERC has adopted policies intended to make
natural gas transportation more accessible to gas buyers and sellers on an open
and nondiscriminatory basis. The FERC's most recent action in this area, Order
No. 636, reflected the FERC's finding that, under the then-existing regulatory
structure, interstate pipelines and other gas merchants, including producers,
did not compete on a "level playing field" in selling gas. Order No. 636
instituted individual pipeline services restructuring proceedings, designed
specifically to "unbundle" those services provided by many interstate pipelines
(for example, transportation, sales and storage) so that buyers of natural gas
may secure supplies and delivery services from the most economical source,
whether interstate pipelines or other parties. The FERC has issued final orders
in the restructuring proceedings, and a number of pipelines have filed tariff
sheets reflecting refinements in the implementation of Order No. 636 following
three years of operation under the program. In addition, the FERC has announced
its intention to reexamine certain of its transportation related policies,
including the appropriate manner in which interstate pipelines release
transportation capacity under Order No. 636, and has issued a new policy
regarding the use of nontraditional methods of setting rates for interstate gas
pipelines in certain circumstances as alternatives to cost-of-service based
rates.
Although the FERC's actions, such as Order No. 636, do not regulate gas
producers such as the Company, these actions are intended to foster increased
competition within all phases of the natural gas industry. To date, the FERC's
pro-competition policies have not materially affected the Company's business or
operations. On a prospective basis, however, such orders may substantially
increase the burden on the producers and transporters to nominate and deliver on
a daily basis a specified volume of natural gas. Producers and transporters
which deliver deficient volume or volumes in excess of such daily nominations
could be subject to additional charges by the pipeline carriers.
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Numerous petitions seeking judicial review of Order No. 636 and the
individual pipeline restructuring orders are pending. It is not possible to
predict what, if any, effect the final restructuring rule will have on the
Company. The Company does not believe, however, that it will be affected any
differently than other gas producers and marketers with which it competes.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any such
proposals might become effective or their effect, if any, on the Company's
operations. The natural gas industry historically has been very heavily
regulated; thus there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future.
Transportation and Sale of Crude Oil
Sales of crude oil and condensate can be made by the Company at market
prices not subject at this time to price controls. The price that the Company
receives from the sale of these products is affected by the cost of transporting
the products to market. Commencing in October 1993, the FERC issued a series of
orders (Order Nos. 561 and 561-A) in which it revised its regulations governing
the rates that may be charged by oil pipelines. The new rules, which became
effective January 1, 1995, provide a simplified, generally applicable method for
regulating such rates by use of an index for setting rate ceilings. In certain
circumstances, the new rules permit oil pipelines to establish rates using
traditional costs of service and other methods of ratemaking. On October 28,
1994, the FERC issued two separate Orders (Nos. 571 and 572), which adopt
additional regulations governing rates that an oil pipeline may be authorized to
charge. Order No. 571 authorizes a pipeline to implement cost-of-service based
rates, provided it can demonstrate that there is a substantial divergence
between the actual costs experienced by the carrier and the indexed rate that
the pipeline is directed to charge under Order No. 561. In Order No. 572, the
FERC adopted regulations that authorize a pipeline to charge market-based rates,
provided it can demonstrate that it lacks significant market power in the
market(s) in which it proposes to charge such rates. These rules have been
affirmed by the U.S. Court of Appeals for the District of Columbia Circuit. The
effect that these new rules may have on moving the Company's liquid products to
market cannot yet be determined.
Regulation of Production
The production of oil and natural gas is subject to regulation under a wide
range of state and federal statutes, rules, orders and regulations. State and
federal statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. Most states in which the
Company owns and operates properties have regulations governing conservation
matters, including provisions for the unitization or pooling of oil and natural
gas properties, the establishment of maximum rates of production from oil and
natural gas wells and the regulation of the spacing, plugging and abandonment of
wells. Many states also restrict production to the market demand for oil and
natural gas and several states have indicated interest in revising applicable
regulations. The effect of these regulations is to limit the amount of oil and
natural gas the Company can produce from its wells and to limit the number of
wells or the locations at which the Company can drill. Moreover, each state
generally imposes an ad valorem, production or severance tax with respect to
production and sale of crude oil, natural gas and gas liquids within its
jurisdiction.
Environmental Regulations
General. Various federal, state and local laws and regulations governing
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, affect the Company's operations and costs. In
particular, the Company's exploration, development and production operations,
its activities in connection with storage and transportation of crude oil and
other liquid hydrocarbons and its use of facilities for treating, processing or
otherwise handling hydrocarbons and wastes therefrom are subject to stringent
environmental regulation. As with the industry generally, compliance with
existing regulations increases the Company's overall cost of business. Such
areas affected include unit production expenses primarily related to the control
and limitation of air emissions and the disposal of produced water, capital
costs to drill exploration and development wells resulting from expenses
primarily related to the management and disposal of drilling
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fluids and other oil and gas exploration wastes and capital costs to construct,
maintain and upgrade equipment and facilities. While these regulations affect
the Company's capital expenditures and earnings, the Company believes that such
regulations do not materially adversely affect its competitive position because
its competitors are similarly affected. Environmental regulations have
historically been subject to frequent change by regulatory authorities, and the
Company is unable to predict its ongoing cost to comply with these laws and
regulations or the future impact of such regulations on its operations. A
discharge of hydrocarbons or hazardous substances into the environment could
subject the Company to substantial expense, including both the cost to comply
with applicable regulations pertaining to the remediation of releases of
hazardous substances into the environment and claims by neighboring landowners
and other third parties for personal injury and property damage. The Company
maintains some insurance which may provide some protection against environmental
liabilities, but the coverage of such insurance and the amount of protection
afforded thereby cannot be predicted with respect to any particular possible
environmental liability and may not be adequate to protect the Company from
substantial expense.
Water. The Oil Pollution Act (the "OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 (the "FWPCA") and
other statutes as they pertain to prevention and response to oil spills. The OPA
subjects owners of facilities to strict, joint and potentially unlimited
liability for removal costs and certain other consequences of an oil spill,
where such spill is into navigable waters, along shorelines or in the exclusive
economic zone. In the event of an oil spill into such waters, substantial
liabilities could be imposed upon the Company. States in which the Company
operates also have enacted similar laws. Regulations are being developed under
both the OPA and state laws that may impose additional regulatory burdens on the
Company.
The OPA requires the lessee or permittee of the offshore area in which an
oil or natural gas facility is located to establish and maintain evidence of
financial responsibility in the amount of $150.0 million to cover liabilities
related to an oil spill for which such person is statutorily responsible. On
August 25, 1993, the Minerals Management Services (the "MMS"), an agency of the
U.S. Department of the Interior, published an advance notice of its intention to
adopt regulations implementing the OPA's financial responsibility requirements
for offshore facilities. The U.S. House of Representatives and Senate have
adopted separate bills that would lower the financial responsibility requirement
under the OPA for offshore facilities to $35.0 million and these bills have been
referred to a House/Senate conference committee to resolve differences in the
bills. The Company cannot predict the result of any legislative action or the
final form of any financial responsibility regulations that will be adopted by
the MMS, but the impact of any such regulations should not be any more adverse
to the Company than it will be to other similarly situated companies.
The FWPCA imposes restrictions and strict controls regarding the discharge
of produced waters and other oil and gas wastes into navigable waters. These
controls have become more stringent over the years, and it is probable that
additional restrictions will be imposed in the future. Permits must be obtained
to discharge pollutants into state and federal waters. The FWPCA provides for
civil, criminal and administrative penalties for any unauthorized discharges of
oil and other hazardous substances in reportable quantities and, along with the
OPA, imposes substantial potential liability for the costs of removal,
remediation and damages. State laws for the control of water pollution also
provide varying civil, criminal and administrative penalties and impose
liabilities in the case of a discharge of petroleum or its derivatives, or other
hazardous substances, into state waters. In addition, the Environmental
Protection Agency ("EPA") has promulgated regulations that require many oil and
gas production operations to obtain permits to discharge storm water runoff. The
Company believes that compliance with existing permits and with foreseeable new
permit requirements will not have a material adverse effect on the Company's
financial condition or results of operations.
Air Emissions. The operations of the Company are subject to the Federal
Clean Air Act and comparable state and local statutes. The Company believes that
its operations are in substantial compliance with such statutes in all states in
which it operates.
Amendments to the Federal Clean Air Act enacted in 1990 require or will
require most industrial operations in the United States to incur capital
expenditures in order to meet air emission control standards developed by the
EPA and state environmental agencies. Although no assurances can be given, the
Company
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believes implementation of such amendments will not have a material adverse
effect on the Company's financial condition or results of operations.
Solid Waste. The Federal Resource Conservation and Recovery Act ("RCRA") is
the principal federal statute governing the treatment, storage and disposal of
hazardous wastes. RCRA imposes stringent operating requirements (and liability
for failure to meet such requirements) on a person who is either a "generator"
or "transporter" of hazardous waste or an "owner" or "operator" of a hazardous
waste treatment, storage or disposal facility. At present, RCRA includes a
statutory exemption that allows oil and gas exploration and production wastes to
be classified as non-hazardous waste. A similar exemption is contained in many
of the state counterparts to RCRA. As a result, the Company is not required to
comply with a substantial portion of RCRA's requirements because the Company's
operations generate minimal quantities of hazardous wastes. However, at various
times in the past, proposals have been made to rescind the exemption that
excludes oil and gas exploration and production wastes from regulation as
hazardous waste under RCRA. Repeal or modification of this exemption by
administrative, legislative or judicial process, or through changes in
applicable state statutes, would increase the volume of hazardous waste to be
managed and disposed of by the Company. Hazardous wastes are subject to more
rigorous and costly disposal requirements than are non-hazardous wastes. Such
changes in the regulations may result in additional capital expenditures or
operating expenses by the Company.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as "Superfund", imposes liability, without
regard to fault or the legality of the original act, on certain classes of
persons that contributed to the release of a "hazardous substance" into the
environment. These persons include the "owner" or "operator" of the site and
companies that disposed or arranged for the disposal of the hazardous substances
found at the site. CERCLA also authorizes the EPA and, in some instances, third
parties to act in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs they
incur. In the course of its ordinary operations, the Company may generate waste
that may fall within CERCLA's definition of a "hazardous substance". The Company
may be jointly and severally liable under CERCLA for all or part of the costs
required to clean up sites at which such wastes have been disposed.
The Company currently owns or leases, and has in the past owned or leased,
numerous properties that for many years have been used for the exploration and
production of oil and gas. Although the Company has utilized operating and
disposal practices that were standard in the industry at the time, hydrocarbons
or other wastes may have been disposed of or released on or under the properties
owned or leased by the Company or on or under other locations where such wastes
have been taken for disposal. In addition, many of these properties have been
operated by third parties whose actions with respect to the treatment and
disposal or release of hydrocarbons or other wastes were not under the Company's
control. These properties and wastes disposed thereon may be subject to CERCLA,
RCRA and analogous state laws. Under such laws, the Company could be required to
remove or remediate previously disposed wastes (including wastes disposed of or
released by prior owners or operators), to clean up contaminated property
(including contaminated groundwater) or to perform remedial plugging operations
to prevent future contamination.
TITLE TO PROPERTIES
The Company's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens,
including other mineral encumbrances and restrictions. The Company does not
believe that any of these burdens materially interferes with the use of such
properties in the operation of its business.
The Company believes that it has generally satisfactory title to or rights
in all of its producing properties. As is customary in the oil and natural gas
industry, minimal investigation of title is made at the time of acquisition of
undeveloped properties. Title investigation is made, and title opinions of local
counsel are generally obtained, only before commencement of drilling operations.
The Company believes that title issues generally are not as likely to arise on
offshore oil and gas properties as on onshore properties.
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EMPLOYEES
As of September 1, 1996, the Company had approximately 50 full-time
employees, none of whom is represented by any labor union.
LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is a claimant and/or a
defendant in various legal proceedings, including proceedings as to which it has
insurance coverage, in which its exposure, individually and in the aggregate, is
not considered material to the Company.
THE TRANSACTIONS
THE ACQUISITION
Pursuant to the Purchase Agreement by and among Hardy plc and its wholly
owned subsidiary Hardy Holdings Inc., on the one hand, and ECT and Mariner
Holdings, on the other hand, Mariner Holdings acquired all the capital stock of
the Company from Hardy Holdings Inc. (the "Acquisition") for an aggregate
purchase price of approximately $185.5 million, including $14.5 million for net
working capital of the Company. In connection with the Acquisition, substantial
intercompany indebtedness and receivables and third-party indebtedness of the
Company were eliminated. The Acquisition was consummated on May 16, 1996;
however, for accounting purposes, the Acquisition is treated as if it had
occurred on April 1, 1996. The Acquisition was financed by the proceeds from the
JEDI Bridge Loan and from the purchase by JEDI of stock of Mariner Holdings. See
"-- Stockholders' Agreement and Related Matters" and "-- Financing".
In connection with the Acquisition, which was accounted for as a purchase
transaction, the Company incurred a "ceiling test" writedown under full cost
accounting requirements of approximately $22.5 million. The "ceiling test" is
applied, in general, to reduce the carrying value of oil and gas properties to
an amount not greater than the present value of estimated future net revenues
determined in accordance with the requirements of the Commission -- based in
this instance on prices in effect as to the Company's oil and gas production on
the closing date of the Acquisition. The writedown is an accounting charge and
as such did not affect the Company's cash flow from operating activities.
Under the Purchase Agreement, Hardy Holdings Inc. and Mariner Holdings will
make an election under section 338(h)(10) of the Code with the effect that the
tax basis of the Company's assets will be increased to the deemed purchase price
of the assets. It is expected that this additional basis will result in
increased income tax deductions and, accordingly, reduced income taxes payable
by the Company. Under the Purchase Agreement, and except to the extent such
taxes are accrued as a current liability on the audited balance sheet of the
Company as of March 31, 1996, Hardy plc and Hardy Holdings Inc. are responsible
for (i) all U.S. federal, foreign, state and local taxes with respect to the
Company for all periods or portions thereof ending on or before March 31, 1996,
and audit adjustments to such taxes, (ii) any taxes of any corporation (other
than the Company) that is or was a member of the affiliated group of
corporations filing a consolidated federal income tax return of which Hardy
Holdings Inc. is the common parent (the "Seller Group"), (iii) any withholding
taxes with respect to any payment pursuant to the Purchase Agreement by the
Company to Hardy plc of any net intercompany account balance between the
Company, on the one hand, and Hardy plc and its affiliates, on the other hand,
and (iv) any taxes resulting from such section 338(h)(10) election and any
similar election under any applicable state income tax law. Hardy Holdings Inc.
is also responsible for all taxes due with respect to all periods or portions
thereof ending on or before May 16, 1996 that are covered by any consolidated
federal income tax return or any state consolidated, combined or unitary income
tax return of the Seller Group that includes the Company. Mariner Holdings is
responsible for all other taxes owing with respect to the Company.
Pursuant to a Participation Agreement dated as of May 16, 1996 (the
"Participation Agreement") by and between Hardy plc and Mariner Holdings, Hardy
plc has an option to purchase participation rights in certain prospects
generated by the Company until May 16, 1999. This option entitles Hardy plc to
acquire up to 25% of any leasehold or working interest the Company holds in any
prospect that (i) is located in
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U.S. federal waters off the coast of the Gulf, (ii) the Company, in its
reasonable judgment, plans to develop, (iii) the Company reasonably expects to
exploit using a floating production facility or a subsea tieback system that
will require estimated gross capital expenditures in excess of $150.0 million
and (iv) is generated by the Company and is expected to be operated by the
Company. The Company is required to provide notice to Hardy plc within ten days
of acquiring an interest, or a contractual right to acquire an interest, in such
a prospect. Hardy plc must exercise its option with respect to such prospect
within ten days of receiving such notice from the Company. If Hardy plc
exercises its participation right as to any prospect, it must pay the Company a
ratable portion of the Company's costs and expenses in generating and acquiring
the prospect, including a $250,000 prospect fee. In addition to the interest in
the prospect it acquires from the Company, Hardy plc would then have the right
to copy any geological and geophysical data owned by the Company and pertaining
to the prospect in which it is participating.
STOCKHOLDERS' AGREEMENT AND RELATED MATTERS
In contemplation of the consummation of the Acquisition, ECT, Mariner
Holdings and representatives of the Company's management (Robert E. Henderson,
Richard R. Clark, Michael W. Strickler and David S. Huber) entered into the
Stockholders' Agreement. The Stockholders' Agreement provides for the
capitalization of Mariner Holdings by ECT, its affiliates and certain employees
and consultants of the Company, certain aspects of Mariner Holdings'
organization and management and certain rights and obligations of the
stockholders of Mariner Holdings.
In May 1996, in accordance with the terms of the Stockholders' Agreement,
JEDI purchased 950,000 shares of the common stock of Mariner Holdings for an
aggregate consideration of $95.0 million; JEDI and Mariner Holdings entered into
the JEDI Bridge Loan; Mariner Holdings borrowed $92.0 million under the JEDI
Bridge Loan; and Mariner Holdings purchased the stock of the Company.
On June 27, 1996, in accordance with the terms of the Stockholders'
Agreement, 24 individuals who are employees of or consultants to the Company
(the "Management Stockholders") purchased an aggregate of 35,947 shares of the
common stock of Mariner Holdings (the "Management Investment") and received
options to purchase an additional 128,331 shares of the common stock of Mariner
Holdings. The aggregate purchase price for those shares was valued at
approximately $4.0 million, which the Management Stockholders paid by means of
cash or assignments of a portion of their overriding royalty interests held
under the terms of their then-existing employment or consulting arrangements
with the Company. In addition, in accordance with the terms of the Stockholders'
Agreement, the Management Stockholders who had Change of Control Agreements
relinquished their rights thereunder. Concurrently with the purchase of shares
of Mariner Holdings, each Management Stockholder (other than Messrs. Henderson,
Clark, Strickler and Huber, who were already parties) became a party to the
Stockholders' Agreement.
As a result of these transactions, the Management Stockholders and JEDI own
approximately 4% and approximately 96%, respectively, of the outstanding shares
of Mariner Holdings stock. On a fully diluted basis (that is, assuming that all
options granted to the Management Stockholders pursuant to the Stockholders'
Agreement have been exercised), the Management Stockholders would own or have
the right to acquire an aggregate of 164,278 shares, which would represent
approximately 15% of all shares that would be outstanding, and JEDI would own
approximately 85% of all outstanding shares on that basis. The stock options
granted to the Management Stockholders are not currently exercisable, are
subject to vesting schedules and are more fully described under the caption
"Management -- Employment, Consulting and Stock Option Agreements".
Under the terms of the Stockholders' Agreement, each Management Stockholder
entered into a new or amended employment or consulting agreement with the
Company. See "Management -- Employment, Consulting and Stock Option Agreements".
These agreements, among other things, afford all but three of the Management
Stockholders the benefits of the Company's overriding royalty program. See
"Management -- Overriding Royalty Interests".
The Stockholders' Agreement requires that the board of directors of Mariner
Holdings (as well as the board of directors of each subsidiary of Mariner
Holdings, including the Company) will include at least three
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nominees of the Management Stockholders (the "Management Directors"). Currently,
those three representatives are Messrs. Henderson, Clark and Strickler. The
Stockholders' Agreement requires that the remaining board members consist of
nominees of JEDI. See "Management -- Executive Officers and Directors". In
addition, any executive committee of the board of directors must include at
least two members who are Management Directors and any compensation committee of
the board of directors must include at least one member who is a Management
Director; however, no Management Director is to be appointed to any audit
committee.
The Stockholders' Agreement contains several additional provisions relating
to the management of Mariner Holdings and the rights and duties of stockholders
of Mariner Holdings. For further details, see "Certain
Transactions -- Stockholders' Agreement and Related Matters".
FINANCING
JEDI Bridge Loan
In connection with the Acquisition and pursuant to the requirements of the
Stockholders' Agreement, Mariner Holdings and JEDI entered into a Credit,
Subordination and Further Assurances Agreement dated as of May 16, 1996,
pursuant to which JEDI provided a loan commitment to Mariner Holdings for the
JEDI Bridge Loan. Mariner Holdings borrowed $92.0 million pursuant to the JEDI
Bridge Loan to partially fund the Acquisition. There is no outstanding balance
under the JEDI Bridge Loan, and it has terminated according to its terms.
Revolving Credit Facility
On June 28, 1996, the Company entered into the Revolving Credit Facility
that currently provides for a revolving credit facility of up to $50.0 million
with NationsBank of Texas, N.A., as the agent for the Lenders. On June 28, 1996,
the Company borrowed $50.0 million under the Revolving Credit Facility and used
the proceeds to pay a dividend to Mariner Holdings, which was used by Mariner
Holdings to partially repay the JEDI Bridge Loan. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Revolving Credit Facility".
The Note Offering
On August 14, 1996, the Company issued the Outstanding Notes. Of the net
proceeds of the Note Offering, $42.0 million was used to pay a dividend to
Mariner Holdings, which in turn used the dividend to repay the remaining balance
of the JEDI Bridge Loan, and $50.0 million was used to repay all indebtedness
outstanding under the Revolving Credit Facility. See "Use of Proceeds".
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MANAGEMENT
EXECUTIVE OFFICERS, KEY CONSULTANT AND DIRECTORS
Set forth below are the names, ages and positions of the executive officers
and directors of the Company and a key consultant to the Company. All directors
are elected for a term of one year and serve until their successors are elected
and qualified. All executive officers hold office until their successors are
elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Robert E. Henderson................ 43 Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer
Richard R. Clark................... 41 Senior Vice President of Production and
Director
Michael W. Strickler............... 40 Senior Vice President of Exploration and
Director
James M. Fitzpatrick............... 45 Vice President of Land and Legal, Corporate
Secretary
Gregory K. Harless................. 47 Vice President of Oil and Gas Marketing
W. Hunt Hodge...................... 40 Vice President of Administration
Clinton D. Smith................... 41 Vice President of Operations
David S. Huber..................... 46 Consultant
James V. Derrick, Jr............... 51 Director
Andrew S. Fastow................... 34 Director
Gene E. Humphrey................... 49 Director
Jere C. Overdyke, Jr............... 45 Director
Frank Stabler...................... 44 Director
</TABLE>
Mr. Henderson has been Chairman of the Board of the Company since May 1996,
President and Chief Executive Officer since 1987 and a director since 1985. From
1984 to 1987, he served the Company or predecessors in various other positions.
From 1976 to 1984, he held various positions with ENSTAR Corporation.
Mr. Clark has served the Company in various engineering and operations
activities since 1984 and has been Senior Vice President of Production since
1991 and a director since 1988. Prior to joining the Company he worked as a
Production Engineer in the Offshore Production Group of Shell Oil Company.
Mr. Strickler joined the Company in 1984 and has served the Company since
such time in its geological and exploration activities. He has served as Senior
Vice President of Exploration of the Company since 1991 and a director since
1989.
Mr. Fitzpatrick joined the Company in 1984 and has served as Vice President
of Land and Legal since 1990 and Corporate Secretary since May 1996. Prior to
joining the Company he had been a petroleum landman for Pend Oreille Oil and Gas
Company and for Exxon Company U.S.A.
Mr. Harless has served as Vice President of Oil and Gas Marketing of the
Company since 1990. Prior to joining the Company in 1988, he was Vice President
of Marketing and Regulatory Affairs of Enron Oil and Gas Company.
Mr. Hodge has served as Vice President of Administration of the Company
since 1992. Prior to joining the Company in 1985, he was Purchasing Manager of
Santa Fe Minerals Company.
Mr. Smith joined the Company in 1987 and has served as Vice President of
Operations since 1992. Prior to joining the Company he worked on both domestic
and international assignments for Phillips Oil Company and Eaton Engineering.
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Mr. Huber, a consultant to the Company, serves the Company in a number of
respects, particularly with respect to exploration, exploitation and development
of deepwater prospects, in which he has significant expertise, and is regarded
by the Company as a key personnel resource. Mr. Huber is an independent project
management consultant and is the Company's deepwater project manager. The
Company has engaged the services of Mr. Huber from time to time since 1991. Mr.
Huber was employed by Hamilton Oil Corporation (which was acquired by BHP
Petroleum in 1991) in the North Sea from 1981 to 1991, holding the positions of
production manager, planning and economics manager, and engineering manager. He
was the deepwater drilling engineering supervisor for Esso Exploration, Inc.
from 1974 to 1980.
Mr. Derrick has served as a director since May 1996. He is currently Senior
Vice President and General Counsel of Enron. He serves on the Management
Committee of Enron and is a director of Enron Global Power & Pipelines LLC, a
New York Stock Exchange-listed entity that owns interests in certain
international pipeline and power projects. Mr. Derrick also serves on the board
of directors of Coda Energy, Inc., an oil and gas exploration and production
company in which JEDI owns 98.5% of the common stock. He has been associated
with Enron since 1991. Prior to that he was for many years engaged in the
private practice of law in Houston, Texas.
Mr. Fastow has served as a director since July 1996. Since 1990 he has been
an employee of ECT, currently serving as a Managing Director. Prior to joining
ECT Mr. Fastow was a Senior Director in Continental Bank's Asset Securitization
Group.
Mr. Humphrey has served as a director since May 1996. Since 1990 he has
been an employee of ECT, currently serving as a Managing Director. He serves on
the board of directors of Coda Energy, Inc. Prior to joining ECT Mr. Humphrey
was a Vice President in Citibank's Petroleum Department.
Mr. Overdyke has served as a director since May 1996. Since 1991 he has
been an employee of ECT, currently serving as a Managing Director. Mr. Overdyke
has approximately 20 years of experience in the energy sector and has held
various financial and management positions with public and private independent
exploration and production companies.
Mr. Stabler has served as a director since May 1996. He is currently a Vice
President of ECT and has held positions with ECT since 1992. From 1989 to 1992,
Mr. Stabler served as Manager of Investor Services for American Exploration
Company.
The Stockholders' Agreement requires that the Board of Directors of the
Company include at least three nominees of the Management Stockholders.
Currently, those three representatives are Messrs. Henderson, Clark and
Strickler. The remaining board members are to include nominees of JEDI. See
"Certain Transactions -- Stockholders' Agreement and Related Matters".
Mr. Henderson has served as the Company's Chief Financial Officer since
August 1996, when the former Chief Financial Officer ceased to serve in that
position (see "-- Employment, Consulting and Stock Option
Agreements -- Employment Agreements"). The Company is conducting an executive
search to fill such position.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual compensation for the Company's
Chief Executive Officer and the four other most highly compensated executive
officers for the fiscal year ended December 31, 1995. Such individuals are
sometimes referred to as the "named executive officers".
<TABLE>
<CAPTION>
AGGREGATE LONG-
TERM COMPENSATION
ANNUAL COMPENSATION RECEIVED AS A
------------------------------ RESULT OF
OTHER ANNUAL OVERRIDING ROYALTY
NAME AND PRINCIPAL POSITION SALARY COMPENSATION(1) PROGRAM(2)
--------------------------- -------- --------------- ------------------
<S> <C> <C> <C>
Robert E. Henderson......................... $232,350 $ 6,000 $216,585
President and Chief Executive Officer
Richard R. Clark............................ 161,625 6,000 142,040
Senior Vice President of Production
Michael W. Strickler........................ 145,500 5,640 151,512
Senior Vice President of Exploration
Clinton D. Smith............................ 127,525 4,944 67,764
Vice President of Operations
Gary M. Pedlar(3)........................... 122,600 4,872 85,469
Vice President of Finance and Chief
Financial Officer
</TABLE>
- ---------------
(1) Amounts shown reflect the Company's contribution under the discretionary
profit sharing feature of its Employee Capital Accumulation Plan. See
"-- 401(k) Plan". For each of the named executive officers, the aggregate
amount of perquisites, payments made in respect of insurance coverage and
other personal benefits did not exceed the lesser of $50,000 and 10% of the
officer's total annual salary and bonus and information with respect
thereto is not included.
(2) Does not include amounts received as a result of sales of overriding royalty
interests by individuals, normally in connection with sales of properties
by the Company; in 1995 proceeds of such sales were as follows for the
individuals indicated: Mr. Henderson ($301,307), Mr. Clark ($153,086), Mr.
Strickler ($353,061), Mr. Smith ($0) and Mr. Pedlar ($86,014). See
"-- Overriding Royalty Interests".
(3) Mr. Pedlar ceased to be the Company's Chief Financial Officer in August
1996; the Company anticipates that Mr. Pedlar will cease to be Vice
President of Finance of the Company as of September 30, 1996. See
"-- Employment, Consulting and Stock Option Agreements -- Employment
Agreements".
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Overriding Royalty Program
Pursuant to agreements implementing the Company's overriding royalty
program, 21 employees or consultants of the Company, including each of the named
executive officers, are entitled to receive, based on production from the
Company's oil and gas properties in which he is assigned an overriding royalty
interest, royalty payments that vary from time to time based on production. See
"-- Overriding Royalty Interests". Set forth below is certain information
relating to the participation of Messrs. Henderson, Clark, Strickler, Smith and
Pedlar in the overriding royalty program.
<TABLE>
<CAPTION>
TOTAL NUMBER OF
PROSPECTS
IN WHICH AGGREGATE CASH
OVERRIDING AMOUNTS RECEIVED
ROYALTY AS A RESULT OF
INTERESTS OVERRIDING
WERE RECEIVED ROYALTY
NAME IN 1995(1) PROGRAM IN 1995(2)
---- --------------- ------------------
<S> <C> <C>
Robert E. Henderson....................................... 4 $216,585
President and Chief Executive Officer
Richard R. Clark.......................................... 4 142,040
Senior Vice President of Production
Michael W. Strickler...................................... 4 151,512
Senior Vice President of Exploration
Clinton D. Smith.......................................... 4 67,764
Vice President of Operations
Gary M. Pedlar(3)......................................... 4 85,469
Vice President of Finance and Chief Financial Officer
</TABLE>
- ---------------
(1) At the time overriding royalty interests are received, they have only a
nominal value because no reserves have been proven at such time on the
prospects to which such interests relate.
(2) Does not include amounts received as a result of sales of overriding
royalty interests by individuals, normally in connection with sales of
properties by the Company; in 1995 proceeds of such sales were as follows
for the individuals indicated: Mr. Henderson ($301,307), Mr. Clark
($153,086), Mr. Strickler ($353,061), Mr. Smith ($0) and Mr. Pedlar
($86,014). See "-- Overriding Royalty Interests".
(3) Mr. Pedlar ceased to be the Company's Chief Financial Officer in August
1996; the Company anticipates that Mr. Pedlar will cease to be Vice
President of Finance of the Company as of September 30, 1996. See
"-- Employment, Consulting and Stock Option Agreements -- Employment
Agreements".
DIRECTORS' COMPENSATION
Members of the Board of Directors of the Company do not receive
compensation for any services provided in their capacities as directors, other
than the reimbursement of reasonable expenses incurred in connection with
attending meetings of the Board of Directors.
EMPLOYMENT, CONSULTING AND STOCK OPTION AGREEMENTS
Employment Agreements
The Company and 20 employees (each, an "Employee" and collectively, the
"Employees") have entered into employment agreements or amended and restated
employment agreements generally effective as of June 27, 1996 (each, an
"Employment Agreement" and collectively, the "Employment Agreements"). The
Employment Agreements with nine of the Employees (the "Senior Employees"),
including Messrs. Henderson, Clark, Strickler and Smith, are for initial terms
of three or five years, depending upon the Employment Agreement (five years in
the case of Messrs. Henderson, Clark and Strickler and three years in the case
of Mr. Smith), and thereafter are extended for terms of either three or six
months, depending upon the Employment Agreement (six months in the case of
Messrs. Henderson, Clark and Strickler and three months in the case of Mr.
Smith), unless notice of termination is given by either the Company or the
Senior
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Employee at least three or six months, depending upon the Employment Agreement
(six months in the case of Messrs. Henderson, Clark, Strickler and Smith) before
the end of the initial or any extended term thereof (the "Senior Employee Notice
Period"). The Employment Agreements with the remaining 11 employees (the "Other
Employees") are for terms of two years. Under the Employment Agreements, the
annual salaries range from $61,700 to $236,000 ($236,000, $166,500, $150,000 and
$131,500 in the case of Messrs. Henderson, Clark, Strickler and Smith,
respectively), which may be reviewed at such times as may be determined by the
Company, and the Company may in its discretion increase an Employee's salary.
The Employees are eligible for participation in such medical, dental, life and
accidental death and dismemberment insurance programs and retirement, pension,
deferred compensation and other benefit programs instituted by the Company from
time to time. The Employees are also entitled to vacation, reimbursement of
certain expenses and, depending upon the Employment Agreement, either an
automobile allowance or a leased vehicle of the Company's choice and
reimbursement for expenses related to the use of such leased vehicle. As
incentive compensation, the Senior Employees and, under letter agreements (each,
an "ORI Letter Agreement" and collectively, the "ORI Letter Agreements"), eight
of the Other Employees are entitled to overriding royalty interests in certain
oil and gas prospects acquired by the Company. See "-- Overriding Royalty
Interests".
If a Senior Employee's Employment Agreement is terminated by the Company
upon notice to such Senior Employee during the Senior Employee Notice Period, by
the Company without Cause (as defined in such Senior Employee's Employment
Agreement) other than by such notice to such Senior Employee, or by such Senior
Employee for Good Reason (as defined in such Senior Employee's Employment
Agreement) and assuming no notice of termination has been given by such Senior
Employee to the Company during the Senior Employee Notice Period, such Senior
Employee will be entitled to, among other things, (i) his or her salary and
other benefits through the end of the initial term or extended term of the
Employment Agreement (which salary will be paid in a lump sum cash payment in
the case of termination by the Company without Cause other than by such notice
to the Senior Employee or termination by the Senior Employee for Good Reason),
(ii) a lump sum cash payment equal to three, six, nine or 12 months' salary,
depending upon the Employment Agreement (12 months in the case of Mr. Henderson,
nine months in the case of Messrs. Clark and Strickler and six months in the
case of Mr. Smith), (iii) a lump sum cash payment equal to all vacation time
carried forward from a previous year and all earned and unused vacation time for
the then current year and (iv) an assignment of vested overriding royalty
interests. See "-- Overriding Royalty Interests". If a Senior Employee's
Employment Agreement is terminated by such Senior Employee upon notice to the
Company during the Senior Employee Notice Period, or if the Company at its
option consents to a request by a Senior Employee to terminate his or her
Employment Agreement at a time other then the end of the initial or any extended
term thereof (in which case the date requested by such Senior Employee and
agreed to by the Company will be the end of the term thereof), such Senior
Employee will be entitled to the amounts specified in the preceding sentence
except that such Senior Employee will not be entitled to the lump sum cash
payment equal to three, six, nine or 12 months' salary, depending upon the
Employment Agreement (12 months in the case of Mr. Henderson, nine months in the
case of Messrs. Clark and Strickler and six months in the case of Mr. Smith).
If an Other Employee's Employment Agreement terminates at the end of the
two-year term thereof, is terminated by the Company without Cause (as defined in
such Other Employee's Employment Agreement) or by an Other Employee for Good
Reason (as defined in such Other Employee's Employment Agreement), or if the
Company at its option consents to a request by an Other Employee to terminate
his or her Employment Agreement at a time other then the end of the term thereof
(in which case the date requested by such Other Employee and agreed to by the
Company will be the end of the term thereof), such Other Employee will be
entitled to, among other things, (i) his or her salary and other benefits
through the end of the term of the Employment Agreement (which salary will be
paid in a lump sum cash payment in the case of termination by the Company
without Cause or termination by such Other Employee for Good Reason), (ii) a
lump sum cash payment equal to all vacation time carried forward from a previous
year and all earned and unused vacation time for the then current year and (iii)
an assignment of vested overriding royalty interests, if any.
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<PAGE> 74
If an Employee's Employment Agreement is terminated by the Company for
Cause, such Employee is entitled to payment of salary and other benefits through
the month of discharge (prorated in the case of salary for such month of
discharge) and an assignment of vested overriding royalty interests, if any. If
an Employee becomes unable to perform his or her duties by reason of disability
(as defined in the Employment Agreements), such Employee is entitled to receive,
in addition to any insurance benefits, all of his or her salary for the first
month of disability and one-half of his or her salary for the next three months
of disability.
During the term of the Senior Employees' Employment Agreements, and for six
or 12 months thereafter, depending upon the Employment Agreement (12 months in
the case of Messrs. Henderson, Clark and Strickler and six months in the case of
Mr. Smith), if a Senior Employee's Employment Agreement is terminated by the
Company for Cause or by a Senior Employee other than for Good Reason (including
termination by a Senior Employee during the Senior Employee Notice Period), such
Senior Employee may not, directly or indirectly, (i) engage in, or render
advice, services or assistance to any person who is engaged directly or
indirectly in, any business that is in competition with the Company (a) in any
geographic area or market where the Company or its subsidiaries are conducting
any business as of the date of such termination or have conducted any business
during the previous 12 months, or (b) in any geographic area or market where the
Senior Employee knew the Company contemplated entering any business as of the
date of such termination, but only if the Company had, as of the date of such
termination, invested significant resources towards entering such business in
any such geographic area or market, or (ii) induce any employee of the Company
or its subsidiaries to terminate his or her employment with the Company or its
subsidiaries or hire or assist in the hiring of any such employee by any person
not affiliated with the Company. Additionally, if any payment or distribution by
the Company or its affiliates to or for the benefit of an Employee would be
subject to the "golden parachute excise tax" imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the Employee will
be entitled to receive an additional gross-up payment or payments in an amount
such that after payment of all taxes by the Employee attributable to such
additional gross-up payment or payments, such Employee retains an amount equal
to such excise tax imposed upon such payments and distributions. Under the
Employment Agreements, on the effective date thereof, the Change in Control
Agreements dated effective as of February 12, 1996, between the Company and the
Employees were terminated.
The Company anticipates that it will enter into a letter agreement (the
"Letter Agreement") between Mr. Pedlar and the Company under which Mr. Pedlar
will cease to be Vice President of Finance of the Company and to be employed by
the Company in any other capacity as of September 30, 1996. Pursuant to the
Letter Agreement, Mr. Pedlar is expected to be entitled to (i) payment of salary
and an automobile allowance through September 30, 1996, (ii) a lump sum payment
of approximately $339,500, (iii) until the earlier of (a) March 31, 1999 and (b)
the date on which Mr. Pedlar becomes a full-time employee of another party,
insurance and certain other benefits substantially similar to those enjoyed by
Mr. Pedlar prior to the termination of his employment, (iv) continued benefit
from any overriding royalty interest granted pursuant to a separate agreement,
as modified by the Letter Agreement, and in which Mr. Pedlar has a vested
interest as of September 30, 1996, (v) vested benefits under the Company's
Employee Capital Accumulation Plan and (vi) certain outplacement services. See
"-- Overriding Royalty Interests".
Consulting Agreements
The Company and five consultants (each, a "Consultant" and collectively,
the "Consultants") have entered into a consulting services agreement or amended
and restated consulting services agreements generally effective as of June 27,
1996 (each, a "Consulting Agreement" and collectively, the "Consulting
Agreements"). The Consulting Agreements are for initial or extended terms
ranging from one to five years and thereafter are extended for each successive
calendar month until either the Company or the Consultant gives the other 30
days' written notice. Under Mr. Huber's Consulting Agreement (pursuant to which
he provides strategic deepwater project management services to the Company), the
daily retainer fee is $850 per day worked, and the Company guarantees Mr. Huber
a minimum of 200 days' retainer fee during each year under his Consulting
Agreement. Under the other Consultants' Consulting Agreements (pursuant to which
the consultants perform prospect generation and evaluation services for the
exclusive benefit of the Company), the
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<PAGE> 75
annual retainer fees are reviewed and determined by the Company from time to
time. The Consultants are also entitled to, among other things, allowances and
reimbursement of certain expenses and are provided an office and parking at the
Company's office. Under the Consulting Agreements, on the effective date
thereof, the Change in Control Agreements dated effective as of February 12,
1996, between the Company and the Consultants were terminated.
During the five-year term and any extended term of Mr. Huber's Consulting
Agreement, and except for services to be provided to the Company under his
Consulting Agreement, Mr. Huber may not, directly or indirectly, for himself or
others, engage in any oil or gas exploration, development or production activity
in the Gulf. Additionally, if any payment or distribution by the Company or its
affiliates to or for the benefit of Mr. Huber would be subject to the "golden
parachute excise tax" imposed by Section 4999 of the Code, then Mr. Huber will
be entitled to receive an additional gross-up payment or payments in an amount
such that after payment of all taxes by Mr. Huber attributable to such
additional gross-up payment or payments, Mr. Huber retains an amount equal to
such excise tax imposed upon such payments and distributions.
Stock Option Agreements
Under the Mariner Holdings, Inc. 1996 Stock Option Plan (the "Stock Option
Plan"), a committee of the board of directors of Mariner Holdings (the
"Committee") is authorized to grant options to purchase shares of Mariner
Holdings common stock, including options qualifying as "incentive stock options"
under Section 422 of the Code ("ISOs") and options that do not so qualify
("NSOs"), to employees and consultants as additional compensation for their
services to Mariner Holdings and its subsidiaries. The Stock Option Plan is
intended to promote the long-term financial interests of Mariner Holdings and
its subsidiaries by providing a means whereby designated employees and
consultants may develop a sense of proprietorship and personal involvement in
the development and financial success of Mariner Holdings and its subsidiaries,
and to encourage them to remain with and devote their best efforts to the
business of Mariner Holdings and its subsidiaries, thereby advancing the
interests of Mariner Holdings and its stockholders. The Stock Option Plan became
effective upon its adoption by the board of directors of Mariner Holdings and
approval by the stockholders of Mariner Holdings.
The aggregate number of shares of Mariner Holdings common stock that may be
issued under options granted under the Stock Option Plan will not exceed 142,800
shares, subject to adjustment in the event of a stock split, stock dividend or
other change in the Mariner Holdings common stock or the capital structure of
Mariner Holdings.
The Stock Option Plan is administered by the Committee. Subject to the
provisions of the Stock Option Plan, the Committee is authorized to determine
who may participate in the Stock Option Plan, the number of shares that may be
issued under each option and the terms, conditions and limitations applicable to
each grant. In addition, the Committee is authorized to interpret the Stock
Option Plan and may from time to time adopt such rules and regulations
consistent with the provisions of the Stock Option Plan as it may deem advisable
to carry out the Stock Option Plan. Subject to certain limitations, the board of
directors of Mariner Holdings is authorized to amend, alter or terminate the
Stock Option Plan.
Under the Stock Option Plan, options will be exercisable over such period
as may be determined by the Committee. These options will be evidenced by option
agreements that may provide for the surrender of the right to purchase shares
under the option in return for a payment in cash or shares of Mariner Holdings
common stock or a combination of cash and shares of Mariner Holdings common
stock equal in value to the excess of the fair market value of the shares with
respect to which the right to purchase is surrendered over the purchase price
therefor. No option may be transferable other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order and
will be exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative. The purchase price of Mariner
Holdings common stock subject to an option will be determined by the Committee,
but in the case of ISOs, such purchase price will not be less than 100% of the
fair market value of such Mariner Holdings common stock on the date of grant.
Such purchase price may be paid in full in cash, Mariner Holdings common stock
or a combination of both as may be determined by the Committee.
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<PAGE> 76
On June 27, 1996, options ("Options") to purchase 128,331 shares of Mariner
Holdings common stock, including both ISOs and NSOs, were granted to the
Employees and four of the Consultants at an exercise price of $100 per share.
The Options generally vest and become exercisable as to one-fifth thereof on
each of the first five anniversaries of the date of grant. The Options expire
seven years after the date of grant. Upon termination of such optionee's
employment or consulting arrangement with Mariner Holdings or its subsidiaries,
(i) if such termination results from death, disability, termination by the
Company without Cause (as defined in the Employment Agreements, in the case of
the Employees, and in the stock option agreements, in the case of the
Consultants) or, in the case of the Employees, voluntary termination by the
Employee for Good Reason, then such Option will become immediately exercisable
in full and will remain fully exercisable until the expiration of the seven-year
option period, (ii) if such termination results from, in the case of the
Consultants, termination by the Consultant and there has not occurred an event
constituting Cause prior to such termination by the Consultant or, in the case
of the Employees, voluntary termination by the Employee other than for Good
Reason, then all portions of such Options vested as of the date of such
termination will remain exercisable at any time during the period ending 30 days
after the date of such termination, or (iii) if termination is, in the case of
Consultants, by the Consultant or the Company and there has occurred an event
constituting Cause prior to such termination or, in the case of the Employees,
by the Company for Cause, then such Options will terminate immediately and cease
to be exercisable. In addition, the Options will become exercisable in full upon
the occurrence of an initial public offering, which is defined as an offering
that is underwritten on a firm commitment basis by a nationally recognized
investment banking firm or in a merger or other business combination involving
Mariner Holdings if immediately thereafter Mariner Holdings (or its successor)
is subject to the reporting requirements of Section 13 or Section 15 of the
Exchange Act. Any unvested portion of an optionee's Options may also be
exercised to the extent, but only to the extent, necessary to allow the Employee
or the Consultant to sell shares of Mariner Holdings common stock the Employee
or the Consultant is actually selling pursuant to his or her tagalong rights
under the Stockholders' Agreement. See "Certain Transactions -- Stockholders'
Agreement and Related Matters".
Shares of Mariner Holdings common stock purchased pursuant to the exercise
of an Option are subject to the terms of the Stockholders' Agreement. See
"Certain Transactions -- Stockholders' Agreement and Related Matters". After any
exercise of NSOs, Mariner Holdings is required to pay to the Employee or the
Consultant in cash an amount such that after payment by him or her of federal
income taxes on such amount (which taxes shall be assumed to be assessed at the
highest ordinary income tax rate applicable to individuals on such date), he or
she retains a portion of the payment equal to the difference, if any, between
(i) the amount of federal income tax payable on the difference between the fair
market value on such date of the Mariner Holdings common stock acquired by such
exercise over the purchase price paid therefor (the "Spread") at the highest
ordinary income tax rate applicable to individuals on such date and (ii) the
amount of federal income tax payable on the Spread at the highest long-term
capital gains tax rate applicable to individuals on such date; provided,
however, that Mariner Holdings will have no obligation to make any such payment
if a change in federal tax laws enacted after the date of grant of such NSOs
eliminates Mariner Holdings' right to deduct the Spread from its taxable income.
OVERRIDING ROYALTY INTERESTS
Pursuant to agreements, the Consultants and certain of the Employees are
entitled to receive from the Company, as incentive compensation, overriding
royalty interests ("Overriding Royalty Interests") in certain oil and gas
prospects ("Prospects") acquired by the Company. These agreements generally
apply to Prospects acquired by the Company on or after April 18, 1996. Under
these agreements, the aggregate percentage of all Overriding Royalty Interests
affecting the Company's working interests in Prospects does not exceed 3% before
well payout, or 7.5% after well payout, of the Company's working interest in
such Prospects. Under similar predecessor agreements that pre-date the
above-referenced agreements, certain employees and consultants of the Company
became entitled to receive Overriding Royalty Interests in respect of Prospects
that were acquired by the Company during various periods prior to April 18,
1996.
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<PAGE> 77
Employees
Each Employment Agreement with a Senior Employee and each ORI Letter
Agreement (each, an "ORI Agreement" and collectively, the "ORI Agreements")
provides that the Employee is entitled to receive, as incentive compensation,
Overriding Royalty Interests equal to certain specified undivided percentages of
the Company's working interest percentage in Prospects acquired by the Company
within the United States and its coastal waters while the Employee is employed
by the Company and during the term or extended term of the ORI Agreement. For
purposes of each ORI Agreement, oil and gas prospects acquired by the Company on
or after April 18, 1996 (or, in the case of one ORI Agreement, May 16, 1996),
are deemed to have been acquired by the Company during the term of the ORI
Agreement.
The Overriding Royalty Interest percentage of the Company's working
interest percentage to which each such Employee is entitled with respect to each
well drilled on a Prospect, for the period before well payout, is one-fourth of
such Employee's Overriding Royalty Interest percentage for the period after well
payout. These percentages range from 0.032083% to 0.23250% before payout and
from 0.128333% to 0.93000% after payout for each such Employee depending
generally upon the level of management responsibility of the particular
Employee.
Although each such Employee is entitled to receive the revenue arising from
his or her Overriding Royalty Interest in respect of any Prospect whether or not
he or she has become entitled to receive a recordable assignment of such
Overriding Royalty Interest from the Company, other than in exceptional cases
the Employee is not entitled to receive recordable assignments of his or her
interests until his or her completion of three years of employment by the
Company. In certain exceptional cases, the Employee becomes entitled to receive
recordable assignments of his or her accrued Overriding Royalty Interests in
Prospect leases not yet assigned, without regard to whether he or she has then
completed three years of employment by the Company. In such cases, the
Employee's Overriding Royalty Interest percentages in respect of the Company's
working interest in such Prospects (being in a before/after payout ratio of 1 to
4 as mentioned above) are adjusted at the time of assignment such that the
Employee's after-payout interest is reduced to one-half of the Employee's
after-payout interest stated in the ORI Agreement, and the Employee's
before-payout interest is increased to twice the Employee's before-payout
interest stated in the ORI Agreement, with the result that the Employee's
interests before and after payout are "equalized" upon delivery by the Company
of such recordable assignment. The exceptional cases in which the Employee is
entitled to receive such recordable assignments from the Company on an
"equalized basis" include the following: (i) a change in control of the Company
during the term or extended term of the ORI Agreement; (ii) the foreclosure or
conveyance in lieu of foreclosure of the Company's working interest in any
Prospect during the term or extended term of the ORI Agreement; and (iii) the
sale, transfer or conveyance to an unaffiliated third party during the term or
extended term of the ORI Agreement of all or substantially all of the Company's
working interests in all or substantially all exploratory acreage then owned by
the Company.
In instances in which all or a portion of the Company's working interest in
a Prospect will be sold or farmed out to unaffiliated third parties, and the
Company determines in good faith that the Company's interest will not be
marketable on satisfactory terms if marketed subject to the Employee's
Overriding Royalty Interest affecting such Prospect, the Company, as a general
rule, may elect to adjust the Employee's Overriding Royalty Interest in such
Prospect. In such instances, a committee designated by the Board of Directors of
the Company (at least half of the members of which are required to be
individuals who have been granted an Overriding Royalty Interest by the Company)
are to exercise discretion on behalf of the Company in reducing or modifying the
Employee's Overriding Royalty Interest in such Prospect in accordance with
certain parameters set forth in the ORI Agreement. Certain decisions of the
committee require the approval of the Board of Directors of the Company. Such
modifications or reductions of the Employee's Overriding Royalty Interest apply
only to the portion of the Company's working interest sold or farmed out to such
third party and do not affect the Employee's Overriding Royalty Interest in any
interest retained by the Company. Such discretionary adjustments to the
Employee's Overriding Royalty Interest may not be made following delivery to the
Employee of a recordable assignment with respect to such Prospect if such
assignment was made pursuant to any of the exceptional cases described in
clauses (i), (ii) and (iii) above.
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In addition to the provisions for reduction or other adjustment of the
Employee's Overriding Royalty Interest as mentioned above, the Company may also
elect in its sole discretion, within 60 days after the end of each fiscal year
of the Company, to reduce the Employee's Overriding Royalty Interest set forth
in the ORI Agreement with respect to all Prospects subject to the ORI Agreement
that were acquired by the Company during such fiscal year, based upon certain
levels of exploration and development costs actually incurred by the "Company
Group" (which consists of the Company and certain other entities affiliated with
the Company or anticipated to participate in exploration prospects with the
Company) during such fiscal year in respect of all Prospects subject to the ORI
Agreement. Further, with respect to certain deepwater types of Prospects, the
Company may elect in its sole discretion to make other reductions and
adjustments to the Employee's Overriding Royalty Interest based upon certain
levels of exploration and development costs estimated to be incurred by the
Company Group in respect of such deepwater types of Prospects.
The Company retains a right of first refusal to purchase any Overriding
Royalty Interest assigned to the Employee pursuant to the ORI Agreement, which
right applies to any third party offer received by the Employee during the term
or within one year from the expiration of the ORI Agreement.
Consultants
Except for the Consulting Agreement with Mr. Huber, which is described
separately below, each Consulting Agreement provides that the Consultant is
entitled to receive, as incentive compensation, recordable assignments of
Overriding Royalty Interests equal to certain specified undivided percentages of
the Company's working interest percentage in Prospects acquired by the Company
within the United States and its coastal waters during the term of the
Consulting Agreement or within 12 months after the term thereof. For purposes of
all but one of the Consulting Agreements, oil and gas prospects acquired by the
Company on or after April 18, 1996, are deemed to have been acquired by the
Company during the term of the Consulting Agreement.
The Overriding Royalty Interest percentage of the Company's working
interest percentage to which each Consultant is entitled with respect to a
Prospect is specified in the Consulting Agreement as the same percentage before
and after well payout, except for certain types of deepwater Prospects as to
which the Consultant's before and after payout percentages are in a 1 to 4
ratio. The Consultant's percentage participation is greater where the particular
Prospect idea was generated by the Consultant or the other member of the
two-person geological/geophysical team of which the Consultant is a part, and is
smaller where the Prospect idea was generated by other Company or non-Company
generators. Further, the Consultant's Overriding Royalty Interest percentage is
smaller for certain deepwater types of Prospects than for other Prospects, and,
in the case of deepwater types of Prospects, may be reduced even further in the
Company's sole discretion, in accordance with certain parameters set forth in
the Consulting Agreement.
In instances in which all or a portion of the Company's working interest in
a Prospect will be sold or farmed out to unaffiliated third parties, and the
Company determines in good faith that the Company's interest will not be
marketable on satisfactory terms if marketed subject to the Consultant's
Overriding Royalty Interest affecting such Prospect, the Company, as a general
rule, may elect to adjust the Consultant's Overriding Royalty Interest in such
Prospect. In such instances, any such adjustments are to be made in the same
manner and in the same proportion as the adjustment to Overriding Royalty
Interests in such Prospect of the Company's employees participating in the
Company's employee Overriding Royalty Interest pool that is also made by the
Company to facilitate such sale or farmout. The Consultant is not entitled to
receive assignments in respect of such Prospects until the Company's decision
concerning adjustment of Overriding Royalty Interests of such employees has been
made, except that the Consultant is entitled to receive such assignments upon
the occurrence of any of the events described in the exceptional cases mentioned
under "-- Employees" above. In such exceptional cases, the Consultant is
entitled to receive such assignment on an "equalized" basis as described above,
in the case of the deepwater types of Prospects mentioned above as to which the
Consultant's before and after payout percentages specified in the Consulting
Agreement are in a 1 to 4 ratio.
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The Company retains a right of first refusal to purchase any Overriding
Royalty Interest assigned to the Consultant pursuant to the Consulting
Agreement, which right applies to any third party offer received by the
Consultant during the term or within one year from the expiration of the
Consulting Agreement.
The Consulting Agreement with Mr. Huber provides that he is entitled to
receive, as incentive compensation, Overriding Royalty Interests equal to
certain specified undivided percentages of the Company's working interest
percentage in Prospects acquired by the Company during the term or extended term
of such Consulting Agreement in certain deepwater areas of the United States
Gulf only. Except for the geographic limitation mentioned above, the terms and
provisions governing Mr. Huber's Overriding Royalty Interest participation are
essentially the same as those described under "-- Employees" above.
401(K) PLAN
The Company has an Employee Capital Accumulation Plan that is intended to
be a Section 401(k) plan under the Code. All employees of the Company, including
the named executive officers of the Company, are eligible to participate in such
plan, and employees may make contributions thereto under a salary reduction
program. The Company may, in its discretion, make, and in every year since such
feature was implemented has made, so-called "profit sharing" contributions to
such plan on behalf of the plan participants. Contributions by both employees
and the Company to the plan are restricted in number and amount, and the
aggregate contributions by the Company are not significant. See Note 5 to the
Financial Statements of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1995, the Board of Directors of the Company had no compensation
committee since the Company was a wholly owned subsidiary of Hardy plc, which
through its board of directors and officers set the compensation of the
executive officers of the Company. As a director of Hardy plc until the
Acquisition, Mr. Henderson participated in deliberations concerning the
compensation of executive officers of the Company.
OWNERSHIP OF SECURITIES
The Company is a wholly owned subsidiary of Mariner Holdings. The following
table sets forth the name and address of the only stockholder of Mariner
Holdings that is known by the Company to beneficially own more than 5% of the
outstanding shares of common stock of Mariner Holdings, the number of shares
beneficially owned by such stockholder, and the percentage of outstanding shares
of common stock of Mariner Holdings so owned, as of September 1, 1996. As of
September 1, 1996, there were 985,947 shares of common stock of Mariner Holdings
outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------- ----------------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock of Joint Energy Development 950,000 96.4%
Mariner Holdings Investments Limited Partnership(1)
1400 Smith Street
Houston, Texas 77002
</TABLE>
- ---------------
(1) JEDI primarily invests in and manages certain natural gas and energy related
assets. JEDI's general partner is an affiliate of ECT, and JEDI's limited
partner is CalPERS. Each partner has a 50% interest in JEDI. The general
partner exercises sole voting and investment power with respect to such
shares.
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<PAGE> 80
The table appearing below sets forth information as of September 1, 1996,
with respect to shares of common stock of Mariner Holdings beneficially owned by
each of the Company's directors, the Company's Chief Executive Officer and the
four other most highly compensated executive officers for the fiscal year ended
December 31, 1995, a key consultant of the Company and all directors and
executive officers and such key consultant as a group, and the percentage of
outstanding shares of common stock of Mariner Holdings so owned by each.
<TABLE>
<CAPTION>
DIRECTORS, KEY CONSULTANT AND AMOUNT AND NATURE OF PERCENT
NAMED EXECUTIVE OFFICERS BENEFICIAL OWNERSHIP(1) OF CLASS
- --------------------------------------------------------------- ----------------------- --------
<S> <C> <C>
Robert E. Henderson............................................ 5,570 *
Richard R. Clark............................................... 3,920 *
Michael W. Strickler........................................... 3,920 *
Gary M. Pedlar(2).............................................. 0 *
Clinton D. Smith............................................... 2,500 *
David S. Huber................................................. 3,795 *
James V. Derrick, Jr........................................... 0 *
Andrew S. Fastow............................................... 0 *
Gene E. Humphrey............................................... 0 *
Jere C. Overdyke, Jr........................................... 0 *
Frank Stabler.................................................. 0 *
All directors and executive officers and key consultant as a
group
(14 persons)................................................. 24,918 3%
</TABLE>
- ---------------
* Less than one percent.
(1) All shares are owned directly by the named person and such person has sole
voting and investment power with respect to such shares.
(2) The Company anticipates that Mr. Pedlar will cease to be Vice President of
Finance of the Company as of September 30, 1996. See
"Management -- Employment, Consulting and Stock Option Agreements --
Employment Agreements".
In June 1996, in accordance with the terms of the Stockholders' Agreement,
24 individuals who are employees of or consultants to the Company received
options to purchase an aggregate of 128,331 shares of the common stock of
Mariner Holdings. In addition, the Stockholders' Agreement provides for certain
preemptive and registration rights. See "Management -- Employment, Consulting
and Stock Option Agreements" and "Certain Transactions -- Stockholders'
Agreement and Related Matters".
CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENT AND RELATED MATTERS
Mariner Holdings, ECT, JEDI and each other stockholder of Mariner Holdings
is a party to the Stockholders' Agreement. The Stockholders' Agreement was
originally entered into by ECT, Mariner Holdings, and Messrs. Henderson, Clark,
Strickler and Huber in contemplation of Mariner Holdings' acquisition of all of
the outstanding shares of stock of the Company. Mariner Holdings was formed by
ECT for the purpose of acquiring the Company. The Stockholders' Agreement
provides for the capitalization of Mariner Holdings by ECT, its affiliates and
certain employees and consultants of the Company, certain aspects of Mariner
Holdings' organization and management and certain rights and obligations of the
stockholders of Mariner Holdings.
In May 1996, in accordance with the terms of the Stockholders' Agreement,
JEDI purchased 950,000 shares of the common stock of Mariner Holdings for an
aggregate consideration of $95.0 million; JEDI and Mariner Holdings entered into
the JEDI Bridge Loan; Mariner Holdings borrowed $92.0 million under the JEDI
Bridge Loan; and Mariner Holdings purchased the stock of the Company. Mariner
Holdings has since repaid the JEDI Bridge Loan in full, and it has terminated
according to its terms.
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<PAGE> 81
In June 1996, in accordance with the terms of the Stockholders' Agreement,
the Management Stockholders purchased an aggregate of 35,947 shares of the
common stock of Mariner Holdings, received options to purchase an additional
128,331 shares of the common stock of Mariner Holdings and entered into new or
amended employment or consulting agreements with the Company. The aggregate
purchase price for those shares was valued at approximately $4.0 million, which
the Management Stockholders paid by means of cash or assignments of a portion of
their overriding royalty interests held under the terms of their then-existing
employment or consulting arrangements with the Company. In addition, in
accordance with the terms of the Stockholders' Agreement, the Management
Stockholders who had Change of Control Agreements relinquished their rights
thereunder. Concurrently with the purchase of shares of Mariner Holdings, each
Management Stockholder (other than Messrs. Henderson, Clark, Strickler and
Huber, who were already parties) became a party to the Stockholders' Agreement.
As a result of these transactions, the Management Stockholders and JEDI own
approximately 4% and approximately 96%, respectively, of the outstanding shares
of Mariner Holdings stock. On a fully diluted basis (assuming that all options
granted to the Management Stockholders pursuant to the Stockholders' Agreement
have been exercised), the Management Stockholders would own or have the right to
acquire an aggregate of 164,278 shares, which would represent approximately 15%
of all shares that would be outstanding, and JEDI would own approximately 85% of
all outstanding shares on that basis. The stock options granted to the
Management Stockholders are not currently exercisable, are subject to vesting
schedules and are more fully described under the caption
"Management -- Employment, Consulting and Stock Option Agreements".
Under the Stockholders' Agreement, Mariner Holdings paid or agreed to pay
certain amounts, including (i) an arrangement fee and facility fee payable to
JEDI, as the lender under the JEDI Bridge Loan, (ii) a fee payable to an
affiliate of ECT equal to 2.5% of the total principal amount of any refinancing
or substitution for the JEDI Bridge Loan if an affiliate of ECT is the sole
placement agent or financial advisor in connection with the refinancing or
substitution and otherwise a fee that would be commercially reasonable for a
transaction of the nature of the refinancing or substitution and (iii) payment
or reimbursement to ECT, JEDI and the Management Stockholders for all reasonable
fees and expenses of third parties incurred by them in connection with the
Stockholders' Agreement, the JEDI Bridge Loan and Mariner Holdings' purchase of
the stock of the Company. In addition, Mariner Holdings agreed to reimburse each
Management Stockholder who paid for shares of Mariner Holdings stock by
assignment of overriding royalty interests for any additional taxes and related
costs incurred by such Management Stockholder to the extent, if any, that the
transfer of the overriding royalty interests does not qualify as a tax-free
exchange under federal tax laws. In addition, in connection with JEDI's purchase
of Mariner Holdings stock, JEDI received a fee equal to 3% of the total purchase
price paid by JEDI. Of the amounts agreed to be paid by Mariner Holdings,
approximately $5.0 million was, or will be, paid by the Company. In addition,
Mariner Holdings has certain ongoing obligations pursuant to the Stockholders'
Agreement. Since Mariner Holdings has no independent cash flow and no assets
other than its interest in the Company, it will be dependent upon dividends,
distributions or advances from the Company to meet any cash requirements flowing
from such obligations.
Under the terms of the Stockholders' Agreement, each Management Stockholder
entered into a new or amended employment or consulting agreement with the
Company. See "Management -- Employment, Consulting and Stock Option Agreements".
These agreements, among other things, afford the Management Stockholders the
benefits of the Company's overriding royalty program. See
"Management -- Overriding Royalty Interests". In addition, the Company must keep
certain employee benefit plans in effect until June 1999.
The Stockholders' Agreement requires that the board of directors of Mariner
Holdings (as well as the board of directors of each subsidiary of Mariner
Holdings, including the Company) will include at least three Management
Directors. Currently, those three representatives are Messrs. Henderson, Clark
and Strickler. The Stockholders' Agreement requires that the remaining board
members consist of nominees of JEDI. See "Management -- Executive Officers and
Directors". In addition, any executive committee of the board of directors must
include at least two members who are Management Directors and any compensation
committee of the board of directors must include at least one member who is a
Management Director; however, no Management Director is to be appointed to any
audit committee. The Stockholders' Agreement
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<PAGE> 82
also requires that certain provisions be included in the certificate of
incorporation and bylaws of Mariner Holdings (as well as each of its
subsidiaries, including the Company) to ensure that the Management Directors are
elected to the board and that certain provisions indemnifying the officers,
directors and employees of Mariner Holdings and of the Company are maintained.
Under the terms of the Stockholders' Agreement, Enron and its affiliates
(which include, without limitation, ECT and JEDI) are specifically permitted to
compete with Mariner Holdings and the Company, and neither Enron nor any of its
affiliates has any obligation to bring any business opportunity to Mariner
Holdings or the Company. Similarly, Mariner Holdings and the Company may compete
with Enron and its affiliates and do not have any obligation to bring any
business opportunity to Enron or any affiliate of Enron, including, without
limitation, ECT and JEDI. See "-- Enron".
The Stockholders' Agreement requires that any transfer or issuance of
shares of Mariner Holdings stock be made in compliance with applicable
securities laws. Subject to those laws, JEDI may transfer its shares of Mariner
Holdings stock at any time. Also subject to those laws, after June 2001, a
Management Stockholder may transfer shares, but before that time a Management
Stockholder may not voluntarily transfer shares unless they are transferred to a
family member or to another Management Stockholder, although a Management
Stockholder may make a bona fide pledge or mortgage of shares. In addition, if
any stockholder or group of stockholders of Mariner Holdings proposes to sell or
exchange Mariner Holdings stock in one transaction or a series of related
transactions that will result in any person who is not a "financial participant"
(as defined below), together with that person's affiliates or members of a
group, beneficially owning at least 30% of the outstanding Mariner Holdings
stock, then the Management Stockholders will have a right (a "tagalong right")
to participate in the transaction on the same terms as the stockholder or group
of stockholders that is proposing the transaction. If the transaction will
result in ownership by the acquiring persons of more than 30% but less than 50%
of the outstanding Mariner Holdings stock, then each Management Stockholder is
permitted to transfer or exchange a number of shares representing the Management
Stockholder's proportion of all shares owned by, or acquirable pursuant to stock
options of, the Management Stockholder, over the sum of all shares owned by all
stockholders and all shares acquirable pursuant to all stock options; if,
however, the proposed transaction will result in ownership by the acquiring
persons of 50% or more of the outstanding Mariner Holdings stock, a Management
Stockholder may sell or exchange all of his shares, unless JEDI, ECT or
affiliates controlled by them remain as stockholders, in which case a Management
Stockholder must retain a proportion of his shares equal to the number of shares
retained by JEDI, ECT or affiliates controlled by them over the total number of
shares of Mariner Holdings stock acquired by JEDI pursuant to the Stockholders'
Agreement in May 1996. Management Stockholders electing to exercise their
tagalong rights may exercise their stock options to do so, even if the options
have not vested. A "financial participant" is an entity which has represented in
writing that (i) as to any part of the entity's business engaged in or relating
to the oil and gas industry, the entity is primarily engaged in investing in
other entities and (ii) the entity is not the operator of any oil or gas wells
and does not have a significant oil and gas management team, including
geologists and production engineers. The Management Stockholders' tagalong
rights do not apply if the acquiring person is Mariner Holdings or ECT or any
entity controlled by either of them or if Mariner Holdings has consummated an
initial public offering.
Under the terms of the Stockholders' Agreement, the stockholders of Mariner
Holdings have the preemptive right to acquire additional securities proposed to
be issued by Mariner Holdings to any other party, on the same terms proposed to
be applicable to the other party. Each stockholder has the right to acquire a
number of shares representing his or her proportionate interest in all of the
outstanding shares of Mariner Holdings, but to the extent a stockholder does not
exercise any preemptive rights, the remaining stockholders have the right to
acquire the shares offered to the non-acquiring stockholder.
The Stockholders' Agreement also provides for certain registration rights.
First, at any time after the expiration of 90 days after Mariner Holdings has
consummated an initial public offering, JEDI may request Mariner Holdings to
register its stock under federal securities laws. If that request is made, the
other stockholders of Mariner Holdings have the right to register their shares
as well. Mariner Holdings is obligated to so register its stock on three
occasions only and is not obligated to so register its stock if the board of
directors determines that to do so would materially adversely affect a pending
or proposed public offering,
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<PAGE> 83
acquisition, merger, recapitalization, reorganization or similar transaction or
negotiations with respect thereto. Second, if Mariner Holdings has not
consummated an initial public offering by June 2001, then JEDI or an assignee of
JEDI, if it owns at least 30% of the outstanding stock of Mariner Holdings, may
request Mariner Holdings to register its stock under federal securities laws. If
that request is made, the other stockholders of Mariner Holdings will have the
right to register their shares as well. Mariner Holdings is obligated to so
register its stock on one occasion only and is not obligated to so register its
stock if its board of directors determines that to do so would materially
adversely affect a pending or proposed public offering, acquisition, merger,
recapitalization, reorganization or similar transaction or negotiations with
respect thereto. Finally, if Mariner Holdings proposes to register its shares of
stock under federal securities laws at any time (excluding registrations
relating to employee benefit plans or certain business combinations), it will
use its best efforts to permit its stockholders to include their shares in the
registration if they so request.
The Stockholders' Agreement provides for indemnification by Mariner
Holdings of Messrs. Henderson, Clark, Strickler and Huber for any expenses they
incur in an action based on their participation in the transactions described in
the Stockholders' Agreement brought by or in the right of the Company's former
parent, Hardy plc.
The Stockholders' Agreement prohibits any transfer of Mariner Holdings
stock or any issuance of Mariner Holdings stock unless the transferee or person
to whom the stock is proposed to be issued has become a party to the
Stockholders' Agreement. Amendments to the Stockholders' Agreement require the
approval by the holders of two-thirds of the outstanding Mariner Holdings stock,
the approval of each stockholder who owns at least 10% of the outstanding
Mariner Holdings stock, a majority of the Management Directors and at least one
Management Director who became a stockholder in June 1996. However, no amendment
may impose any additional material obligation on any party to the Stockholders'
Agreement without that party's written consent. The Stockholders' Agreement
terminates on the earliest of the following events: (i) Mariner Holdings'
bankruptcy or dissolution, (ii) the occurrence of an event that reduces the
number of stockholders to one, (iii) the merger or consolidation of Mariner
Holdings with another corporation if Mariner Holdings is not the surviving
corporation and if the stockholders do not hold at least 50% of the outstanding
voting stock of the surviving corporation, (iv) the sale of substantially all of
the assets of Mariner Holdings or of the Company, (v) the acquisition by one
person or group of affiliated persons not affiliated with ECT of more than
two-thirds of the outstanding stock (unless the holders of at least 90% of the
outstanding stock elect not to terminate the Stockholders' Agreement and the
non-termination is approved by the Management Directors), (vi) the consummation
of an initial public offering, (vii) the consummation of a business combination
pursuant to which Mariner Holdings becomes a reporting company under federal
securities laws and (viii) May 2006; however, the registration rights provided
for in the Stockholders' Agreement will survive any termination as a result of
the consummation of an initial public offering, and Mariner Holdings'
obligations to reimburse the Management Stockholders for any tax liabilities
resulting from paying for stock by assignments of overriding royalty interests
(as discussed above) will survive any termination due to any of the above-
described events.
ENRON
Enron is the parent of ECT, and an affiliate of Enron and ECT is the
general partner of JEDI. Accordingly, Enron may be deemed to control JEDI,
Mariner Holdings and the Company. In addition, five of the Company's directors
are officers of Enron or affiliates of Enron: Mr. Derrick is Senior Vice
President and General Counsel of Enron and holds other positions with affiliates
of Enron; Messrs. Fastow, Humphrey and Overdyke are Managing Directors of ECT;
and Mr. Stabler is a Vice President of ECT.
Enron and certain of its subsidiaries and other affiliates collectively
participate in nearly all phases of the oil and natural gas industry and are,
therefore, competitors of the Company. In addition, ECT and JEDI have provided,
and may in the future provide, and ECT Securities Corp. has assisted, and may in
the future assist, in arranging financing to non-affiliated participants in the
oil and natural gas industry who are or may become competitors of the Company.
Because of these various conflicting interests, ECT, the Company, JEDI and the
Management Stockholders have entered into an agreement that is intended to make
clear that Enron and its affiliates have no duty to make business opportunities
available to the Company.
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<PAGE> 84
ECT Securities Corp., one of the Placement Agents, is an indirect
subsidiary of Enron and, accordingly, is an affiliate of ECT, JEDI, Mariner
Holdings and the Company. In connection with the Transactions, the Company and
Mariner Holdings, in the aggregate, have paid ECT affiliates arrangement and
financial services fees of approximately $2.9 million. In addition, pursuant to
the JEDI Bridge Loan, Mariner Holdings has paid JEDI approximately $2.6 million
in arrangement and facility fees. Of the net proceeds of the Note Offering,
$42.0 million was used to pay a dividend to Mariner Holdings, which in turn used
the dividend to repay the remaining balance of the JEDI Bridge Loan. See "Use of
Proceeds", "The Transactions" and "Management".
JEDI, an affiliate of Enron, owns approximately 96% of the capital stock of
Mariner Holdings. In May 1996, JEDI provided the JEDI Bridge Loan to Mariner
Holdings. Mariner Holdings borrowed $92.0 million under the JEDI Bridge Loan,
which has been repaid in full and terminated according to its terms in August
1996. See "Use of Proceeds" and "The Transactions".
Under the Revolving Credit Facility, the Company has covenanted that
neither it nor Mariner Holdings nor any subsidiary of either will engage in any
transaction with any of its affiliates (including Enron, ECT, JEDI and
affiliates of such entities) providing for the rendering of services or sale of
property unless such transaction is as favorable to such party as could be
obtained in an arm's-length transaction with an unaffiliated party in accordance
with prevailing industry customs and practices. The Revolving Credit Facility
excludes from this covenant (i) any transaction permitted by the Stockholders'
Agreement, (ii) any transaction permitted by the JEDI Bridge Loan, (iii) the
grant of options to purchase or sales of equity securities to directors,
officers, employees and consultants of the Company and Mariner Holdings and (iv)
the assignment of any overriding royalty interest pursuant to an employee
incentive compensation plan. See "The Transactions", "Management -- Overriding
Royalty Interests" and "Description of Revolving Credit Facility".
The Company expects that from time to time it will engage in various
commercial transactions and have various commercial relationships with Enron and
certain affiliates of Enron, such as holding and exploring, exploiting and
developing joint working interests in particular prospects and properties,
engaging in hydrocarbon price hedging arrangements and entering into other oil
and gas related or financial transactions. For example, there are several
prospects in which both an affiliate of Enron and the Company have working
interests. Such interests were acquired in the ordinary course of business
pursuant to bids, joint or otherwise. Any wells drilled will be subject to joint
operating agreements relating to exploration and possible production and will be
subject to customary business terms. Furthermore, the Company has entered into
several agreements with Enron or affiliates of Enron for the purpose of hedging
oil and natural gas prices on the Company's future production. The Company
believes that its current agreements with Enron and its affiliates are, and
anticipates that, but can provide no assurances that, any future agreements with
Enron and its affiliates will be, on terms no less favorable to the Company than
would be contained in an agreement with a third party.
DESCRIPTION OF REVOLVING CREDIT FACILITY
The Revolving Credit Facility provides for a maximum $150.0 million
revolving credit loan and matures June 28, 1999, at which time all amounts owed
under such facility are due and payable. The Revolving Credit Facility is
unsecured. The Borrowing Base under the Revolving Credit Facility is currently
$50.0 million and is subject to redetermination every six months (and, at the
election of the Lenders, one additional time per year) by the Lenders at the
Lenders' sole discretion and in accordance with their customary practices and
standards in effect from time to time for oil and natural gas loans to borrowers
similar to the Company. Determination of the Borrowing Base may be affected by,
among other things, estimates and projections of reserves and production rates
with respect to the Company's oil and natural gas properties and changes in oil
and natural gas prices. The Company's obligations under the Revolving Credit
Facility are guaranteed by Mariner Holdings.
So long as no default or event of default (as defined in the Revolving
Credit Facility) is continuing, borrowings under the Revolving Credit Facility
bear interest, at the option of the Company, at either (i) LIBOR plus 0.75% to
1.25% (depending upon the level of utilization of the Borrowing Base) or (ii)
the
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<PAGE> 85
higher of (a) the agent's prime rate and (b) the federal funds rate plus 0.5%.
The Company incurs a quarterly commitment fee ranging from 0.25% to 0.375% per
annum on the average unused portion of the Borrowing Base, depending upon the
level of utilization.
The Revolving Credit Facility contains covenants which, among other things,
restrict the payment of dividends, limit the amount of debt the Company may
incur, limit the Company's ability to make certain loans and investments, limit
the Company's ability to enter into certain hedge transactions and provide that
the Company must maintain a specified relationship between cash flow and fixed
charges and cash flow and interest on indebtedness. At each fiscal quarter, the
Company's ratio of (i) EBITDA for the four previous fiscal quarters to (ii) the
sum of (a) interest expense for the same period, (b) the sum of 1/4 of the
amount of annual maintenance capital expenditures set forth in the then most
recent third-party engineering report delivered to the agent for each such
quarter and (c) income taxes paid by the Company during the four previous fiscal
quarters, must not be less than 1.50 to 1.00. Additionally, at each fiscal
quarter, the Company's ratio of (i) EBITDA for the four previous fiscal quarters
to (ii) interest expense for the same period, must not be less than 2.25 to
1.00. Further, under the Revolving Credit Facility, an event of default is
deemed to occur if JEDI, Enron, CalPERS, ECT and affiliates of such entities (or
a combination of such entities) cease to own, directly or indirectly,
outstanding capital stock of the Company (on either an undiluted or fully
diluted basis) that in the aggregate permits such entities to elect a majority
of the Board of Directors of the Company.
The total credit commitment and Borrowing Base under the Revolving Credit
Facility at present is $50.0 million. As of the date of this Prospectus, there
are no outstanding borrowings under the Revolving Credit Facility and the
commitment fee in effect is 0.375%.
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued as a separate series of notes under an
indenture (the "Indenture") dated as of August 1, 1996, among the Company and
United States Trust Company of New York, as trustee (the "Trustee"). The
Exchange Notes will be subordinated to all existing and future Senior
Indebtedness (as defined herein) of the Company and are substantially identical
(including principal amount, interest rate, maturity and redemption rights) to
the Outstanding Notes for which they may be exchanged pursuant to the Exchange
Offer, except for certain transfer restrictions and registration rights relating
to the Outstanding Notes and except for certain interest provisions relating to
such rights. Under the terms of the Indenture, the covenants and events of
default will apply equally to the Exchange Notes and the Outstanding Notes, and
the Exchange Notes and the Outstanding Notes will be treated as one class for
all actions to be taken by the holders thereof and for determining their
respective rights under the Indenture. References to the "Notes" include the
Exchange Notes and the Outstanding Notes unless the context otherwise requires.
The Outstanding Notes were issued under the Indenture on August 14, 1996, in an
aggregate principal amount of $100,000,000. The Indenture is subject to and
governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The following summary of certain provisions of the Indenture, the Notes
and the Registration Agreement does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all of the provisions of
the Indenture, the Notes and the Registration Agreement, including the
definition of certain terms contained therein and those terms that are made a
part of the Indenture by reference to the Trust Indenture Act. Copies of the
Indenture, the Registration Agreement and forms of the Outstanding Notes and the
Exchange Notes have been filed as exhibits to the Registration Statement of
which this Prospectus is a part. Capitalized terms not otherwise defined below
or elsewhere in this Prospectus have the meanings given to them in the
Indenture. The definitions of certain capitalized terms used in the summary are
set forth below under "-- Certain Definitions".
GENERAL
The Exchange Notes, like the Outstanding Notes, will be unsecured senior
subordinated obligations of the Company, limited, together with the Outstanding
Notes, to $100.0 million aggregate principal amount, and will mature on August
1, 2006. The Exchange Notes will bear interest at the rate per annum of 10 1/2%
from the Exchange Date, payable semiannually to Holders of record at the close
of business on the January 15
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<PAGE> 86
or July 15 immediately preceding the interest payment date on February 1 and
August 1 of each year, commencing February 1, 1997. Interest on the Outstanding
Notes that are tendered in exchange for the Exchange Notes that has accrued from
August 14, 1996, the date of issuance of the Outstanding Notes, until the
Exchange Date will be payable on or before February 1, 1997. Outstanding Notes
that are accepted for exchange will cease to accrue interest on and after the
date on which interest on the Exchange Notes begins to accrue. Interest on
overdue principal and (to the extent permitted by law) on overdue installments
of interest will accrue at 1% per annum in excess of such rate. Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge shall be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Exchange Notes, like
the Outstanding Notes, will not be redeemable at the option of the Company prior
to August 1, 2001. Thereafter, the Exchange Notes will be redeemable, at the
Company's option, in whole or in part, at any time or from time to time, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on August 1 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
---------------------------------------------------------- ----------
<S> <C>
2001...................................................... 105.250%
2002...................................................... 102.625
2003 and thereafter....................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to August 1, 1999, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 110.5% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least $65.0 million aggregate principal amount of the Notes must remain
outstanding after each such redemption; provided further, however, that any such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.
In the case of any partial redemption, selection of the Exchange Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Exchange Note is to be redeemed in part only,
the notice of redemption relating to such Exchange Note shall state the portion
of the principal amount thereof to be redeemed. A new Exchange Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Exchange Note.
SINKING FUND
There will be no sinking fund payments for the Exchange Notes.
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REGISTRATION RIGHTS
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect the Exchange Offer, or under certain other
circumstances, the Company shall, at its cost, use its best efforts to cause to
become effective the Shelf Registration Statement with respect to resales of the
Outstanding Notes and to keep the Shelf Registration Statement effective until
August 14, 1999. The Company shall, in the event of such a shelf registration,
provide to each Holder copies of the prospectus, notify each Holder when the
Shelf Registration Statement for the Outstanding Notes has become effective and
take certain other actions as are required to permit resales of the Outstanding
Notes. A Holder that sells its Outstanding Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Agreement that are applicable to such a holder
(including certain indemnification obligations).
In the event that the Exchange Offer is not consummated, or a Shelf
Registration Statement is not declared effective, on or prior to February 14,
1997, then, from and after such date, the annual interest rate borne by the
Outstanding Notes shall be permanently increased to 11%.
If the Company effects the Exchange Offer, the Company will be entitled to
close the Exchange Offer 20 business days after the commencement thereof;
provided, however, that it has accepted all Outstanding Notes theretofore
validly surrendered in accordance with the terms of the Exchange Offer.
Outstanding Notes not tendered in the Exchange Offer shall bear interest at the
rate per annum of 10 1/2% and be subject to all of the terms and conditions
specified in the Indenture and to the transfer restrictions described in
"Transfer Restrictions".
RANKING
The indebtedness evidenced by the Exchange Notes, like the Outstanding
Notes, will be unsecured, general obligations of the Company, subordinated in
right of payment, as set forth in the Indenture, to the prior payment of all
Senior Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter incurred, including the Company's obligations under the Credit
Agreement. As of the date of this Prospectus, the Company's only outstanding
indebtedness for money borrowed is the Outstanding Notes.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Exchange Notes in accordance with the provisions of the Indenture.
The Exchange Notes, like the Outstanding Notes, will in all respects rank pari
passu with all other Senior Subordinated Indebtedness of the Company. The
Company has agreed in the Indenture that it will not Incur, directly or
indirectly, any Indebtedness that is subordinate or junior in ranking in right
of payment to its Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinated or junior to Secured Indebtedness merely because it is unsecured.
Although the Company currently does not conduct any business through
subsidiaries, future operations of the Company could be conducted through
subsidiaries. Claims of creditors of subsidiaries, including trade creditors,
secured creditors and creditors holding indebtedness and guarantees issued by
such subsidiaries, and claims of preferred stockholders (if any) of such
subsidiaries, generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Company,
including holders of the Notes, even if such obligations do not constitute
Senior Indebtedness of such subsidiaries. However, in certain circumstances, the
Notes may be guaranteed by certain subsidiaries of the Company. See "-- Certain
Covenants -- Future Guarantors". Any such guarantees, however, will be
subordinate in right of payment to any Senior Indebtedness of such subsidiaries.
Although the Indenture limits the incurrence of Indebtedness and preferred stock
of certain subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by subsidiaries of liabilities that are not considered Indebtedness
under the Indenture. See "-- Certain Covenants -- Limitation on Indebtedness".
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The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Designated Senior Indebtedness is not
paid when due or (ii) any other default on Designated Senior Indebtedness occurs
and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company must resume payments on the Notes after the end of
such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
Noteholders are entitled to receive any payment, and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may appear. If a
distribution is made to Noteholders that, due to the subordination provisions,
should not have been made to them, such Noteholders are required to hold it in
trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the Exchange Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of
Designated Senior Indebtedness or the Representative of such holders of the
acceleration.
If the Notes are guaranteed by a Subsidiary Guarantor, the obligations of
such Subsidiary Guarantor under its Subsidiary Guaranty will be senior
subordinated obligations. As such, the rights of Noteholders to receive payment
by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to the Company's obligations under the Notes will
apply equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Exchange Notes,
and creditors of the Company who are not holders of Senior Indebtedness may
recover less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the holders of the Exchange Notes.
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Notwithstanding the foregoing, payment from the money or the proceeds of
U.S. Government Obligations held in any defeasance trust described under
"Defeasance" below will not be contractually subordinated in right of payment to
any Senior Indebtedness or subject to the restrictions described herein.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in the Oil and Gas Business; (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary or (iii) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in the Oil and Gas Business.
"Adjusted Consolidated Assets" means at any time the total amount of assets
of the Company and its consolidated Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), after deducting
therefrom all current liabilities of the Company and its consolidated Restricted
Subsidiaries (excluding intercompany items), all as set forth on the
consolidated balance sheet of the Company and its consolidated Restricted
Subsidiaries as of the end of the most recent fiscal quarter ended at least 45
days prior to the date of determination.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Restricted Payments", "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary. Notwithstanding
the foregoing, none of the following shall be deemed to be an Asset Disposition:
(1) a disposition by a Restricted Subsidiary to the Company or by the Company or
a Restricted Subsidiary to a Wholly Owned Subsidiary, (2) for purposes of the
covenant described under "-- Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments", (3) the sale or transfer (whether or not in the ordinary
course of business) of oil and gas properties or direct or indirect interests in
real property; provided, however, that at the time of such sale or transfer such
properties do not have associated with them any proved reserves, (4) the
abandonment, farm-out, lease or sublease of developed or undeveloped oil and gas
properties in the ordinary course of business, (5) the trade or exchange by the
Company or any Subsidiary of the Company of any oil and gas property owned or
held by the Company or such Subsidiary for any oil and gas property owned or
held by another Person or (6) the sale or transfer of hydrocarbons or other
mineral products or surplus or obsolete equipment in the ordinary course of
business.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in the Sale/Leaseback Transaction) of the total
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obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Banks" has the meaning specified in the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under all Credit Facilities that determine
availability on the basis of a borrowing base or other asset-based calculation;
provided, however, that in no event shall the Borrowing Base exceed $250.0
million.
"Business Day" means each day which is not a Legal Holiday (as defined in
the Indenture).
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company; provided, however,
that the Permitted Holders beneficially own (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the
Company than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors (for the purposes of this clause (i),
such other person shall be deemed to beneficially own any Voting Stock of a
specified corporation held by a parent corporation, if such other person is
the beneficial owner (as defined in this clause (i)), directly or
indirectly, of more than 35% of the voting power of the Voting Stock of
such parent corporation and the Permitted Holders beneficially own (as
defined in this proviso), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors of such parent corporation);
(ii) during any period of two consecutive years from and after the
Issue Date, individuals who at the beginning of such period constituted the
Board of Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or
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(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent, immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if the Company or any Restricted Subsidiary
has repaid, repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any indebtedness is to be repaid,
repurchased, defeased or otherwise discharged on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such discharge had occurred on the first day of such period and as
if the Company or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition (other than an Asset
Disposition involving assets having a fair market value of less than $2.0
million), the EBITDA for such period shall be reduced by an amount equal to the
EBITDA (if positive) directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased by an amount equal to
the EBITDA (if negative), directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition (including by way of lease) of assets, including any
acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period and (5) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(3) or (4) above if made by the Company or a Restricted Subsidiary during such
period, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset Disposition,
Investment or acquisition occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
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Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), on a consolidated basis, after
eliminating (i) all intercompany items between the Company and any Restricted
Subsidiary and (ii) all current maturities of long-term Indebtedness, all as
determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication, (i)
interest expense attributable to capital leases and imputed interest with
respect to Attributable Debt, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than the
Company or a Wholly Owned Subsidiary, excluding however any dividends on
Preferred Stock of the Company unless such Preferred Stock is Disqualified
Stock, (viii) interest incurred in connection with Investments in discontinued
operations, and (ix) interest accruing on any Indebtedness of any other Person
to the extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary or secured by a Lien on assets of the Company or any Restricted
Subsidiary to the extent such Indebtedness constitutes Indebtedness of the
Company or any Restricted Subsidiary (whether or not such Guarantee or Lien is
called upon); provided, however, "Consolidated Interest Expense" shall not
include any Consolidated Interest Expense with respect to any Indebtedness
Incurred pursuant to clause (b)(8) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness".
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person (other than the Company) if such Person is not a Restricted Subsidiary,
except that (A) subject to the exclusion contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any Person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income of
any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain or loss realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including pursuant
to any sale-and-leaseback arrangement) which is not sold or otherwise disposed
of in the ordinary course of business and any gain or loss realized upon the
sale or other disposition of any Capital Stock of any Person; (v) extraordinary
gains or
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losses; and (vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Tangible Assets", as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet of
the Company and its consolidated Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of: (i) minority interests in
consolidated Subsidiaries held by Persons other than the Company or a Restricted
Subsidiary; (ii) excess of cost over fair value of assets of businesses
acquired, as determined in good faith by the Board of Directors; (iii) any
revaluation or other write-up in book value of assets subsequent to the Issue
Date as a result of a change in the method of valuation in accordance with GAAP
consistently applied; (iv) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items; (v) treasury stock; (vi) cash set apart and held in a
sinking or other analogous fund established for the purpose of redemption or
other retirement of Capital Stock to the extent such obligation is not reflected
in Consolidated Current Liabilities; and (vii) Investments in and assets of
Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Credit Agreement" means that certain Credit Agreement, dated as of June
28, 1996, by and among the Company and NationsBank of Texas, N.A., as agent and
as a lender, and certain other institutions, as lenders, providing for up to
$150.0 million of Indebtedness, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, restated, modified, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities (including the Credit Agreement) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, production payments, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all obligations of the Company
or any Restricted Subsidiary under any Credit Facility and (ii) any other Senior
Indebtedness of the Company which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $25.0
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
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"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and "-- Certain
Covenants -- Change of Control".
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) provision for taxes based on
income or profits, (b) depletion and depreciation expense, (c) amortization
expense and (d) all other non-cash charges (excluding any such non-cash charge
to the extent that it represents an accrual of or reserve for cash charges in
any future period or amortization of a prepaid cash expense that was paid in a
prior period) and less, to the extent included in calculating such Consolidated
Net Income, the sum of (x) the amount of deferred revenues that are amortized
during such period and are attributable to reserves that are subject to
Volumetric Production Payments and (y) amounts recorded in accordance with GAAP
as repayments of principal and interest pursuant to Dollar-Denominated
Production Payments. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or
its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date, including those set forth in (i) the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements and pronouncements of
the Financial Accounting Standards Board, (iii) such other statements by such
other entity as approved by a significant segment of the accounting profession,
and (iv) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC.
"Guarantee" means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
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"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Oil and Gas Hedging Contract, Interest Rate Agreement or
Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth Business
Day following receipt by such Person of a demand for reimbursement following
payment on the letter of credit); (v) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person the
liquidation preference with respect to, any Preferred Stock (but excluding, in
each case, any accrued dividends); (vi) all obligations of such Person relating
to any Production Payment or in respect of production imbalances (but excluding
production imbalances arising in the ordinary course of business); (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee (including, with
respect to any Production Payment, any warranties or guarantees of production or
payment by such Person with respect to such Production Payment but excluding
other contractual obligations of such Person with respect to such Production
Payment); (viii) all obligations of the type referred to in clauses (i) through
(vii) of other Persons secured by any Lien on any property or asset of such
first-mentioned Person (whether or not such obligation is assumed by such
first-mentioned Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "-- Certain Covenants -- Limita-
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tion on Restricted Payments", (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the
Company's "Investment" in such Subsidiary at the time of such redesignation less
(y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means August 14, 1996, the date on which the Outstanding Notes
were originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Limited Recourse Indebtedness" means, with respect to any Production
Payments, Indebtedness, the terms of which limit the liability of the Company
and its Restricted Subsidiaries solely to the hydrocarbons covered by such
Production Payments; provided, however, that no default with respect to such
Indebtedness would permit any holder of any other Indebtedness of the Company or
any Restricted Subsidiary to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company or any Restricted
Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Present Value" means, with respect to any proved hydrocarbon reserves,
the discounted future net cash flows associated with such reserves, determined
in accordance with the rules and regulations of the SEC in effect on the Issue
Date.
"Oil and Gas Business" means the business of the exploration for, and
exploitation, development, acquisition, production, processing (but not
refining), marketing, storage and transportation of, hydrocarbons, and other
related energy and natural resource businesses (including oil and gas services
businesses related to the foregoing).
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"Oil and Gas Hedging Contract" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Parent" means Mariner Holdings, Inc., a Delaware corporation, and its
successors.
"Permitted Business Investment" means any investment made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business as a means of actively exploiting, exploring for, acquiring,
developing, producing, processing, gathering, marketing or transporting oil and
gas through agreements, transactions, interests or arrangements which permit one
to share risks or costs, comply with regulatory requirements regarding local
ownership or satisfy other objectives customarily achieved through the conduct
of Oil and Gas Business jointly with third parties, including, without
limitation, (i) ownership interests in oil and gas properties, processing
facilities, gathering systems or ancillary real property interests and (ii)
Investments in the form of or pursuant to operating agreements, processing
agreements, farm-in agreements, farm-out agreements, development agreements,
area of mutual interest agreements, unitization agreements, pooling agreements,
joint bidding agreements, service contracts, joint venture agreements,
partnership agreements (whether general or limited), subscription agreements,
stock purchase agreements and other similar agreements with third parties.
"Permitted Holders" means (a) Enron Corp., (b) the California Public
Employees' Retirement System or (c) Joint Energy Development Investments Limited
Partnership ("JEDI") or another entity or entities, as long as JEDI or such
other entity or entities is controlled, directly or indirectly, by (i) Enron
Corp., (ii) the California Public Employees' Retirement System or (iii) any
combination of any of the foregoing entities.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is an Oil and Gas Business; (ii)
another Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; provided, however, that such
Person's primary business is an Oil and Gas Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any Person to the extent such
Investment represents the non-cash portion of the consideration received for an
Asset Disposition as permitted pursuant to the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and
(ix) Permitted Business Investments.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review; (c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the
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account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Indebtedness; (e) minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially impair
their use in the operation of the business of such Person; (f) Liens securing
Indebtedness Incurred to finance the construction, purchase or lease of, or
repairs, improvements or additions to, property of such Person; provided,
however, that the Lien may not extend to any other property owned by such Person
or any of its Subsidiaries at the time the Lien is Incurred, and the
Indebtedness secured by the Lien may not be Incurred more than 180 days after
the later of the acquisition, completion of construction, repair, improvement,
addition or commencement of full operation of the property subject to the Lien;
(g) Liens securing Indebtedness permitted under the provisions described in
clause (b)(1) or (b)(8) under "-- Certain Covenants -- Limitation on
Indebtedness"; provided, however, that any such Lien securing Indebtedness
described in such clause (b)(8) shall be limited to the hydrocarbons related
thereto; (h) Liens existing on the Issue Date; (i) Liens on property or shares
of Capital Stock of another Person at the time such other Person becomes a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such other
Person becoming such a Subsidiary; provided further, however, that such Lien may
not extend to any other property owned by such Person or any of its
Subsidiaries; (j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition; provided further,
however, that the Liens may not extend to any other property owned by such
Person or any of its Subsidiaries; (k) Liens securing Indebtedness or other
obligations of a Subsidiary of such Person owing to such Person or a wholly
owned Subsidiary of such Person (or, in the case of the Company, to a Wholly
Owned Subsidiary); (l) Liens securing Hedging Obligations so long as such
Hedging Obligations relate to Indebtedness that is, and is permitted to be under
the Indenture, secured by a Lien on the same property securing such Hedging
Obligations; (m) Liens to secure any Refinancing (or successive Refinancings) as
a whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (f), (h), (i) and (j); provided, however, that (x) such new
Lien shall be limited to all or part of the same property that secured the
original Lien (plus improvements to or on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clause (f), (h), (i) or (j)
at the time the original Lien became a Permitted Lien and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement; (n) Liens on, or
related to, properties to secure all or part of the costs incurred in the
ordinary course of business of exploration, drilling, development or operation
thereof; (o) Liens on pipeline or pipeline facilities which arise out of
operation of law; (p) Liens reserved in oil and gas mineral leases for bonus or
rental payments and for compliance with the terms of such leases; and (q) Liens
arising under partnership agreements, oil and gas leases, farm-out agreements,
division orders, contracts for the sale, purchase, exchange, transportation or
processing (but not the refining) of oil, gas or other hydrocarbons, unitization
and pooling declarations and agreements, development agreements, operating
agreements, area of mutual interest agreements, and other similar agreements
which are customary in the Oil and Gas Business. Notwithstanding the foregoing,
"Permitted Liens" will not include any Lien described in clauses (f), (i) or (j)
above to the extent (A) such Lien applies to any Additional Assets or Permitted
Business Investment acquired directly or indirectly from Net Available Cash
pursuant to clause (a)(i)(B) or paragraph (c) of the covenant described under
"-- Certain Covenants -- Limitation on Sale of Assets and Subsidiary Stock" and
(B) the fair value of such Additional Assets or Permitted Business Investment is
less than the sum of (x) the amount of Indebtedness secured by such Lien plus
(y) the amount of Net Available Cash so invested in such Additional Assets or
Permitted Business Investment.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock)) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation), (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company held by any Person or
of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations
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(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of the
date of acquisition) or (iv) the making of any Investment in any Person (other
than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means with respect to any Person (i) Indebtedness of
such Person, and all obligations of such Person under any Credit Facility,
whether outstanding on the Issue Date or thereafter Incurred, and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to such Person to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, with respect to obligations
described in the immediately preceding clause (i) or (ii), in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such obligations are subordinate in right of payment to the
Notes or the applicable Subsidiary Guaranty, as the case may be; provided,
however, that Senior Indebtedness shall not include (1) any obligation of such
Person to any Subsidiary of such Person, (2) any liability for Federal, state,
local or other taxes owed or owing by such Person, (3) any accounts payable or
other liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of such Person (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect to any other Indebtedness
or other obligation of such Person or (5) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of the Indenture (other than
Indebtedness under any Credit Facility that is Incurred on the basis of a
representation by the Company to the applicable lenders that such Person is
permitted to Incur such Indebtedness under the Indenture).
"Senior Subordinated Indebtedness" means (i) with respect to the Company,
the Notes and any other Indebtedness of the Company that specifically provides
that such Indebtedness is to rank pari passu with the Notes in right of payment
and is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness and (ii) with
respect to any Subsidiary Guarantor, the Subsidiary Guaranty of such Subsidiary
Guarantor and any other Indebtedness of such Subsidiary Guarantor that
specifically provides that such Indebtedness is to rank pari passu with such
Subsidiary Guaranty in right of payment and is not subordinated by its terms in
right of payment to any Indebtedness or other obligation of such Subsidiary
Guarantor which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including
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partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Restricted Subsidiary of the Company that
delivers a Subsidiary Guaranty.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes, which Guarantee will be
subordinated to Senior Indebtedness of such Subsidiary Guarantor on
substantially the same terms as the Notes are subordinated to Senior
Indebtedness of the Company. Any such Subsidiary Guaranty (i) will be in the
form prescribed by the Indenture, (ii) will be limited in amount to an amount
not to exceed the maximum amount that can be guaranteed by the applicable
Subsidiary Guarantor without rendering such Subsidiary Guaranty, as it relates
to such Subsidiary Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally and (iii) will provide that, upon the sale or
other disposition (including by way of consolidation or merger) of a Subsidiary
Guarantor or the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor (in each case other than to the Company or an Affiliate of
the Company) permitted by the Indenture, such Subsidiary Guarantor shall be
released from all its obligations under its Subsidiary Guaranty.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50.0 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by an registered broker dealer or mutual
fund distributor, (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc.
"Total Assets" of the Company means the total consolidated assets of the
Company and its Restricted Subsidiaries, as shown on the most recent balance
sheet of the Company.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments". The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided,
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however, that immediately after giving effect to such designation (x) the
Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the
covenant described under "-- Certain Covenants -- Limitation on Indebtedness"
and (y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be by the Company to the Trustee by promptly
filing with the Trustee a copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Volumetric Production Payments" mean production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or a Subsidiary Guarantor may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto,
the Consolidated Coverage Ratio exceeds 2.5 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness of the Company or a Subsidiary Guarantor Incurred
pursuant to any Credit Facility, so long as the aggregate principal amount
of all Indebtedness outstanding under all Credit Facilities does not, at
any one time, exceed the Borrowing Base; provided, however, that if the
Company or a Subsidiary Guarantor Incurs any Indebtedness pursuant to this
clause (1) that would cause the total principal amount of Indebtedness
outstanding under this clause (1) to exceed an amount equal to $150.0
million (less the aggregate amount of all Net Available Cash of Asset
Dispositions applied to reduce Senior Indebtedness pursuant to clause
(a)(i)(A) of the covenant described under the caption "-- Limitation on
Sales of Assets and Subsidiary Stock"), the Consolidated Coverage Ratio on
the date of such Incurrence must be at least 2.0 to 1;
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof;
(3) the Notes and any Guarantee of the Notes;
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2) or (3) of this covenant);
(5) Indebtedness or Preferred Stock of a Subsidiary Incurred and
outstanding on or prior to the date on which such Subsidiary was acquired
by the Company (other than Indebtedness or Preferred
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Stock Incurred in connection with, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company); provided, however, that on the
date of such acquisition and after giving effect thereto, the Company would
have been able to Incur at least $1.00 of additional Indebtedness pursuant
to clause (a) above;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (1), (3), (4) or (5) or
this paragraph (6); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Subsidiary described in clause (5), such Refinancing
Indebtedness shall be Incurred only by such Subsidiary or the Company;
(7) Indebtedness of the Company or a Subsidiary Guarantor represented
by Capital Lease Obligations, mortgage financings or purchase money
obligations, in each case Incurred for this purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property used in an Oil and Gas Business or Incurred to Refinance any such
purchase price or cost of construction or improvement, in each case
Incurred no later than 365 days after the date of such acquisition or the
date of completion of such construction or improvement; provided, however,
that the principal amount of any Indebtedness Incurred pursuant to this
clause (7) in any calendar year shall not exceed $10.0 million;
(8) Indebtedness with respect to Production Payments; provided,
however, that any such Indebtedness shall be Limited Recourse Indebtedness;
provided further, however, that the Net Present Value of the reserves
related to such Production Payments shall not exceed 30% of the Total
Assets of the Company at any time;
(9) Indebtedness consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company and its
Restricted Subsidiaries pursuant to the Indenture;
(10) Indebtedness under Oil and Gas Hedging Contracts and Currency
Agreements entered into in the ordinary course of business for the purpose
of limiting risks that arise in the ordinary course of business of the
Company; and
(11) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (10) above or paragraph (a)) does not
exceed $15.0 million; provided, however, that the aggregate principal
amount of the Indebtedness Incurred pursuant to this clause (11) by
Restricted Subsidiaries and outstanding at any time does not exceed $10.0
million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not
Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness
that is not Senior Indebtedness unless contemporaneously therewith effective
provision is made to secure the Notes equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
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Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Issue Date would exceed the
sum of: (A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are originally
issued to the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net
Cash Proceeds received by the Company from the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale to a Restricted Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust established
by the Company or any of its Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the Company from the issue or
sale subsequent to the Issue Date of its Capital Stock (other than Disqualified
Stock) to an employee stock ownership plan; provided, however, that if such
employee stock ownership plan incurs any Indebtedness with respect thereto, such
aggregate amount shall be limited to an amount equal to any increase in the
Consolidated Net Worth of the Company resulting from principal repayments made
by such employee stock ownership plan with respect to such Indebtedness; (D) the
amount by which Indebtedness of the Company is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date, of any Indebtedness of the Company
convertible or exchangeable for Capital Stock (other than Disqualified Stock) of
the Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company upon such conversion or exchange); and (E)
an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of their employees); provided, however, that
(A) such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) or (3)(C), as
applicable, of paragraph (a) above; (ii) any purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to the covenant described under "-- Limitation on
Indebtedness"; provided, however, that such purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments; (iii) dividends paid within 60
days after the date of declaration thereof if at such date of declaration such
dividend would have complied with this covenant; provided, however, that at the
time of payment of such dividend, no other Default shall have occurred and be
continuing (or result therefrom); provided further, however, that such dividend
shall be included in the calculation of the amount of Restricted Payments; (iv)
the repurchase of shares of, or options to purchase shares of, common stock of
the Company or any of its Subsidiaries from employees, former employees,
directors or former directors of the Company or any of its Subsidiaries (or
permitted transferees of such employees, former employees, directors or former
directors),
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pursuant to the terms of the agreements (including employment agreements) or
plans (or amendments thereto) approved by the Board of Directors under which
such individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount of
such repurchases shall not exceed $1.0 million in any calendar year; provided
further, however, that such repurchases shall be excluded in the calculation of
the amount of Restricted Payments; (v) Restricted Payments to Parent to the
extent required (x) to pay for general corporate and overhead expenses incurred
by Parent; provided, however, that such Restricted Payments shall not exceed
$200,000 in any calendar year or (y) to pay amounts owing by Parent pursuant to
or in connection with the transactions contemplated by the agreements existing
on the date of, and as described under the caption "Certain Transactions" in,
the Offering Memorandum dated August 9, 1996, related to the sale of the
Outstanding Notes (the "Offering Memorandum"), a copy of which has been provided
to the Trustee; provided further, however, that such Restricted Payments shall
be excluded in the calculation of the amount of Restricted Payments; (vi) a cash
dividend on or about the Issue Date in an amount not to exceed $42.5 million;
provided, however, that such dividend shall be excluded in the calculation of
the amount of Restricted Payments; or (vii) other Restricted Payments in an
aggregate amount not to exceed $10.0 million; provided, however, that such
Restricted Payments shall be excluded in the calculation of the amount of
Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company or a Restricted Subsidiary,
(b) to make any loans or advances to the Company or a Restricted Subsidiary or
(c) to transfer any of its property or assets to the Company or a Restricted
Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; (ii) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date; (iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or (ii) of
this covenant or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the Noteholders than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction
consisting of customary non assignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder; (v) in the case of clause (c) above,
restrictions contained in security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such security agreements or mortgages; and (vi) any
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) In the event and to
the extent that the Net Available Cash received by the Company or any Restricted
Subsidiary from one or more Asset Dispositions occurring on or after the Issue
Date in any period of 12 consecutive months exceeds 10% of Adjusted Consolidated
Assets as of the beginning of such 12-month period, then the Company shall (i)
within 180 days (in the case of (A) below) or 360 days (in the case of (B)
below) after the date such Net Available Cash so received exceeds such 10% of
Adjusted Consolidated Assets (A) apply an amount equal to such excess Net
Available Cash to repay Senior Indebtedness of the Company or Indebtedness of a
Restricted Subsidiary, in each case owing to a Person other than the Company or
any Affiliate of the Company or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A), in Additional Assets or a Permitted Business
Investment or (ii) apply such excess Net Available Cash (to the extent not
applied pursuant to clause (i)) as
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provided in the following paragraphs of the covenant described hereunder. The
amount of such excess Net Available Cash required to be applied during the
applicable period and not applied as so required by the end of such period shall
constitute "Excess Proceeds".
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $5.0 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders on a pro rata basis an aggregate principal amount
of Notes equal to the Excess Proceeds (rounded down to the nearest multiple of
$1,000) on such date, at a purchase price equal to 100% of the principal amount
of such Notes, plus, in each case, accrued interest (if any) to the date of
purchase (the "Excess Proceeds Payment").
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
thereunder in the event that such Excess Proceeds are received by the Company
under the covenant described hereunder and the Company is required to repurchase
Notes as described above. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the covenant described
hereunder, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
covenant described hereunder by virtue thereof.
(b) In the event of the transfer of substantially all (but not all) the
property and assets of the Company as an entirety to a Person in a transaction
permitted by the covenant described under "-- Merger and Consolidation", the
Successor Company (as defined therein) shall be deemed to have sold the
properties and assets of the Company not so transferred for purposes of the
covenant described hereunder, and shall comply with the provisions of the
covenant described hereunder with respect to such deemed sale as if it were an
Asset Disposition and the Successor Company shall be deemed to have received Net
Available Cash in an amount equal to the fair market value (as determined in
good faith by the Board of Directors) of the properties and assets not so
transferred or sold.
(c) In the event of an Asset Disposition by the Company or any Restricted
Subsidiary that consists of a sale of hydrocarbons and results in Production
Payments, the Company or such Restricted Subsidiary shall apply an amount equal
to the Net Available Cash received by the Company or such Restricted Subsidiary
to (i) reduce Senior Indebtedness of the Company or Indebtedness of a Restricted
Subsidiary, in each case owing to a Person other than the Company or any
Affiliate of the Company, within 180 days after the date such Net Available Cash
is so received or (ii) invest in Additional Assets or a Permitted Business
Investment within 360 days after the date such Net Available Cash is so
received.
(d) The Company shall not sell, lease, transfer or otherwise dispose of any
assets owned by the Company on the Issue Date to any Subsidiary which is or
thereafter becomes a Subsidiary Guarantor unless the book value of all such
assets sold, leased, transferred or otherwise disposed of to such Subsidiaries
is less than 15% of the Total Assets of the Company on the Issue Date.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $1.0 million, is set forth in
writing and has been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction or (3) if such
Affiliate Transaction involves an amount in excess of $5.0 million, has been
determined by a nationally recognized investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any sale of hydrocarbons or other mineral products or the entering into or
performance of Oil and Gas Hedging Contracts, gas gathering, transportation or
processing contracts or oil or natural gas marketing or exchange contracts, in
each case, in
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the ordinary course of business, so long as the terms of any such transaction
are approved by a majority of the members of the Board of Directors who are
disinterested with respect to such transaction as being the most favorable of at
least (x) two bids, quotes or proposals, at least one of which is from a Person
that is not an Affiliate of the Company (in the event that the Company
determines in good faith that it is able to obtain only two bids, quotes or
proposals with respect to such transaction) or (y) three bids, quotes or
proposals, at least two of which are from Persons that are not Affiliates of the
Company (in all other circumstances), (ii) the sale to an Affiliate of the
Company of Capital Stock of the Company that does not constitute Disqualified
Stock, (iii) transactions contemplated by any employment agreement or other
compensation plan or arrangement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
industry practice, (iv) transactions between or among the Company and its
Restricted Subsidiaries, (v) Restricted Payments and Permitted Investments that
are permitted by the provisions of the Indenture described above under the
caption "-- Limitation on Restricted Payments" and (vi) the transactions
described in the Offering Memorandum under the caption "Certain Transactions".
Change of Control. (a) Upon the occurrence of a Change of Control, each
Holder shall have the right to require that the Company repurchase such Holder's
Notes at a purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive interest
on the relevant interest payment date), in accordance with the terms
contemplated in paragraph (b) below.
(b) Within 30 days following any Change of Control, the Company shall mail
a notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Placement Agents. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-- Limitation on Indebtedness", "-- Limitation on
Liens" and "-- Limitation on Sale/Leaseback Transactions". Such restrictions can
only be waived with the consent of the holders of a majority in principal amount
of the Notes then outstanding. Except for the limitations contained in such
covenants, however, the Indenture will not contain any covenants or provisions
that may afford holders of the Notes protection in the event of a highly
leveraged transaction.
The Credit Agreement prohibits the Company from purchasing any Notes and
also provides that the occurrence of certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could
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attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the Credit
Agreement. In such circumstances, the subordination provisions in the Indenture
would likely restrict payment to the Holders of Notes.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Company to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases.
The provisions under the Indenture relating to the Company's obligation to
make an offer to repurchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Notes.
The Company will not be required to make an offer to purchase the Notes as
a result of a Change of Control if a third party (i) makes such an offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture relating to the Company's obligation to make such an offer and
(ii) purchases all Notes validly tendered and not withdrawn under such an offer.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary, (ii) if, immediately after giving effect to such issuance, sale or
other disposition, the Company and its Restricted Subsidiaries would own less
than 20% of the Voting Stock of such Restricted Subsidiary and have no greater
economic interest in such Restricted Subsidiary or (iii) to the extent such
shares represent directors' qualifying shares or shares required by applicable
law to be held by a Person other than the Company or a Restricted Subsidiary.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured equally and ratably with (or prior to) the obligations so
secured for so long as such obligations are so secured.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "-- Limitation on Indebtedness" and (B)
create a Lien on such property securing such Attributable Debt without equally
and ratably securing the Notes pursuant to the covenant described under
"-- Limitation on Liens", (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) the Company applies the proceeds of such transaction in
compliance with the covenant described under "-- Limitation on Sale of Assets
and Subsidiary Stock".
Future Guarantors. Prior to the time that any Restricted Subsidiary Incurs
any Indebtedness permitted under "-- Limitation on Indebtedness", the Company
shall cause such Restricted Subsidiary to Guarantee the Notes pursuant to a
Subsidiary Guaranty on the terms and conditions set forth in the Indenture.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person
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organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental thereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness which
becomes an obligation of the Successor Company or any Subsidiary as a result of
such transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Default shall have occurred and
be continuing, (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "-- Limitation on
Indebtedness", (iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is not
less than the Consolidated Net Worth of the Company prior to such transaction;
and (v) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture;
provided, however, that clauses (iii) and (iv) shall not be applicable to any
such transaction solely between the Company and any Wholly Owned Subsidiary.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or series
of transactions, all or substantially all of its assets to any Person unless:
(i) the resulting, surviving or transferee Person shall expressly assume by a
guaranty agreement, in a form acceptable to the Trustee, all the obligations of
such Subsidiary Guarantor, if any, under its Subsidiary Guaranty; (ii)
immediately after giving effect to such transaction or transactions on a pro
forma basis (and treating any Indebtedness which becomes an obligation of the
resulting, surviving or transferee Person as a result of such transaction as
having been issued by such Person at the time of such transaction), no Default
shall have occurred and be continuing; and (iii) the Company delivers to the
Trustee an Officer's Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such guaranty agreement, if any,
complies with the Indenture. Notwithstanding the foregoing, upon certain
consolidations, mergers, conveyances, transfers and leases, the Subsidiary
Guarantor and its successor or transferee shall be released from all of such
Subsidiary Guarantor's obligations under its Subsidiary Guarantee as described
in the definition of "Subsidiary Guaranty".
SEC Reports. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and Noteholders
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act (excluding however
information with respect to benefit plans and long-term compensation
arrangements) and applicable to a U.S. corporation subject to such Sections,
such information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above, (iv) the failure by
the Company to comply for 30 days after notice with any of its obligations in
the covenants described above under "-- Certain Covenants", "-- Limitation on
Indebtedness", "-- Limitation on Restricted Payments", "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries", "-- Limitation on
Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes),
"-- Limitation on Affiliate Transactions", "-- Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries", "-- Change of Control"
(other than a failure to purchase Notes), "-- Limitation on
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Liens", "-- Limitation on Sale/Leaseback Transactions", "-- Future Guarantors",
or "-- SEC Reports", (v) the failure by the Company to comply for 60 days after
notice with its other agreements contained in the Indenture, (vi) Indebtedness
of the Company or any Significant Subsidiary (other than Limited Recourse
Indebtedness) is not paid within any applicable grace period after final
maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million
(the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) any judgment or decree for the payment of money
in excess of $10.0 million is rendered against the Company or a Significant
Subsidiary, remains outstanding for a period of 60 days following such judgment
and is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision") or (ix) a Subsidiary Guaranty ceases to be in full
force and effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under
its Subsidiary Guaranty. However, a default under clauses (iv), (v) and (viii)
will not constitute an Event of Default until the Trustee or the holders of 25%
in principal amount of the outstanding Notes notify the Company of the default
and the Company does not cure such default within the time specified after
receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and of the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
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AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption", (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or make any change in the waiver
provisions, (viii) make any change to the subordination provisions of the
Indenture that would adversely affect the Noteholders or (ix) make any change in
any Subsidiary Guaranty that could adversely affect such holder.
Without the consent of any holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the holders of the
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the Trust Indenture Act. However, no amendment may be
made to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Indebtedness then outstanding unless the holders
of such Senior Indebtedness (or their Representative) consents to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Exchange Notes, like the Outstanding Notes, will be issued in
registered form and will be transferable only upon the surrender of the Notes
being transferred for registration of transfer. The Company may require payment
of a sum sufficient to cover any tax, assessment or other governmental charge
payable in connection with certain transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "-- Certain Covenants" (other than the covenant described under
"-- Merger and Consolidation"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under
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"-- Defaults" above and the limitations contained in clauses (iii) and (iv)
under "-- Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under the first
paragraph of "-- Certain Covenants -- Merger and Consolidation" above. If the
Company exercises its legal defeasance option or its covenant defeasance option,
each Subsidiary Guarantor, if any, will be released from all of its obligations
with respect to its Subsidiary Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes will initially be represented by one permanent Global
Exchange Note in definitive, fully registered form without interest coupons (the
"Global Exchange Note") and will be deposited with the Trustee as custodian for,
and registered in the name of, a nominee of DTC.
The Global Exchange Note (and any Notes issued in exchange therefor) will
be subject to certain restrictions on transfer as set forth therein and in the
Indenture.
Ownership of beneficial interests in the Global Exchange Note will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. Ownership of beneficial interests in a
Global Exchange Note will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified institutional buyers
may hold their interests in the Global Exchange Note directly through DTC if
they are participants in such system, or indirectly through organizations which
are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Exchange Notes represented by such
Global Exchange Note for all purposes under the Indenture and the Exchange
Notes. No
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beneficial owner of an interest in the Global Exchange Note will be able to
transfer that interest except in accordance with DTC's applicable procedures.
Payments of the principal of, and interest on, the Global Exchange Note
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Exchange Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Exchange
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Exchange Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Exchange Notes (including the presentation of Exchange Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Exchange Note is credited and
only in respect of such portion of the aggregate principal amount of Exchange
Note as to which such participant or participants has or have given such
direction. However, if there is an Event of Default under the Notes, DTC will
exchange the Global Exchange Note for Certificated Notes, which it will
distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Exchange Note among participants
of DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC
or its participants or indirect participants of its obligations under the rules
and procedures governing their operations.
CERTIFICATED NOTES
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Exchange Note and a successor depositary is not appointed by the
Company within 90 days, the Company will issue Certificated Notes in exchange
for the Global Exchange Note. Holders of an interest in the Global Exchange Note
may receive Certificated Notes in accordance with the DTC's rules and procedures
in addition to those provided for under the Indenture.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the principal United States
federal income tax consequences of the purchase, ownership, exchange and
disposition of the Notes to initial purchasers of Outstanding Notes who are
United States Holders (as defined below) and the principal United States federal
income and estate tax consequences of the purchase, ownership, exchange and
disposition of the Notes to initial purchasers of Outstanding Notes who are
Foreign Holders (as defined below). This discussion is based on currently
existing provisions of the Code, existing, temporary and proposed Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion does not address the tax consequences to
subsequent purchasers of Notes and is limited to purchasers of Outstanding Notes
who hold the Notes as capital assets, within the meaning of section 1221 of the
Code. This discussion also does not address the tax consequences to Foreign
Holders that are subject to United States federal income tax on a net basis on
income realized with respect to a Note because such income is effectively
connected with the conduct of a U.S. trade or business. Such Foreign Holders are
generally taxed in a similar manner to United States Holders, but certain
special rules do apply. Moreover, this discussion is for general information
only and does not address all of the tax consequences that may be relevant to
particular initial purchasers of Outstanding Notes in light of their personal
circumstances or to certain types of initial purchasers of Outstanding Notes
(such as certain financial institutions, insurance companies, tax-exempt
entities, dealers in securities or persons who have hedged the risk of owning a
Note).
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN
APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a holder of a Note
that is, for United States federal income tax purposes, (a) a citizen or
resident of the United States, (b) a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof or (c) an estate or trust the income of which is subject to
United States federal income taxation regardless of source.
Payment of Interest on Notes
Interest paid or payable on a Note will be taxable to a United States
Holder as ordinary interest income, generally at the time it is received or
accrued, in accordance with such holder's regular method of accounting for
United States federal income tax purposes.
Sale, Exchange or Retirement of the Notes
The exchange of an Outstanding Note by a United States Holder for an
Exchange Note should not constitute a taxable exchange. For purposes of
determining gain or loss upon the subsequent sale or exchange of the Exchange
Notes, a Holder's basis in the Exchange Notes should be the same as such
Holder's basis in the Outstanding Notes exchanged therefor. Holders should be
considered to have held the Exchange Notes from the time of their original
acquisition of the Outstanding Notes.
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Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note, a United States Holder generally will recognize taxable
gain or loss equal to the difference between the sum of cash plus the fair
market value of all other property received on such disposition (except to the
extent such cash or property is attributable to accrued but unpaid interest,
which will be taxable as ordinary income) and such United States Holder's
adjusted tax basis in the Note. A United States Holder's adjusted tax basis in a
Note generally will equal the cost of the Note to such United States Holder,
less any principal payments received by such United States Holder.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss and will be long-term capital gain or loss if, at the time
of such disposition, the United States Holder's holding period for the Note is
more than one year.
Backup Withholding and Information Reporting
Backup withholding and information reporting requirements may apply to
certain payments of principal, premium, if any, and interest on a Note, and to
proceeds of the sale or redemption of a Note before maturity. The Company, its
agent, a broker, the Trustee or any paying agent, as the case may be, will be
required to withhold from any payment that is subject to backup withholding a
tax equal to 31% of such payment if a United States Holder fails to furnish his
taxpayer identification number (social security or employer identification
number), certify that such number is correct, certify that such holder is not
subject to backup withholding or otherwise comply with the applicable
requirements of the backup withholding rules. Certain United States Holders,
including all corporations, are not subject to backup withholding and reporting
requirements. Any amounts withheld under the backup withholding rules from a
payment to a United States Holder will be allowed as a credit against such
United States Holder's United States federal income tax and may entitle the
holder to a refund, provided that the required information is furnished to the
Internal Revenue Service ("IRS").
UNITED STATES FEDERAL INCOME TAXATION OF FOREIGN HOLDERS
As used herein, the term "Foreign Holder" means a holder of a Note that is,
for United States federal income tax purposes, (a) a nonresident alien
individual, (b) a foreign corporation, (c) a nonresident alien fiduciary of a
foreign estate or trust or (d) a foreign partnership.
Payment of Interest on Notes
In general, payments of interest received by a Foreign Holder will not be
subject to a United States federal withholding tax, provided that (i)(a) the
Foreign Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the Foreign Holder is not a controlled foreign corporation that is related
to the Company actually or constructively through stock ownership, (c) the
Foreign Holder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (d) either (I) the beneficial owner of the Note,
under penalties of perjury, provides the Company or its agent with such
beneficial owner's name and address and certifies on IRS Form W-8 (or a suitable
substitute form) that it is not a United States Holder or (II) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") holds the Note and provides a statement to the Company or its
agent under penalties of perjury in which it certifies that such an IRS Form W-8
(or a suitable substitute) has been received by it from the beneficial owner of
the Notes or qualifying intermediary and furnishes the Company or its agent a
copy thereof or (ii) the Foreign Holder is entitled to the benefits of an income
tax treaty under which interest on the Notes is exempt from United States
withholding tax and the Foreign Holder or such Foreign Holder's agent provides a
properly executed IRS Form 1001 claiming the exemption. Payments of interest not
exempt from United States federal withholding tax as described above will be
subject to such withholding tax at the rate of 30% (subject to reduction under
an applicable income tax treaty).
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<PAGE> 116
Sale, Exchange or Retirement of the Notes
The exchange of an Outstanding Note by a Foreign Holder for an Exchange
Note should not constitute a taxable exchange. Consequently, no gain or loss
should be recognized by Holders of the Outstanding Notes upon receipt of the
Exchange Notes. For purposes of determining gain or loss upon the subsequent
sale or exchange of the Exchange Notes, a Holder's basis in the Exchange Notes
should be the same as such Holder's basis in the Outstanding Notes exchanged
therefor. Holders should be considered to have held the Exchange Notes from the
time of their original acquisition of the Outstanding Notes. Moreover, a Foreign
Holder generally will not be subject to United States federal income tax (and
generally no tax will be withheld) with respect to gain realized on the sale,
exchange, redemption, retirement at maturity or other disposition of a Note
unless the Foreign Holder is an individual who is present in the United States
for a period or periods aggregating 183 or more days in the taxable year of the
disposition and, generally, either has a "tax home" or an "office or other fixed
place of business" in the United States.
Backup Withholding and Information Reporting
Backup withholding and information reporting requirements do not apply to
payments of interest made by the Company or a paying agent to Foreign Holders if
the certification described above under "United States Federal Income Taxation
of Foreign Holders -- Payment of Interest on Notes" is received, provided that
the payor does not have actual knowledge that the holder is a United States
Holder. If any payments of principal and interest are made to the beneficial
owner of a Note by or through the foreign office of a foreign custodian, foreign
nominee or other foreign agent of such beneficial owner, or if the foreign
office of a foreign "broker" (as defined in applicable Treasury regulations)
pays the proceeds of the sale of a Note or a coupon to the seller thereof,
backup withholding and information reporting will not apply. Information
reporting requirements (but not backup withholding) will apply, however, to a
payment by a foreign office of a broker that is a United States person, that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, or that is a "controlled foreign
corporation" (generally, a foreign corporation controlled by certain United
States shareholders) with respect to the United States unless the broker has
documentary evidence in its records that the holder is a Foreign Holder and
certain other conditions are met or the holder otherwise establishes an
exemption. Payment by a United States office of a broker is subject to both
backup withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a Foreign Holder or otherwise
establishes an exemption.
The procedures described above for withholding tax on interest payments,
and some of the associated backup withholding and information reporting rules,
are currently the subject of new proposed regulations, which are proposed to be
effective for payments made after December 31, 1997, subject to certain
transition rules. The proposed regulations, if adopted in their current form,
would not substantially change the treatment of Foreign Holders described above,
except that a Form W-8 generally would be required for certification purposes.
Federal Estate Taxes
Subject to applicable estate tax treaty provisions, Notes held at the time
of death (or theretofore transferred subject to certain retained rights or
powers) by an individual who at the time of death is a Foreign Holder will not
be included in such Foreign Holder's gross estate for United States federal
estate tax purposes provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote or hold the Notes in connection with a
U.S. trade or business.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for
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<PAGE> 117
Outstanding Notes where such Outstanding Notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells the Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any brokers or
dealers, and will indemnify the holders of the Notes (including any broker-
dealers) against certain liabilities, including liabilities under the Securities
Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requests the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemental Prospectus to such broker-dealer. If the Company shall give any
such notice to suspend the use of the Prospectus, it shall extend the time
period referred to above by the number of days during the period from and
including the date of the giving of such notice to and including when
broker-dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Notes.
LEGAL MATTERS
Certain matters with respect to the legality of the Exchange Notes are
being passed upon for the Company by Fulbright & Jaworski L.L.P.
INDEPENDENT AUDITORS
The Financial Statements of Mariner Energy, Inc. as of December 31, 1994
and 1995, and for each of the three years in the period ended December 31, 1995,
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance on the report of such firm given upon its authority as an
expert in accounting and auditing.
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INDEPENDENT PETROLEUM ENGINEERS
Information relating to the estimated proved reserves of oil and natural
gas and the related estimates of future net revenues and present values thereof
as of March 31, 1996, has been prepared by Ryder Scott Company, independent
petroleum engineers, and is included herein in reliance on the authority of such
firm as an expert in petroleum engineering.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
securities offered by this Prospectus. Certain of the information contained in
the Registration Statement is omitted from this Prospectus, and reference is
hereby made to the Registration Statement and exhibits and schedules relating
thereto for further information with respect to the Company and the securities
offered by this Prospectus. Subsequent to the Exchange Offer, the Company will
be subject to certain periodic reporting and other informational requirements of
the Exchange Act, and, in accordance therewith, will file certain reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information will be available for inspection, and copies of
such materials may be obtained upon payment of the fees prescribed therefor by
the rules and regulations of the Commission from the Commission, at its
principal offices located at Judiciary Plaza, 450 Fifth Street, Room 1024,
Washington, D.C. 20549, and at the Regional Offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New York, New York
10048. The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the Commission to the Trustee and the holders of the Outstanding Notes and
the Exchange Notes. The Company has agreed that, notwithstanding that it may not
be required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company will file with the Commission and provide
the Trustee and Noteholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act (excluding however information with respect to benefit plans and
long-term compensation arrangements) and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections.
In addition, the Company has agreed that for so long as any of the
Outstanding Notes are outstanding and are "restricted securities" within the
meaning of Rule 144(a)(3) under the Securities Act, it will make available to
any prospective purchaser of the Outstanding Notes or beneficial owner of the
Outstanding Notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act until such time as the Company has
either exchanged the Outstanding Notes for the Exchange Notes or until such time
as the holders thereof have disposed of such Outstanding Notes pursuant to an
effective registration statement filed by the Company.
INCORPORATION OF CERTAIN DOCUMENTS
All documents filed by the Company pursuant to the Exchange Act, after the
date of this Prospectus and prior to the termination of the Registration
Statement of which this Prospectus is a part with respect to registration of the
Exchange Notes, shall be deemed to be incorporated by reference in this
Prospectus and be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference, modifies or replaces such statement.
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<PAGE> 119
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, upon
written or oral request of any such person, a copy of any or all of the
documents incorporated by reference herein, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates. Written or oral requests for
such copies should be directed to: Mariner Energy, Inc., 580 WestLake Park
Blvd., Suite 1300, Houston, Texas 77079, Attention: James M. Fitzpatrick,
Corporate Secretary, telephone (713) 584-5500.
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<PAGE> 120
GLOSSARY
The terms defined in this glossary are used throughout this Prospectus.
BBL. One stock tank barrel, or 42 U.S. Gallons liquid volume, used herein
in reference to crude oil, condensate or other liquid hydrocarbons.
BCF. One billion cubic feet of natural gas.
BCFE. One billion cubic feet of natural gas equivalent (see Mcfe for
equivalency).
"BEHIND THE PIPE" Hydrocarbons in a potentially producing horizon
penetrated by a well bore the production of which has been postponed pending the
production of hydrocarbons from another formation penetrated by the well bore.
These hydrocarbons are classified as proved but non-producing reserves.
2-D. (Two-Dimensional Seismic) -- seismic reflections from the subsurface
used to map strata in two dimensions.
3-D. (Three-Dimensional Seismic) -- seismic reflections from the
subsurface used to map strata in three dimensions.
"DEVELOPMENT WELL" A well drilled within the proved boundaries of an oil
or natural gas reservoir with the intention of completing the stratigraphic
horizon known to be productive.
"EXPLOITATION WELL" Ordinarily considered to be a development well drilled
within a known reservoir. The Company uses the word to refer to deepwater wells
which are drilled on offshore leaseholds held (usually under farmout agreements)
where a previous exploratory well showing the existence of potentially
productive reservoirs was drilled, but the reservoir was by-passed for
development by the owner who drilled the exploratory well; thus the Company
distinguishes its development wells on its own properties from such exploitation
wells.
"EXPLORATORY WELL" A well drilled in unproven or semi-proven territory for
the purpose of ascertaining the presence underground of a commercial petroleum
deposit and which can be contrasted with a "development well".
"FARM-IN" A term used to describe the action taken by the person to whom a
transfer of an interest in a leasehold in an oil and gas property is made
pursuant to a farmout agreement.
"FARMOUT" The term used to describe the action taken by the person making
a transfer of a leasehold interest in an oil and gas property pursuant to a
farmout agreement.
"FARMOUT AGREEMENT" A common form of agreement between oil and gas
operators pursuant to which an owner of an oil and gas leasehold interest who is
not desirous of drilling at the time agrees to assign the leasehold interest, or
some portion of it, to another operator who is desirous of drilling the tract.
The assignor in such a transaction may retain some interest in the property such
as an overriding royalty interest or a production payment and, typically, the
assignee of the leasehold interest has an obligation to drill one or more wells
on the assigned acreage as a prerequisite to completion of the transfer to it.
"FINDING AND DEVELOPMENT COST" Generally, the cost of finding and
developing commercial oil and gas including all costs involved in acquiring
acreage, seismic survey costs and the cost of drilling, completion and other
development activities.
"GENERATE" or "GENERATOR" Generally refers to the creation of an
exploration or exploitation idea after evaluation of seismic and other available
data.
"GROSS WELLS" The total number of wells in which a working interest is
owned.
"INFILL WELL" A well drilled between known producing wells to better
exploit the reservoir.
"LEASE OPERATING EXPENSES" The expenses of lifting oil or gas from a
producing formation to the surface, and the transportation and marketing
thereof, constituting part of the current operating expenses of a working
interest, and also including labor, superintendence, supplies, repairs,
short-lived assets, maintenance, allocated
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<PAGE> 121
overhead costs, ad valorem taxes and other expenses incidental to production,
but not including lease acquisition, drilling or completion expenses or other
"finding costs".
"LITHOLOGY" The character of a rock formation or a geological strata.
MBBLS. One thousand barrels of crude oil or other liquid hydrocarbons.
MCF. One thousand cubic feet of natural gas.
MCFE. One thousand cubic feet of natural gas equivalent (converting one
barrel of oil to six Mcf of natural gas based on commonly accepted rough
equivalency of energy content).
MMBBLS. One million barrels of crude oil or other liquid hydrocarbons.
MMBTU. One million British thermal units.
MMCF. One million cubic feet of natural gas.
MMCFE. One million cubic feet of natural gas equivalent (see Mcfe for
equivalency).
"NET WELLS" The sum of the fractional working interests owned in gross
wells.
NYMEX. New York Mercantile Exchange.
"PAYOUT" Generally refers to the recovery by the incurring party to an
agreement of its costs of drilling, completing, equipping and operating a well
before another party's participation in the benefits of the well commences or is
increased to a new level.
"PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES" An estimate of the present
value of the estimated future net revenues from proved oil and gas reserves at a
date indicated after deducting estimated production and ad valorem taxes, future
capital costs and operating expenses, but before deducting any estimates of
federal income taxes. The estimated future net revenues are discounted at an
annual rate of 10%, in accordance with Commission practice, to determine their
"present value". The present value is shown to indicate the effect of time on
the value of the revenue stream and should not be construed as being the fair
market value of the properties. Estimates of future net revenues are made using
oil and natural gas prices and operating costs at the date indicated and held
constant for the life of the reserves.
"PRODUCING WELL" or "PRODUCTIVE WELL" A well that is producing oil or
natural gas or that is capable of production without further capital
expenditure.
"PROVED DEVELOPED RESERVES" Proved developed reserves are those quantities
of crude oil, natural gas and natural gas liquids that, upon analysis of
geological and engineering data, are expected with reasonable certainty to be
recoverable in the future from known oil and natural gas reservoirs under
existing economic and operating conditions. This classification includes: (a)
proved developed producing reserves, which are those expected to be recovered
from currently producing zones under continuation of present operating methods;
and (b) proved developed non-producing reserves, which consist of (i) reserves
from wells that have been completed and tested but are not yet producing due to
lack of market or minor completion problems that are expected to be corrected,
and (ii) reserves currently behind the pipe in existing wells which are expected
to be productive due to both the well log characteristics and analogous
production in the immediate vicinity of the well.
"PROVED RESERVES" The estimated quantities of crude oil, natural gas and
other hydrocarbon liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
"PROVED UNDEVELOPED RESERVES" Proved reserves that may be expected to be
recovered from existing wells that will require a relatively major expenditure
to develop or from undrilled acreage adjacent to productive units that are
reasonably certain of production when drilled.
"ROYALTY INTEREST" An interest in an oil and gas lease that gives the owner
of the interest the right to receive a portion of the production from the leased
acreage for the proceeds of the sale thereof, but generally
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<PAGE> 122
does not require the owner to pay any portion of the costs of drilling or
operating the wells on the leased acreage. Royalty interests may be either
landowner's royalty interests, which are reserved by the owner of the leased
acreage at the time the lease is granted, or overriding royalty interests, which
are usually carved from the leasehold interest pursuant to an assignment to a
third party or reserved by an owner of the leasehold in connection with a
transfer of the leasehold to a subsequent owner.
"UNITIZE" or "UNITIZATION" Terms used to denominate the joint operation of
all or some portion of a producing reservoir, particularly where there is
separate ownership of portions of the rights in a common producing pool in order
that it may be economically feasible to carry on certain production techniques,
maximize reservoir production and serve conservation interests.
"WORKING INTEREST" The interest in an oil and gas property (normally a
leasehold interest) that gives the owner the right to drill, produce and conduct
oil and gas operations on the property and to a share of production, subject to
all royalties, overriding royalties and other burdens and to all costs of
exploration, development and operations and all risks in connection therewith.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Historical Financial Statements:
Report of Deloitte & Touche LLP, Independent Auditors............................... F-2
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996................... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and 1995, the
six months ended June 30, 1995, the three months ended March 31, 1996 and the
three months ended June 30, 1996................................................. F-4
Statements of Stockholder's Equity for the years ended December 31, 1993, 1994 and
1995, the three months ended March 31, 1996 and the three months ended June 30,
1996............................................................................. F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995, the
six months ended June 30, 1995, the three months ended March 31, 1996 and the
three months ended June 30, 1996................................................. F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Mariner Energy, Inc.
Houston, Texas
We have audited the accompanying balance sheets of Mariner Energy, Inc.,
formerly Hardy Oil and Gas USA, Inc. (the "Company"), as of December 31, 1994
and 1995, and the related statements of operations, stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mariner Energy, Inc. as of
December 31, 1994 and 1995, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
July 12, 1996 (August 14, 1996 with respect to Note 10)
F-2
<PAGE> 125
MARINER ENERGY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES)
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 4,335 $ 5,456 $ 10,396
Receivables:
Trade.............................................................. 5,116 6,121 7,606
Joint owner (net of allowance for doubtful accounts of $31 at
December 31, 1994 and $25 at December 31, 1995 and June 30,
1996)............................................................ 3,026 4,768 6,799
Affiliates......................................................... 27 745
Prepaid expenses..................................................... 117 119 721
Lease and well equipment inventory................................... 37 36 36
-------- -------- --------
Total current assets.......................................... 12,658 17,245 25,558
-------- -------- --------
Property and equipment:
Oil and gas properties, at full cost:
Proved............................................................. 314,109 334,120 169,474
Unproved, not subject to amortization.............................. 8,486 9,559 13,589
-------- -------- --------
Total......................................................... 322,595 343,679 183,063
Accumulated depletion and amortization............................... (202,460) (217,862) (30,799)
-------- -------- --------
Total oil and gas properties, net............................. 120,135 125,817 152,264
-------- -------- --------
Non oil and gas property and equipment............................... 1,743 1,954 1,169
Accumulated depreciation............................................. (894) (1,121) (46)
-------- -------- --------
Total non oil and gas property and equipment, net............. 849 833 1,123
-------- -------- --------
Total property and equipment, net............................. 120,984 126,650 153,387
-------- -------- --------
Long-term receivable from affiliates................................... 4,000 106,000
Other assets (net of accumulated amortization of $770 at December 31,
1994, $1,091 at December 31, 1995 and $1,271 at June 30, 1996)....... 560 831 1,661
-------- -------- --------
$138,202 $250,726 $180,606
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................... $ 1,542 $ 1,604 $ 4,696
Accrued liabilities.................................................. 7,979 12,607 9,076
Accrued interest..................................................... 641 1,011 220
Payable to affiliates................................................ 358 129
Current portion of long-term debt.................................... 3,000 3,000
-------- -------- --------
Total current liabilities..................................... 13,520 18,351 13,992
-------- -------- --------
Accrual for future abandonment costs................................... 384 617 738
-------- -------- --------
Long-term debt:
Affiliate............................................................ 23,500 23,500
JEDI Bridge Loan..................................................... 42,000
Revolving Credit Facility............................................ 50,000
Guaranteed Senior Notes.............................................. 82,000 139,000
-------- -------- --------
Total long-term debt.......................................... 105,500 162,500 92,000
-------- -------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value; 10,000 shares authorized and 1,000 shares
issued and outstanding............................................. 1 1 1
Additional paid-in capital........................................... 35,094 81,094 95,744
Accumulated deficit.................................................. (16,297) (11,837) (21,869)
-------- -------- --------
Total stockholder's equity.................................... 18,798 69,258 73,876
-------- -------- --------
$138,202 $250,726 $180,606
======== ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 126
MARINER ENERGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------------------------
SIX THREE THREE
MONTHS MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
----------------------------- JUNE 30, MARCH 31, JUNE 30,
1993 1994 1995 1995 1996 1996
------- ------- ------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil sales......................... $ 8,021 $ 7,281 $ 7,288 $ 3,705 $ 3,644 $ 3,505
Gas sales......................... 26,274 28,575 26,021 11,720 10,134 12,444
------- ------- ------- ------- ------- -------
Total revenues............ 34,295 35,856 33,309 15,425 13,778 15,949
------- ------- ------- ------- ------- -------
Costs and expenses:
Lease operating expenses.......... 7,746 7,118 7,331 3,480 2,872 2,629
Depreciation, depletion and
amortization................... 15,607 16,221 15,635 7,850 6,309 8,409
Impairment of oil and gas
properties..................... 6,296 6,257 22,500
General and administrative
expenses....................... 2,242 1,830 2,028 1,043 712 734
------- ------- ------- ------- ------- -------
Total costs and
expenses................ 31,891 31,426 24,994 12,373 9,893 34,272
------- ------- ------- ------- ------- -------
Operating income.................... 2,404 4,430 8,315 3,052 3,885 (18,323)
Interest:
Income............................ 1,513 1,084 9,255 4,556 2,167 146
Expense........................... 7,358 8,125 12,772 6,453 3,391 2,681
Write-off bridge loan fees........ 1,011
------- ------- ------- ------- ------- -------
Income (loss) before income taxes... (3,441) (2,611) 4,798 1,155 2,661 (21,869)
Provision for income taxes.......... 338 200
------- ------- ------- ------- ------- -------
Net income (loss)................... $(3,441) $(2,611) $ 4,460 $ 955 $ 2,661 $ (21,869)
======= ======= ======= ======= ======= =======
Net loss per share.................. $ (21,869)
=======
</TABLE>
See notes to financial statements.
F-4
<PAGE> 127
MARINER ENERGY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Predecessor Company:
Balance at January 1, 1993.................. 1,000 $1 $ 18,594 $ (10,245) $ 8,350
Capital contribution..................... 16,000 16,000
Net loss................................. (3,441) (3,441)
---- -- ------- --------- -------
Balance at December 31, 1993................ 1,000 1 34,594 (13,686) 20,909
Capital contribution..................... 500 500
Net loss................................. (2,611) (2,611)
---- -- ------- --------- -------
Balance at December 31, 1994................ 1,000 1 35,094 (16,297) 18,798
Capital contribution..................... 46,000 46,000
Net income............................... 4,460 4,460
---- -- ------- --------- -------
Balance at December 31, 1995................ 1,000 1 81,094 (11,837) 69,258
Net income (unaudited)................... 2,661 2,661
---- -- ------- --------- -------
Balance at March 31, 1996 (unaudited)....... 1,000 1 81,094 (9,176) 71,919
Post Acquisition (unaudited):
Adjustments due to Acquisition.............. 14,650 9,176 23,826
Net loss.................................... (21,869) (21,869)
---- -- ------- --------- -------
Balance, June 30, 1996...................... 1,000 $1 $ 95,744 $ (21,869) $73,876
==== == ======= ========= =======
</TABLE>
See notes to financial statements.
F-5
<PAGE> 128
MARINER ENERGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------------------------
SIX THREE
MONTHS MONTHS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
--------------------------------- JUNE 30, MARCH 31, JUNE 30,
1993 1994 1995 1995 1996 1996
-------- -------- --------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $ (3,441) $ (2,611) $ 4,460 $ 955 $ 2,661 $ (21,869)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization......................... 16,022 16,637 16,183 8,136 6,437 9,607
Impairment of oil and gas properties... 6,296 6,257 22,500
Imputed Interest....................... 1,322
Changes in operating assets and
liabilities:
Trade receivables...................... (3,351) 1,469 (1,005) 1,005 (2,348) 863
Joint owner receivables................ (55) (1,724) (1,742) (2,112) 475 479
Affiliates receivable.................. (7) 99 (718) (700) (2,109)
Prepaid expenses and lease and well
equipment inventory.................. (78) 260 (1) 27 (307) (656)
Other assets........................... (246) (43) (592) (653) (185)
Accounts payable and accrued
liabilities.......................... (3,798) 1,969 5,060 5,460 832 1,733
Payable to affiliates.................. (74) 241 (229) (230) (11)
--------- -------- -------- -------- ------- ---------
Net cash provided by operating
activities....................... 11,268 22,554 21,416 11,888 5,630 13,794
--------- -------- -------- -------- ------- ---------
Cash flows from investing activities:
Purchase of Predecessor Company, net of
cash purchased of $5,438............... (184,742)
Additions to oil and gas properties...... (27,966) (36,923) (41,772) (23,213) (7,495) (10,701)
Additions to non oil and gas property and
equipment.............................. (308) (205) (211) (151) (153) (239)
Proceeds from sale of oil and gas
properties............................. 216 3,480 20,688 20,181 7,524
--------- -------- -------- -------- ------- ---------
Net cash provided by (used in)
investing activities............. (28,058) (33,648) (21,295) (3,183) (7,648) (188,158)
--------- -------- -------- -------- ------- ---------
Cash flows from financing:
Issuance of long-term receivable to
affiliates............................. (18,500) (107,000) (105,000) (1,000)
Principal payments of long-term debt..... (3,000) (3,000) (50,000)
Principal payments on debt to
affiliate.............................. (21,000) (500)
Repayment of long-term receivable from
affiliates............................. 15,500 14,000 5,000 3,000
Issuance of guaranteed senior notes...... 25,000 60,000 60,000
Proceeds from long-term debt............. 92,000
Proceeds from Revolving Credit
Facility............................... 50,000
Capital contributed...................... 16,000 500 46,000 46,000 92,150
Sale of common stock..................... 610
--------- -------- -------- -------- ------- ---------
Net cash provided by financing
activities....................... 17,000 14,000 1,000 (2,000) 2,000 184,760
--------- -------- -------- -------- ------- ---------
Increase (decrease) in cash and cash
equivalents.............................. 210 2,906 1,121 6,705 (18) 10,396
Cash and cash equivalents at beginning of
period................................... 1,219 1,429 4,335 4,335 5,456
--------- -------- -------- -------- ------- ---------
Cash and cash equivalents at end of
period................................... $ 1,429 $ 4,335 $ 5,456 $ 11,040 $ 5,438 $ 10,396
========= ======== ======== ======== ======= =========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 129
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- For the periods presented, Hardy Oil & Gas USA Inc., (the
"Company"), was a wholly owned subsidiary of Hardy Holdings Inc. (the "Parent"),
which is a wholly owned subsidiary of Hardy Oil & Gas plc ("Hardy plc"), a
public company incorporated in the United Kingdom. As a result of the sale of
Hardy Oil & Gas USA Inc.'s common stock (See Note 10 to the Financial
Statements), the Company changed its name to Mariner Energy, Inc. The Company is
primarily engaged in the exploration and exploitation for and development and
production of oil and gas reserves, with principal operations both onshore and
offshore in Texas and Louisiana.
INTERIM FINANCIAL INFORMATION -- The financial statements and related
information as of June 30, 1996 and for the three months ended June 30, 1996 and
March 31, 1996 and six months ended June 30, 1995 included herein are unaudited
and, in the opinion of management, reflect all adjustments of a normal nature
and those considered necessary for fair presentation of financial position,
results of operations and cash flows. The results of operations for the three
months ended June 30, 1996 and March 31, 1996 and six months ended June 30, 1995
are not necessarily indicative of operating results for a full year.
Additionally, all other financial statement information contained in the Notes
to the Financial Statements which occurred subsequent to December 31, 1995 and
for any interim period is unaudited.
CASH AND CASH EQUIVALENTS -- All short-term, highly liquid investments that
have an original maturity date of three months or less are considered cash
equivalents.
OIL AND GAS PROPERTIES -- Oil and gas properties are accounted for using
the full-cost method of accounting. All direct costs and certain indirect costs
associated with the acquisition, exploration and development of oil and gas
properties are capitalized. Amortization of oil and gas properties is provided
using the unit-of-production method based on estimated proved oil and gas
reserves. No gains or losses are recognized upon the sale or disposition of oil
and gas properties unless the sale or disposition represents a significant
quantity of oil and gas reserves. The net carrying value of proved oil and gas
properties is limited to an estimate of the future net revenues (discounted at
10%) from proved oil and gas reserves based on period-end prices and costs plus
the lower of cost or estimated fair value of unproved properties. As a result of
this limitation, a permanent impairment of oil and gas properties of
approximately $6,296,000 and $6,257,000 was recorded during fiscal years 1993
and 1994, respectively. Unproved properties are reviewed for impairment
annually.
NON OIL AND GAS PROPERTY AND EQUIPMENT -- Depreciation of non oil and gas
property and equipment is provided on a straight-line basis over their estimated
useful lives which range from five to seven years.
DEFERRED LOAN COSTS -- Deferred loan costs, which are included in other
assets, are stated at cost and amortized straight-line over their estimated
useful lives, not to exceed the life of the related debt.
INCOME TAXES -- The Company's taxable income is included in a consolidated
United States income tax return with the Parent. The intercompany tax allocation
policy provides that each member of the consolidated group compute a provision
for income taxes on a separate return basis. The Company records its income
taxes in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." Under SFAS No. 109, an asset and
liability approach is required which results in the recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets and
liabilities (see Note 7 to the Financial Statements).
CAPITALIZED INTEREST COSTS -- The Company capitalizes interest based on the
cost of proved properties under development. Capitalized interest costs
approximated $916,000, $558,000 and $1,265,000 for the years ended December 31,
1993, 1994 and 1995, respectively.
F-7
<PAGE> 130
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUAL FOR FUTURE ABANDONMENT COSTS -- Provision is made for abandonment
costs calculated on a unit-of-production basis, representing the Company's
estimated liability at current prices for costs which may be incurred in the
removal and abandonment of production facilities at the end of the producing
life of each property.
NATURAL GAS HEDGING PROGRAM -- The Company accounts for amounts received or
paid in connection with instruments entered into under its natural gas hedging
program as adjustments to natural gas revenues in the month such settlement
amounts are either received or paid. Subsequent to March 31, 1996, the Company
extended its natural gas hedging program to include its production of crude oil.
FINANCIAL INSTRUMENTS -- The Company's financial instruments consist of
cash and cash equivalents, receivables, payables, and debt. As of December 31,
1995, the estimated fair value of the Company's Guaranteed Senior Notes was
approximately $142,366,000. This estimated fair value was determined based on
borrowing rates available at December 31, 1995 for debt with similar terms and
maturities. The notes receivable and payable to affiliates are of a
related-party nature and the fair value is not practicable to estimate. The
carrying amount of the Company's other financial instruments approximates fair
value.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
2. RELATED-PARTY TRANSACTIONS
RECEIVABLES FROM AFFILIATES -- Effective July 1, 1992, the Company entered
into a $25 million lending facility with Hardy Petroleum Limited, a subsidiary
of Hardy plc. Advances under this facility bore interest at 8.9%. During the
year ended 1993, the outstanding balance of $15 million was repaid. The Company
earned interest income of approximately $561,000 on the receivable for the year
ended December 31, 1993.
Effective May 26, 1993, the Company entered into a $20 million lending
facility with Hardy Petroleum Limited. At December 31, 1994 and 1995, $4 million
and $1 million, respectively, was outstanding under this lending facility.
Advances bore interest at 7.88% and the Company earned interest income of
approximately $895,000, $989,000 and $314,000 on the receivable for the years
ended December 31, 1993, 1994 and 1995, respectively (See Note 10 to the
Financial Statements).
Effective January 10, 1995, the Company entered into a $23 million lending
facility with Hardy plc. At December 31, 1995, $23 million was outstanding under
this lending facility. The maturity date of May 31, 2001 may be extended to May
31, 2003 at the election of either party, and advances bear interest at 7.77%.
The Company earned interest income of approximately $1,762,000 on the receivable
for the year ended December 31, 1995 (See Note 10 to the Financial Statements).
Effective January 11, 1995, the Company entered into a $23 million lending
facility with Hardy plc which bears interest on advances at 7.07% and matures on
November 30, 1997. At December 31, 1995, $23 million was outstanding under this
lending facility. The Company earned interest income of approximately $1,599,000
on the receivable for the year ended December 31, 1995 (See Note 10 to the
Financial Statements).
Effective January 12, 1995, the Company entered into a $59 million lending
facility with Hardy plc. At December 31, 1995, $59 million was outstanding under
this lending facility. The maturity date of November 30, 2000 may be extended to
November 30, 2004 at the election of either party, and advances bear interest at
8.46%. The Company earned interest income of approximately $4,780,000 on the
receivable for the year ended December 31, 1995 (See Note 10 to the Financial
Statements).
F-8
<PAGE> 131
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The current receivable from affiliates represents accrued interest related
to the lending facilities (See Note 10 to the Financial Statements).
DEBT TO AFFILIATE -- At December 31, 1994 and 1995, the Company had
$23,500,000 outstanding under a $45 million loan facility with Hardy plc. The
borrowed amount bears interest at the London Interbank Offered Rate ("LIBOR")
plus 0.75%. The agreement, as modified, contains certain restrictive covenants
relating to the maintenance of certain measures of financial position during the
term of the loan. As of December 31, 1995, the Company was in compliance with
all such covenants. The loan will mature on June 1, 1998. (See Note 10 to the
Financial Statements).
The Company incurred interest expense of approximately $1,371,000,
$1,241,000 and $1,610,000 on the debt during the years ended December 31, 1993,
1994 and 1995, respectively.
The current payable to affiliates at December 31, 1994 and 1995 included
approximately $131,000 and $129,000, respectively, for accrued interest related
to affiliated debt. (See Note 10 to the Financial Statements).
GENERAL AND ADMINISTRATIVE EXPENSES -- The Company pays an affiliate for
various administrative support services. Included in general and administrative
expenses was approximately $254,000, $283,000 and $230,000 for the years ended
December 31, 1993, 1994 and 1995, respectively, for such services.
3. LONG-TERM DEBT
REVOLVING CREDIT FACILITY -- Effective January 21, 1991, Hardy plc entered
into an $80,000,000 Revolving Credit Facility (the "Facility") with an
international bank. The Company is an original borrower on the Facility and may
draw down funds as long as the aggregate amount borrowed by the original
borrowers, which include Hardy plc and its affiliates (the "group"), does not
exceed the following amounts (in thousands):
<TABLE>
<CAPTION>
PERIOD AMOUNT
--------------------------------------------------------------------------- -------
<S> <C>
January 21, 1991 -- June 30, 1995.......................................... $80,000
July 1, 1995 -- December 31, 1995.......................................... 67,000
January 1, 1996 -- June 30, 1996........................................... 54,000
July 1, 1996 -- December 31, 1996.......................................... 41,000
January 1, 1997 -- June 30, 1997........................................... 28,000
July 1, 1997 -- December 31, 1997.......................................... 15,000
</TABLE>
The maturity date of the Facility is December 31, 1997, and borrowings bear
interest at the rate of LIBOR plus 0.725%. The Company had no borrowings
outstanding under the Facility at December 31, 1995, 1994 or 1993. The total
amount outstanding under the Facility, representing borrowings by the group, at
December 31, 1995 was approximately $1,000,000.
GUARANTEED SENIOR NOTES -- Effective June 1, 1992, the Company issued to
institutional investors 9.05% Guaranteed Senior Notes, Series A ("Series A"),
and 8.45% Guaranteed Senior Notes, Series B ("Series B"), in the aggregate
amounts of $45,000,000 and $15,000,000 due June 1, 2002 and 1999, respectively.
The Series A and Series B notes are guaranteed by the Parent and Hardy plc. In
addition to paying the entire outstanding principal amount and the interest due
on the maturity dates of the Series A and Series B notes, the Company is
required to prepay the lesser of (a) $9,000,000 and $3,000,000, respectively, or
(b) the principal amount of the notes then outstanding on June 1 of each year,
commencing June 1, 1998 and 1995, respectively.
Effective May 1, 1993, the Company issued to institutional investors 7.88%
Guaranteed Senior Notes in the aggregate principal amount of $25,000,000 due
June 1, 2003. The notes are guaranteed by the Parent and Hardy plc. In addition
to paying the entire outstanding principal amount and the interest due on the
notes on
F-9
<PAGE> 132
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the respective maturity date, the Company is required to prepay the lesser of
(a) $5,000,000 or (b) the principal amount of the notes then outstanding on June
1 of each year, commencing June 1, 1999.
Effective January 11, 1995, the Company issued to institutional investors
8.46% Guaranteed Senior Notes in the aggregate principal amount of $60,000,000
due June 1, 2004. The notes are guaranteed by the Parent and Hardy plc. In
addition to paying the entire principal amount and the interest due on the notes
on the respective maturity date, the Company is required to prepay the lesser of
(a) $12,000,000 or (b) the principal amount of the notes then outstanding on
December 1 of each year, commencing December 1, 2000. The entire remaining
principal amount of the notes shall become due and payable on December 1, 2004.
The guaranteed senior notes require, among other things, that the Company
meet certain financial ratios and maintain a minimum tangible net worth. As of
December 31, 1995, the Company was in compliance with all such requirements.
The annual aggregate maturities of the long-term debt are as follows (See Note
10 to the Financial Statements, in thousands):
<TABLE>
<S> <C>
1996...................................................................... $ 3,000
1997...................................................................... 3,000
1998...................................................................... 35,500
1999...................................................................... 17,000
2000...................................................................... 26,000
Thereafter................................................................ 81,000
--------
Total........................................................... $165,500
========
</TABLE>
The Company paid interest on all outstanding indebtedness of $8,075,000,
$8,734,000 and $13,670,000 as of December 31, 1993, 1994 and 1995, respectively.
4. STOCKHOLDER'S EQUITY
The Company received capital contributions of $16,000,000, $500,000 and
$46,000,000, from the Parent, which was ultimately contributed from Hardy plc,
during the years ended December 31, 1993, 1994 and 1995, respectively.
5. EMPLOYEE CAPITAL ACCUMULATION PLAN
The Company provides all full-time employees participation in the Employee
Capital Accumulation Plan (the "Plan") which is comprised of a contributory
401(k) savings plan and a discretionary profit sharing plan. Under the 401(k)
feature, the Company, at its sole discretion, may contribute an
employer-matching contribution equal to a percentage not to exceed 50% of each
eligible participant's matched salary reduction contribution as defined by the
Plan. Under the discretionary profit sharing contribution feature of the Plan,
the Company's contribution, if any, shall be determined annually and shall be 4%
of the lesser of the Company's operating income or total employee compensation
and shall be allocated to each eligible participant pro rata to his or her
compensation. During 1993, 1994 and 1995, the Company contributed $145,000,
$158,500 and $163,000, respectively, to the Plan.
F-10
<PAGE> 133
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
MINIMUM FUTURE LEASE PAYMENTS -- The Company leases certain office
facilities and other equipment under long-term operating lease arrangements.
Minimum rental obligations under the Company's operating leases in effect at
December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996........................................................................ $ 378
1997........................................................................ 443
1998........................................................................ 443
1999........................................................................ 442
2000........................................................................ 442
Thereafter.................................................................. 221
------
Total............................................................. $2,369
======
</TABLE>
Rental expense, before capitalization, was approximately $330,500, $356,000
and $373,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
NATURAL GAS HEDGING PROGRAM -- The Company conducts a hedging program with
respect to its sales of natural gas using various instruments whereby monthly
settlements are based on the differences between the price or range of prices
specified in the instruments and the settlement price of certain natural gas
futures contracts quoted on the open market. The instruments utilized by the
Company differ from futures contracts in that there is no contractual obligation
which requires or allows for the future delivery of the product.
During 1993, hedges on 3,070,000 MMBTU of natural gas resulted in a
decrease of natural gas revenues of $881,610. During 1994, hedges on 7,407,000
MMBTU of natural gas resulted in an increase of natural gas revenues of
$876,863. During 1995, hedges on 5,890,000 MMBTU of natural gas resulted in an
increase of natural gas revenues of $1,020,297.
At December 31, 1995 the Company had open contracts on approximately
2,883,000 MMBTU which expire at varying times through March 31, 1996. The
"approximate break-even price" (the weighted average of the monthly settlement
prices of the applicable futures contracts which would result in no settlement
being due to or from the Company) with respect to such contracts is
approximately $1.98 per MMBTU.
7. INCOME TAXES
The following table sets forth a reconciliation of the statutory federal
income tax with the income tax provision (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes..................... $(3,441) $(2,611) $ 4,798
======= ======= =======
Income tax expense (benefit) computed at statutory
rates............................................... $(1,204) $ (914) $ 1,679
Change in valuation allowance......................... 1,197 898 (1,261)
Other................................................. 7 16 (80)
-------- -------- -------
Tax expense........................................... $ -- $ -- $ 338
======== ======== =======
</TABLE>
Federal income tax paid during the year ended December 31, 1995 was
$338,000. No federal income taxes were paid during the years ended December 31,
1993 and 1994.
F-11
<PAGE> 134
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's deferred tax position reflects the net tax effects of the
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax reporting.
Significant components of the deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 26,668 $ 28,157
Alternative minimum tax credit carryforward.................. 321
Other........................................................ 964 959
-------- --------
27,632 29,437
Valuation allowance............................................ (10,644) (9,383)
-------- --------
Total net deferred tax assets.................................. 16,988 20,054
-------- --------
Deferred tax liabilities --
Differences between book and tax basis of properties......... (16,988) (20,054)
-------- --------
Total net deferred taxes............................. $ -- $ --
======== ========
</TABLE>
As of December 31, 1995, the Company had cumulative net operating loss
carryforwards ("NOL") for federal income tax purposes of approximately $80
million, which expire in years ranging from 2005 to 2011. In addition, the
Company has approximately $0.3 million of alternative minimum tax credit
carryforwards. SFAS No. 109 requires that a valuation allowance be recorded
against tax assets which are not likely to be realized. Because of the uncertain
nature of their ultimate realization, based on past performance and expiration
dates, the Company has established a valuation allowance against these
carryforward benefits for all net deferred tax assets in excess of net deferred
tax liabilities. Because of the change in ownership of the Company as described
in Note 10 to the Financial Statements, the NOL will not be available to the
ongoing entity.
8. OIL AND GAS PRODUCING ACTIVITIES
The results of operations from the Company's oil and gas producing
activities are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Oil and gas sales.................................... $ 34,295 $ 35,856 $ 33,309
Production costs..................................... (7,746) (7,118) (7,331)
Depletion, depreciation, and amortization............ (15,607) (16,221) (15,635)
Income tax expense................................... (338)
-------- -------- --------
$ 10,942 $ 12,517 $ 10,005
======== ======== ========
</TABLE>
F-12
<PAGE> 135
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Costs incurred in oil and gas producing activities are as follows (in
thousands, except per equivalent mcf amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Property acquisition costs........................... $ 590 $ 2,521 $ 4,594
Development costs.................................... 15,681 17,907 24,312
Exploration costs.................................... 11,695 16,495 12,866
Production costs..................................... 7,746 7,118 7,331
Depletion, depreciation, and amortization rate per
equivalent mcf..................................... 1.02 .95 .96
</TABLE>
All of the Company's oil and gas revenues are from proved developed
properties located in the United States.
The Company capitalizes internal costs, associated with exploration
activities. These capitalized costs approximated $3,965,000, $3,479,000 and
$4,264,000, for the years ended December 31, 1993, 1994 and 1995, respectively.
During the year ended December 31, 1993, sales of oil and gas to four
purchasers accounted for 14%, 14%, 12% and 12% of total revenues. During the
year ended December 31, 1994, sales of oil and gas to three purchasers accounted
for 25%, 13% and 11% of total revenues. During the year ended December 31, 1995,
sales of oil and gas to three purchasers accounted for 20%, 20% and 12% of total
revenues. Management believes that the loss of these purchasers would not have a
material impact on the Company's financial condition or results of operations.
9. SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE
INFORMATION (UNAUDITED)
Estimated proved net recoverable reserves as shown below include only those
quantities that can be expected to be commercially recoverable at prices and
costs in effect at the balance sheet dates under existing regulatory practices
and with conventional equipment and operating methods. Proved developed reserves
represent only those reserves expected to be recovered through existing wells.
Proved undeveloped reserves include those reserves expected to be recovered from
new wells on undrilled acreage or from existing wells on which a relatively
major expenditure is required for recompletion.
Reserve estimates are inherently imprecise and may be expected to change as
additional information becomes available. Furthermore, estimates of oil and gas
reserves, of necessity, are projections based on engineering data, and there are
uncertainties inherent in the interpretation of such data as well as the
projection of future rates of production and the timing of development
expenditures. Reserve engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured
exactly, and the accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation and judgment.
Accordingly, estimates of the economically recoverable quantities of oil and
natural gas attributable to any particular group of properties, classifications
of such reserves based on risk of recovery and estimates of the future net cash
flows expected therefrom prepared by different engineers or by the same
engineers at different times may vary substantially. There also can be no
assurance that the reserves set forth herein will ultimately be produced or that
the proved undeveloped reserves set forth herein will be developed within the
periods anticipated. It is likely that variances from the estimates will be
material. In addition, the estimates of future net revenues from proved reserves
of the Company and the present value thereof are based upon certain assumptions
about future production levels, prices and costs that may not be correct when
judged against actual subsequent experience. The Company
F-13
<PAGE> 136
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
emphasizes with respect to the estimates prepared by independent petroleum
engineers that the discounted future net cash flows should not be construed as
representative of the fair market value of the proved reserves owned by the
Company since discounted future net cash flows are based upon projected cash
flows which do not provide for changes in oil and natural gas prices from those
in effect on the date indicated or for escalation of expenses and capital costs
subsequent to such date. The meaningfulness of such estimates is highly
dependent upon the accuracy of the assumptions upon which they were based.
Actual results will differ, and are likely to differ materially, from the
results estimated.
ESTIMATED QUANTITIES OF PROVED RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
OIL (BBL) GAS (MCF)
--------- ---------
<S> <C> <C>
December 31, 1992...................................................... 6,190 80,837
Extensions........................................................... 61 15,483
Revisions of previous estimates...................................... 353 7,266
Production........................................................... (470) (12,507)
Sales of reserves in place........................................... (6) (19)
----- ------
December 31, 1993...................................................... 6,128 91,060
Extensions........................................................... 829 21,842
Revisions of previous estimates...................................... 423 4,241
Production........................................................... (459) (14,362)
Sales of reserves in place........................................... (21) (2,136)
----- ------
December 31, 1994...................................................... 6,900 100,645
Extensions........................................................... 46 2,476
Revisions of previous estimates...................................... 307 14,113
Production........................................................... (424) (13,770)
Sales of reserves in place........................................... (160) (5,134)
----- ------
December 31, 1995...................................................... 6,669 98,330
===== ======
</TABLE>
ESTIMATED QUANTITIES OF PROVED DEVELOPED RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
OIL (BBL) GAS (MCF)
--------- ---------
<S> <C> <C>
December 31, 1992...................................................... 3,641 62,329
December 31, 1993...................................................... 3,653 67,263
December 31, 1994...................................................... 4,037 83,192
December 31, 1995...................................................... 4,357 87,843
</TABLE>
The following is a summary of a standardized measure of discounted net cash
flows related to the Company's proved oil and gas reserves. The information
presented is based on a valuation of proved reserves using discounted cash flows
based on year-end prices, costs and economic conditions and a 10% discount rate.
The additions to proved reserves from new discoveries and extensions could vary
significantly from year to year; additionally, the impact of changes to reflect
current prices and costs of reserves proved in prior years could also be
significant. Accordingly, the information presented below should not be viewed
as an estimate of the fair value of the Company's oil and gas properties, nor
should it be considered indicative of any trends.
F-14
<PAGE> 137
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Future cash inflows.......................................... $270,376 $285,823 $370,471
Future production and development costs...................... (124,942) (138,185) (125,936)
Future income taxes.......................................... (5,776) (8,819) (37,518)
-------- -------- --------
Future net cash flows........................................ 139,658 138,819 207,017
Discount of future net cash flows at 10% per annum........... (49,001) (49,215) (46,502)
-------- -------- --------
Standardized measure of discounted future net cash flows..... $ 90,657 $ 89,604 $160,515
======== ======== ========
</TABLE>
During recent years, there have been significant fluctuations in the prices
paid for crude oil in the world markets. This situation has had a destabilizing
effect on crude oil's posted prices in the United States, including the posted
prices paid by purchasers of the Company's crude oil. The weighted average
prices of oil and gas at December 31, 1994 and 1995, used in the above table,
were $16.28 and $17.78 per Bbl, respectively, and $1.67 and $2.72 per Mcf,
respectively.
The following are the principal sources of change in the standardized
measure of discounted future net cash flows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Sales and transfers of oil and gas produced,
net of production costs.......................... $(26,549) $(28,738) $(25,978)
Net changes in prices and production costs......... 4,090 (5,655) 64,319
Extensions and discoveries, net of future
development and production costs................. 5,246 27,509 5,712
Revisions of previous quantity estimates........... 7,057 4,324 18,090
Sales of reserves in place......................... (9,127) (475) (6,141)
Net change in income taxes......................... 4,255 (2,130) (7,191)
Accretion of discount before income taxes.......... 10,006 9,424 9,532
Changes in production rates (timing) and other..... 3,456 (5,312) 12,568
-------- -------- --------
Net change......................................... $ (1,566) $ (1,053) $ 70,911
======== ======== ========
</TABLE>
10. SUBSEQUENT EVENTS
THE ACQUISITION -- Pursuant to a stock purchase agreement dated April 1,
1996, Joint Energy Development Investments Limited Partnership ("JEDI"), which
is an affiliate of Enron Capital & Trade Resources Corp. ("ECT"), purchased from
Hardy Holdings Inc. all of the issued and outstanding stock of the Company for a
purchase price of approximately $185.5 million effective April 1, 1996 for
financial accounting purposes (the "Acquisition"). In connection with the
Acquisition, ECT and Mariner Holdings entered into agreements with certain
members of the Company's management providing for a continued role of management
in the Company after the Acquisition.
F-15
<PAGE> 138
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The sources and uses of funds related to financing the Acquisition were as
follows:
SOURCES OF FUNDS
(IN MILLIONS)
<TABLE>
<S> <C>
JEDI Bridge Loan(1)................................................. $ 92.0
Common stock purchased by JEDI(2)................................... 95.0
Working capital provided by the Company............................. 6.0
------
Total..................................................... $193.0
======
</TABLE>
USES OF FUNDS
(IN MILLIONS)
<TABLE>
<S> <C>
Acquisition purchase price.......................................... $185.5
Acquisition costs and other expenses(3)............................. 7.5
------
Total..................................................... $193.0
======
</TABLE>
- ---------------
(1) The JEDI Bridge Loan was incurred by Mariner Holdings to fund a portion of
the consideration paid in the Acquisition, which has been pushed down for
accounting purposes to the Company.
(2) As contemplated in connection with the Acquisition and shortly after the
consummation thereof, certain members of the Company's management purchased
approximately 4% of the capital stock of Mariner Holdings (and thereby
acquired beneficial ownership of approximately 4% of the capital stock of
the Company) for an aggregated consideration valued at approximately $4.0
million. Such consideration consisted of approximately $0.6 million in cash
and assignments of a portion of their overriding royalty interests held
under the terms of their then existing arrangements with the Company.
Proceeds from management's purchase of shares are not included in the above
sources and uses of funds.
(3) Includes $2.9 million of fees and expenses paid to JEDI associated with the
purchase of the common stock by JEDI, $2.6 million of expenses paid to JEDI
associated with the implementation of the JEDI Bridge Loan and $2.0 million
of other transaction fees and expenses.
The Acquisition has been accounted for using the purchase method of
accounting. As such, JEDI's cost to acquire the Company, including transaction
costs, have been allocated to the assets and liabilities acquired based on
estimated fair values. As a result, the Company's financial position and
operating results subsequent to the date of the Acquisition reflect a new basis
of accounting and are not comparable to prior periods. In addition, $1.3 million
of interest was imputed for the period from April 1, 1996 to the date of
closing.
The allocation of JEDI's purchase price to the assets and liabilities of
the Company resulted in a significant increase in the carrying value of the
Company's oil and gas properties. Under the full cost method of accounting, the
carrying value of oil and gas properties is generally not permitted to exceed
the sum of the present value (10% discount rate) of estimated future net cash
flows from proved reserves, based on current prices and costs, plus the lower of
cost or estimated fair value of unproved properties (the "cost center ceiling").
Based upon the allocation of JEDI's purchase price, estimated proved reserves
and product prices in effect at the date of the Acquisition, the purchase price
allocated to oil and gas properties was in excess of the cost center ceiling by
approximately $22.5 million. The resulting writedown is a non-cash charge and
has been included in the results of operations for the period ended June 30,
1996.
F-16
<PAGE> 139
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The allocation of the purchase price (including fees and expenses) is
summarized as follows in millions of dollars:
<TABLE>
<S> <C>
Current assets...................................................... $ 18.3
Property and equipment.............................................. 181.4
Other noncurrent assets............................................. 2.6
Liabilities assumed................................................. (12.2)
------
Total..................................................... $190.1
======
</TABLE>
The following unaudited pro forma financial data have been prepared
assuming that the Acquisition and the related financing were consummated on
January 1, 1995. Amounts are in thousands, except number of shares and per share
amounts.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
YEAR ENDED -------------------
DECEMBER 31, 1995 1995 1996
----------------- ------- -------
<S> <C> <C> <C>
Revenues........................................ $33,309 $15,425 $29,727
============= ======= =======
Net income (loss)............................... $(1,956) $(2,082) $ 2,163
============= ======= =======
Net income (loss) per common share.............. $(1,956) $(2,082) $ 2,163
============= ======= =======
Weighted average number of common shares
outstanding................................... 1,000 1,000 1,000
</TABLE>
JEDI BRIDGE LOAN -- In connection with the acquisition, JEDI and Mariner
Holdings entered into a Credit, Subordination and Further Assurances Agreement
dated May 16, 1996, pursuant to which JEDI provided a loan commitment to Mariner
Holdings of $105 million. Under this commitment Mariner Holdings borrowed $92
million (the "JEDI Bridge Loan") to partially fund the Acquisition. The JEDI
Bridge Loan bore interest at 6% above LIBOR (11.5% at June 30, 1996). The JEDI
Bridge Loan was repaid with proceeds from dividends paid by the Company to
Mariner Holdings; the Company used proceeds of $50 million from borrowings under
the Revolving Credit Facility and $42 million from the issuance of the 10 1/2%
Senior Subordinated Notes to pay such dividends. As a result of the repayments,
the JEDI Bridge Loan was terminated. In connection with the $50 million
repayment, $1.0 million of the JEDI Bridge Loan debt fees were written off
during the period ended June 30, 1996.
REVOLVING CREDIT FACILITY -- On June 28, 1996, the Company entered into a
revolving credit facility (the "Revolving Credit Facility") with NationsBank of
Texas, N.A. as agent for a group of lenders (the "Lenders"). The Revolving
Credit Facility provides for a maximum $150 million revolving credit loan and
matures on June 28, 1999. The borrowing base under the Revolving Credit Facility
is currently $50 million and is subject to periodic redetermination. The
Revolving Credit Facility is unsecured. On June 28, 1996, the Company borrowed
$50 million under the Revolving Credit Facility and used the proceeds to pay a
dividend to Mariner Holdings, which was used by Mariner Holdings to partially
repay the JEDI Bridge Loan. During August 1996, the outstanding balances of both
the Revolving Credit Facility and the JEDI Bridge Loan were repaid with the
proceeds from the issuance of the 10 1/2% Senior Subordinated Notes.
Borrowings under the Revolving Credit Facility bear interest, at the option
of the Company, at either (i) LIBOR plus 0.75% to 1.25% (depending upon the
level of utilization of the Borrowing Base) or (ii) the higher of (a) the
agent's prime rate and (b) the federal funds rate plus 0.5%. The Company incurs
a quarterly
commitment fee ranging from 0.25% to 0.375% per annum on the average unused
portion of the Borrowing Base, depending upon the level of utilization. The
interest rate at June 30, 1996 was 6.8%.
F-17
<PAGE> 140
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Revolving Credit Facility contains various restrictive covenants which,
among other things, restrict the payment of dividends, limit the amount of debt
the Company may incur, limit the Company's ability to make certain loans and
investments, limit the Company's ability to enter into certain hedge
transactions and provide that the Company must maintain a specified relationship
between cash flow and fixed charges and cash flow and interest on indebtedness.
10 1/2% SENIOR SUBORDINATED NOTES -- On August 14, 1996 the Company
completed the sale of $100 million principal amount of 10 1/2% Senior
Subordinated Notes Due 2006, Series A (the "Outstanding Notes"). The proceeds of
the notes were used by the Company to (i) pay a dividend to Mariner Holdings,
who used the dividend to fully repay the JEDI Bridge Loan assumed in the
Acquisition and (ii) to repay the Revolving Credit Facility. The Outstanding
Notes bear interest at 10 1/2% payable semiannually in arrears on February 1 and
August 1 of each year. The Outstanding Notes are unsecured obligations of the
Company, and are subordinated in right of payment to all senior debt (as defined
in the indenture governing the Outstanding Notes) of the Company, including
indebtedness under the Revolving Credit Facility.
The indenture pursuant to which the Outstanding Notes are issued contains
certain covenants that, among other things, limit the ability of the Company to
incur additional indebtedness, pay dividends, redeem capital stock, make
investments, enter into transactions with affiliates, sell assets and engage in
mergers and consolidations.
The Outstanding Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after August 1, 2001, initially at 105.25% of
their principal amount, plus accrued interest, declining ratably to 100% of
their principal amount, plus accrued interest, on or after August 1, 2003. In
addition, at the option of the Company, at any time prior to August 1, 1999, up
to an aggregate of 35% of the original principal amount of the Outstanding Notes
will be redeemable from the net proceeds of one or more public equity offerings,
at 110.5% of their principal amount, plus accrued interest, provided that any
such redemption shall occur within 60 days of the date of the closing of such
public equity offering.
In the event of a change of control of the Company (as defined in the
indenture pursuant to which Notes are issued), each holder of the Outstanding
Notes (the "Holder") will have the right to require the Company to repurchase
all or any portion of such Holder's Notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued interest.
The Company is obligated to consummate an exchange offer pursuant to an
effective registration statement or to cause resales of the Notes to be
registered under the Securities Act and, if one of such events does not occur
prior to the date that is six months after the date of the initial sale of the
Outstanding Notes, interest on the Notes will increase permanently by 0.5% per
annum.
STOCK OPTION PLAN -- During June 1996, Mariner Holdings established the
Mariner Holdings, Inc. 1996 Stock Option Plan (the "Plan") providing for the
granting of stock options to key employees and consultants. Options granted
under the Plan will not be less than the fair market value of the shares at the
date of grant. The maximum number of shares of Mariner Holdings common stock
that may be issued under the Plan is 142,800.
On June 27, 1996, options (the "Options") to purchase 128,331 shares were
granted at an exercise price of $100 per share. The Options generally become
exercisable as to one-fifth on each of the first five anniversaries of the date
of grant. The Options expire seven years after the date of grant.
F-18
<PAGE> 141
MARINER ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
HEDGING TRANSACTIONS -- The following table sets forth the Company's open
hedging contracts for oil and natural gas and the weighted average of NYMEX
prices hedged under various swap agreements entered into as of June 30, 1996.
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
-------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BBLS PRICE MMBTU PRICE
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Six months ended December 31, 1996................ 368,000 $18.55 9,094,400 $ 2.33
January-February 1997............................. 118,000 18.55 2,184,000 2.36
</TABLE>
During the three months ended June 30, 1996 the Company's crude oil and
natural gas revenues were decreased $113,000 and $64,000, respectively, as a
result of hedging transactions. During the three months ended March 31, 1996 the
Company's natural gas revenues were decreased $2,347,000 as a result of hedging
transactions. During the six months ended June 30, 1995, the Company's gas
revenues were increased $922,000 as a result of hedging transactions.
RELATED PARTY TRANSACTIONS -- Enron Corp. is the parent of ECT, and an
affiliate of Enron and ECT is the general partner of JEDI. Accordingly, Enron
may be deemed to control JEDI, Mariner Holdings and the Company. In addition,
five of the Company's directors are officers of Enron or affiliates of Enron.
Enron and certain of its subsidiaries and other affiliates collectively
participate in many phases of the oil and natural gas industry and are,
therefore, competitors of the Company. In addition, ECT and JEDI have provided,
and may in the future provide, and ECT Securities Corp. has assisted, and may in
the future assist, in arranging financing to non-affiliated participants in the
oil and natural gas industry who are or may become competitors of the Company.
Because of these various conflicting interests, ECT, the Company, JEDI and the
members of the Company's management who are also stockholders of Mariner
Holdings have entered into an agreement that is intended to make clear that
Enron and its affiliates have no duty to make business opportunities available
to the Company.
The Company expects that from time to time it will engage in various
commercial transactions and have various commercial relationships with Enron and
certain affiliates of Enron, such as holding and exploring, exploiting and
developing joint working interests in particular prospects and properties,
engaging in hydrocarbon price hedging arrangements and entering into other oil
and gas related or financial transactions. For example, there are several
prospects in which both an affiliate of Enron and the Company have working
interests. Such interests were acquired in the ordinary course of business
pursuant to bids, joint or otherwise. Any wells drilled will be subject to joint
operating agreements relating to exploration and possible production and will be
subject to customary business terms. Furthermore, the Company has entered into
several agreements with Enron or affiliates of Enron for the purpose of hedging
oil and natural gas prices on the Company's future production. The Company
believes that its current agreements with Enron and its affiliates are, and
anticipates that, but can provide no assurance that, any future agreements with
Enron and its affiliates will be, on terms no less favorable to the Company than
would be contained in an agreement with a third party.
F-19
<PAGE> 142
[MARINER ENERGY, INC. LOGO]
<PAGE> 143
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
Mariner's Amended and Restated Certificate of Incorporation contains a
provision that eliminates the personal monetary liability of a director to
Mariner and its stockholders for breach of his fiduciary duty as a director to
the extent currently allowed under the General Corporation Law of the State of
Delaware (the "GCLD"). If a director were to breach the duty of care in
performing his duties as a director, neither Mariner nor its stockholders could
recover monetary damages from the director, and the only course of action
available to Mariner's stockholders would be equitable remedies, such as an
action to enjoin or rescind a transaction involving a breach of the fiduciary
duty of care. To the extent certain claims against directors are limited to
equitable remedies, this provision of Mariner's Amended and Restated Certificate
of Incorporation may reduce the likelihood of derivative litigation and may
discourage stockholders or management from initiating litigation against
directors for breach of their duty of care. Additionally, equitable remedies may
not be effective in many situations. If a stockholder's only remedy is to enjoin
the completion of the Board of Directors' action, this remedy would be
ineffective if the stockholder does not become aware of a transaction or event
until after it has been completed. In such a situation, it is possible that the
stockholders and Mariner would have no effective remedy against the directors.
The directors do not have liability for monetary damages for grossly negligent
business decisions (in violation of their duty of care), including decisions
made in connection with attempts to acquire Mariner. Liability for monetary
damages remains for (i) any breach of the duty of loyalty to Mariner or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of an
improper dividend or improper repurchase of Mariner's stock under Section 174 of
the GCLD or (iv) any transaction from which the director derived an improper
personal benefit. Mariner's Amended and Restated Certificate of Incorporation
further provides that in the event the GCLD is amended to allow the further
elimination or limitation of the liability of directors, then the liability of
Mariner's directors shall be limited to the fullest extent permitted by the
amended GCLD. The GCLD permits a corporation to indemnify certain persons,
including officers and directors, who are (or are threatened to be made) parties
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of their being officers or directors of
the corporation. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by an indemnified officer or director, provided he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests and, in the case of criminal proceedings, provided he had no
reasonable cause to believe that his conduct was unlawful.
The GCLD further permits a corporation to indemnify certain persons,
including officers and directors, who are (or are threatened to be made) parties
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of their being officers
or directors of the corporation. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by the indemnified officer or
director, provided he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the corporation's best interests. However, no such
person will be indemnified as to matters for which he is found to be liable for
negligence or misconduct in the performance of his duty to the corporation
unless, and only to the extent that, indemnification is ordered by a court. The
Bylaws of Mariner require Mariner to indemnify each such person in substantially
the same circumstances and on substantially the same terms as those in which the
GCLD permits indemnification. Further, the Stockholders' Agreement provides that
these indemnification provisions, which are to be included in the charter and
bylaws (or analogous documents) of each subsidiary of Mariner Holdings, shall
not be amended without the written consent of a majority of the Management
Directors (as defined therein).
Delaware corporations also are authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. Mariner
currently has in effect a directors' and officers' liability insurance policy
providing aggregate coverage in the amount of $10,000,000.
II-1
<PAGE> 144
ITEM 21. Exhibits and Financial Statement Schedules
(A) Exhibits.
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended.
3.2 Bylaws of the Registrant, as amended.
4.1 Indenture, dated as of August 1, 1996, between the Registrant and United States
Trust Company of New York, as Trustee.
4.2 Registration Agreement, dated August 9, 1996, between the Registrant and Morgan
Stanley & Co. Incorporated, for itself and the other several Purchasers named
therein.
4.3 Credit Agreement, dated as of June 28, 1996, among the Registrant, NationsBank of
Texas, N.A., as Agent, and the financial institutions listed on Schedule 1
thereto, as amended by First Amendment to Credit Agreement, dated as of August 12,
1996, among the Registrant, NationsBank of Texas, N.A., as Agent, Toronto Dominion
(Texas), Inc., as Co-agent, and the financial institutions listed on Schedule 1
thereto.
4.4 Note, dated August 12, 1996, in the principal amount of up to $45,000,000, made by
the Registrant in favor of NationsBank of Texas, N.A.
4.5 Note, dated August 12, 1996, in the principal amount of up to $45,000,000, made by
the Registrant in favor of Toronto Dominion (Texas), Inc.
4.6 Note, dated August 12, 1996, in the principal amount of up to $30,000,000, made by
the Registrant in favor of The Bank of Nova Scotia.
4.7 Note, dated August 12, 1996, in the principal amount of up to $30,000,000, made by
the Registrant in favor of ABN AMRO Bank, N.V., Houston Agency.
4.8 Form of the Registrant's 10 1/2% Senior Subordinated Note Due 2006, Series A.
4.9 Form of the Registrant's 10 1/2% Senior Subordinated Note Due 2006, Series B.
5.1* Opinion of Fulbright & Jaworski L.L.P. regarding the legality of the Exchange
Notes.
10.1 Stock Purchase Agreement, effective as of April 1, 1996, among Hardy Oil & Gas
plc, Hardy Holdings Inc., Millennium Oil & Gas, Inc. (the Company) and Enron
Capital & Trade Resources Corp.
10.2 Participation Agreement, dated as of May 16, 1996, between Hardy Oil & Gas plc and
Mariner Holdings, Inc.
10.3* Amended and Restated Stockholders' Agreement, dated September , 1996, among
Mariner Holdings, Inc., Enron Capital & Trade Resources, Inc., Joint Energy
Development Investments Limited Partnership and the other stockholders of Mariner
Holdings, Inc.
10.4 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Robert E. Henderson.
10.5 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Richard R. Clark.
10.6 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Michael W. Strickler.
10.7 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and James M. Fitzpatrick.
10.8 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Gregory K. Harless.
10.9 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and W. Hunt Hodge.
</TABLE>
II-2
<PAGE> 145
<TABLE>
<C> <S>
10.10 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Clinton D. Smith.
10.11 Amended and Restated Consulting Services Agreement, dated June 27, 1996, between
the Registrant and David S. Huber.
10.12 Mariner Holdings, Inc. 1996 Stock Option Plan.
10.13 Form of Incentive Stock Option Agreement (pursuant to the Mariner Holdings, Inc.
1996 Stock Option Plan).
10.14 List of executive officers who are parties to an Incentive Stock Option Agreement.
10.15 Form of Nonstatutory Stock Option Agreement (pursuant to the Mariner Holdings,
Inc. 1996 Stock Option Plan).
10.16 List of executive officers who are parties to a Nonstatutory Stock Option
Agreement.
10.17 Nonstatutory Stock Option Agreement, dated June 27, 1996, between the Registrant
and David S. Huber.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
23.3 Consent of Ryder Scott Company.
24.1 Powers of Attorney.
25.1 Statement of Eligibility Under Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee on Form T-1.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal and related documents.
</TABLE>
- ---------------
* To be filed by amendment.
(B) Financial Statement Schedules.
ITEM 22. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 146
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on September 24, 1996.
MARINER ENERGY, INC.
By /s/ ROBERT E. HENDERSON
-----------------------------------
Robert E. Henderson
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ ROBERT E. HENDERSON Chairman of the Board, President, Chief
- --------------------------------------------- Executive Officer and Director (Principal
Robert E. Henderson Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
* Senior Vice President of Production and
- --------------------------------------------- Director
Richard R. Clark
* Director
- ---------------------------------------------
James V. Derrick, Jr.
* Director
- ---------------------------------------------
Andrew S. Fastow
* Director
- ---------------------------------------------
Gene E. Humphrey
* Director
- ---------------------------------------------
Jere C. Overdyke, Jr.
* Director
- ---------------------------------------------
Frank Stabler
* Senior Vice President of Exploration and
- --------------------------------------------- Director
Michael W. Strickler
*By /s/ ROBERT E. HENDERSON
- ---------------------------------------------
Robert E. Henderson
Attorney-in-fact
September 24, 1996
</TABLE>
II-5
<PAGE> 148
INDEX TO EXHIBITS
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended.
3.2 Bylaws of the Registrant, as amended.
4.1 Indenture, dated as of August 1, 1996, between the Registrant and United States
Trust Company of New York, as Trustee.
4.2 Registration Agreement, dated August 9, 1996, between the Registrant and Morgan
Stanley & Co. Incorporated, for itself and the other several Purchasers named
therein.
4.3 Credit Agreement, dated as of June 28, 1996, among the Registrant, NationsBank of
Texas, N.A., as Agent, and the financial institutions listed on Schedule 1
thereto, as amended by First Amendment to Credit Agreement, dated as of August 12,
1996, among the Registrant, NationsBank of Texas, N.A., as Agent, Toronto Dominion
(Texas), Inc., as Co-agent, and the financial institutions listed on Schedule 1
thereto.
4.4 Note, dated August 12, 1996, in the principal amount of up to $45,000,000, made by
the Registrant in favor of NationsBank of Texas, N.A.
4.5 Note, dated August 12, 1996, in the principal amount of up to $45,000,000, made by
the Registrant in favor of Toronto Dominion (Texas), Inc.
4.6 Note, dated August 12, 1996, in the principal amount of up to $30,000,000, made by
the Registrant in favor of The Bank of Nova Scotia.
4.7 Note, dated August 12, 1996, in the principal amount of up to $30,000,000, made by
the Registrant in favor of ABN AMRO Bank, N.V., Houston Agency.
4.8 Form of the Registrant's 10 1/2% Senior Subordinated Note Due 2006, Series A.
4.9 Form of the Registrant's 10 1/2% Senior Subordinated Note Due 2006, Series B.
5.1* Opinion of Fulbright & Jaworski L.L.P. regarding the legality of the Exchange
Notes.
10.1 Stock Purchase Agreement, effective as of April 1, 1996, among Hardy Oil & Gas
plc, Hardy Holdings Inc., Millennium Oil & Gas, Inc. (the Company) and Enron
Capital & Trade Resources Corp.
10.2 Participation Agreement, dated as of May 16, 1996, between Hardy Oil & Gas plc and
Mariner Holdings, Inc.
10.3* Amended and Restated Stockholders' Agreement, dated September , 1996, among
Mariner Holdings, Inc., Enron Capital & Trade Resources, Inc., Joint Energy
Development Investments Limited Partnership and the other stockholders of Mariner
Holdings, Inc.
10.4 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Robert E. Henderson.
10.5 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Richard R. Clark.
10.6 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Michael W. Strickler.
10.7 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and James M. Fitzpatrick.
10.8 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Gregory K. Harless.
10.9 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and W. Hunt Hodge.
10.10 Amended and Restated Employment Agreement, dated June 27, 1996, between the
Registrant and Clinton D. Smith.
</TABLE>
<PAGE> 149
<TABLE>
<C> <S>
10.11 Amended and Restated Consulting Services Agreement, dated June 27, 1996, between
the Registrant and David S. Huber.
10.12 Mariner Holdings, Inc. 1996 Stock Option Plan.
10.13 Form of Incentive Stock Option Agreement (pursuant to the Mariner Holdings, Inc.
1996 Stock Option Plan).
10.14 List of executive officers who are parties to an Incentive Stock Option Agreement.
10.15 Form of Nonstatutory Stock Option Agreement (pursuant to the Mariner Holdings,
Inc. 1996 Stock Option Plan).
10.16 List of executive officers who are parties to a Nonstatutory Stock Option
Agreement.
10.17 Nonstatutory Stock Option Agreement, dated June 27, 1996, between the Registrant
and David S. Huber.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
23.3 Consent of Ryder Scott Company.
24.1 Powers of Attorney.
25.1 Statement of Eligibility Under Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee on Form T-1.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal and related documents.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
State of Delaware
Office of the Secretary of State
---------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "HARDY OIL & GAS USA INC.", CHANGING ITS NAME FROM "HARDY OIL &
GAS USA INC." TO "MARINER ENERGY, INC.", FILED IN THIS OFFICE ON THE TWELFTH DAY
OF JUNE, A.D. 1996, AT 2 O'CLOCK P.M.
[GREAT SEAL OF THE STATE OF DELAWARE]
[SEAL] /s/ EDWARD J. FREEL
-------------------------------------
Edward J. Freel, Secretary of State
2014213 8100 AUTHENTICATION: 8001073
960185182 DATE: 06-25-96
<PAGE> 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Hardy Oil & Gas USA Inc., a Delaware corporation, does hereby certify that:
1. The name of the corporation is Hardy Oil & Gas USA Inc. (the
"Corporation"), and was originally incorporated under the name of
"Trafalgar House Oil and Gas Inc." and the original Certificate of
Incorporation of the Corporation was filed with the Secretary of State
of the state of Delaware on August 3, 1983.
2. Pursuant to the provisions of Section 141(f) of the Delaware General
Corporation Law, the Board of Directors of the Corporation, by
unanimous written consent, adopted resolutions proposing and declaring
advisable and in the best interests of the Corporation to amend and
restate the Certificate of Incorporation of the Corporation as set
forth in the Amended and Restated Certificate of Incorporation
attached hereto as Annex A (the "Restated Certificate of
Incorporation"), and recommended the adoption of the Restated
Certificate of Incorporation by the sole stockholder of the
Corporation.
3 Thereafter, pursuant to the provisions of Section 228 of the Delaware
General Corporation Law, the holder of all the authorized and
outstanding capital stock of the Corporation executed its written
consent to the adoption of the Restated Certificate of Incorporation.
4. The Restated Certificate of Incorporation has been duly adopted in
accordance with Section 242 and Section 245 of the Delaware
Corporation Law.
I, THE UNDERSIGNED, being the President of the Corporation, do make
this certificate, hereby declaring that this is my act and deed and that the
facts herein stated are true and accordingly have hereunto set my hand as of
the 7th day of June, 1996.
/s/ ROBERT E. HENDERSON
------------------------------------
Robert E. Henderson
President
<PAGE> 3
ANNEX A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MARINER ENERGY, INC.
* * * * *
ARTICLE I.
The name of the corporation is Mariner Energy, Inc.
ARTICLE II.
The registered office of this corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name and address of its registered agent are The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware.
ARTICLE III.
The nature of the business or purpose of this corporation is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Laws of Delaware.
ARTICLE IV.
1. The total number of shares of stock which this corporation
shall have authority to issue is one thousand (1,000) shares, all of which are
to be of the par value of $1.00 each and all of one class and all to be
designated as the Common Stock of the corporation.
<PAGE> 4
2. The shares of Common Stock may be issued from time to time for
such consideration, no less than the par value thereof and upon such terms as
from time to time shall be determined by the Board of Directors.
ARTICLE V.
The corporation shall have perpetual existence.
ARTICLE VI.
The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever, and shall be exempt from
corporate liability.
ARTICLE VII.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized, subject to the
provisions of that certain Stockholders' Agreement dated April 2, 1996, between
Enron Capital & Trade Resources Corp., Mariner Holdings, Inc. (formerly named
Mystery Acquisition, Inc.), Robert E. Henderson, Richard R. Clark, Michael W.
Strickler and D. S. Huber, as amended and as it may be amended from time to
time (the "Stockholders' Agreement"):
(a) To make, alter, amend and rescind the Bylaws of this
corporation.
(b) To set apart out of any of the available funds of this
corporation such reserves for proper purposes as the Board of Directors may
deem expedient, and to abolish any such reserves.
(c) To determine the use and distribution of any surplus and net
profits.
(d) To authorize and cause to be executed and delivered, without
limit as to amount, mortgages and instruments of pledge of, and other
instruments creating liens upon, the real and personal property of this
corporation.
-2-
<PAGE> 5
(e) From time to time, to determine whether and to what extent and
at what times and places and under what conditions and regulations the accounts
and books of this corporation (other than the stock ledger) or any of them,
shall be open to inspection of the stockholders, and no stockholder shall have
any right to inspect any account or book or document of this corporation,
except as conferred by statute, or authorized by the directors or by a
resolution of the stockholders.
(f) By resolution or resolutions, passed by a majority of the
whole Board, to designate one or more committees, each committee to consist of
two or more of the directors of this corporation, which, to the extent provided
in said resolution or resolutions or in the Bylaws of this corporation, shall
have and may exercise the powers of the Board of Directors in the management of
the business and affairs of this corporation, and may have power to authorize
the seal of this corporation to be affixed to all papers which may require it.
Such committee or committees shall have such name or names as may be stated in
the Bylaws of this corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
(g) When and as authorized by the affirmative vote of the holders
of a majority of the stock issued and outstanding having voting powers given at
a stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, the Board of Directors shall have power and authority to sell,
lease or exchange all of the property and assets of the corporation, including
its goodwill, upon such terms and conditions and for such considerations, which
may be in whole or in part shares of stock in, and/or other securities of, any
other corporation or corporations as its Board of Directors shall deem
expedient and for the best interests of the corporation.
-3-
<PAGE> 6
This corporation may in its Bylaws confer powers and authority upon
its Board of Directors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon it by statute.
ARTICLE VIII.
No contract or other transaction between this corporation and any
other corporation and no act of this corporation shall in any way be affected
or invalidated by the fact that any of the directors of this corporation are
pecuniarily or otherwise interested in, or are directors of such other
corporation.
ARTICLE IX.
The stockholders and Board of Directors shall have power, if the
Bylaws so provide, to hold their meetings and to keep the books of this
corporation (except such as are required by the laws of the Delaware to be kept
in Delaware) and documents and papers of this corporation outside the State of
Delaware and have one or more offices within or without the State of Delaware
at such places as may be designated from time to time by the Board of
Directors.
ARTICLE X.
1. Subject to the provisions of the Stockholders' Agreement, the
number of directors of this corporation shall be specified in the Bylaws and
such number may be increased or decreased from time to time in such manner as
may be prescribed in the Bylaws. The directors need not be stockholders,
subject to the provisions of the Stockholders' Agreement.
2. In case of an increase in the number of directors, the
additional directors may be elected by the Board of Directors to hold office
until the next annual meeting of the stockholders and until their successors
are elected and qualified. In case of
-4-
<PAGE> 7
vacancies in the Board of Directors, a majority of the remaining directors may
elect directors to fill such vacancies, subject to the provisions of the
Stockholders' Agreement.
3. A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of laws, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transactions from which the director derived
an improper personal benefit. If the Delaware General Corporation Law is
amended after the date of filing of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation, in
addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by Delaware General Corporation Law as
so amended. Any repeal or modification of this paragraph 3 by stockholders of
the corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
4. Each person who was or is made a party or is threatened to
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director, officer, employee or consultant of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, consultant or agent of
-5-
<PAGE> 8
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee, consultant or agent or in any other capacity while
serving as a director, officer, employee, consultant or agent, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee, consultant or agent and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in paragraph 5 hereof, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the corporation; provided further, however, that the corporation shall not be
obligated to indemnify any employee of the corporation who is not an officer or
director of the corporation under this paragraph 4 if the employee's
involvement in the action, suit or proceeding is determined by a court of
competent jurisdiction to have been due to the employee's gross negligence or
willful misconduct. The right to indemnification conferred in this Section
shall be a contract right and shall include the
-6-
<PAGE> 9
right to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
Delaware General Corporation Law requires, the payment of such expenses
incurred by a director, officer, employee or consultant in such capacity (and
not in any other capacity in which service was or is rendered by such person)
in advance of the final disposition of a proceeding, shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such person,
to repay all amounts so advanced if it shall ultimately be determined that such
person is not entitled to be indemnified under this Section or otherwise.
5. If a claim under paragraph 4 of this Article X is not paid in
full by the corporation within thirty days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the corporation)
that the claimant has not met the standards of conduct which make it
permissible under the Delaware General Corporation Law for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the corporation
(including the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth
-7-
<PAGE> 10
in the Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
6. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Section shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7. The corporation may maintain insurance, at its expense, to
protect itself and any director, employee, consultant or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ARTICLE XI.
Subject to the provisions of the Stockholders' Agreement, this
corporation reserves the right to amend, alter, change or repeal any provisions
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
-8-
<PAGE> 1
EXHIBIT 3.2
TRAFALGAR HOUSE OIL AND GAS INC.
BY-LAWS
<PAGE> 2
TRAFALGAR HOUSE OIL AND GAS INC.
BY-LAWS
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of
TRAFALGAR HOUSE OIL AND GAS INC. (hereinafter called the "Corporation") in the
State of Delaware shall be in care of The Corporation Trust Company, 100 West
Tenth Street, Wilmington, Delaware 19801.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders
shall be held at such place either within or without the State of Delaware as
shall be designated from time to time by the Board of Directors and specified
in the notice of the meeting.
<PAGE> 3
2
Section 2. Annual Meeting. The annual meeting of stockholders
shall be held on such date in each year and at such time as shall be designated
by the Board of Directors and specified in the notice of the meeting. At the
annual meeting, the stockholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting. Elections
for directors need not be by ballot, except upon demand made by a stockholder
at the meeting and before the voting begins.
Section 3. Notice of Annual Meeting. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given
not less than five days before the date of the meeting to each stockholder
entitled to vote at such meeting.
Section 4. Stockholders List. The officer who has charge of
the transfer books for shares of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. The list shall be kept on file at the
registered office of the Corporation and shall be subject to inspection by any
stockholder at any time during usual business hours. The list shall also be
produced and kept open at the time and place of the meeting during the whole
<PAGE> 4
3
time thereof, and may be inspected by any stockholder who is present. In lieu
of making such list, the Corporation may make the information therein available
by any other means permitted by statute.
Section 5. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the President
or by the Board of Directors, or by stockholders entitled to cast at least
one-fifth of the votes which all stockholders are entitled to cast at the
particular meeting. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Notice of Special Meeting. Written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than five
days before the date of the meeting to each stockholder entitled to vote at
such meeting.
Section 7. Organization of Stockholders Meetings. At each
meeting of the stockholders the President, or, in his absence, a chairman
chosen by a majority vote of the stockholders present in person or by proxy and
entitled to vote thereat, shall act as chairman; and the Secretary, or, in his
absence, an Assistant Secretary, or, in the absence of the Secretary and all
Assistant Secretaries, a person
<PAGE> 5
4
whom the chairman of such meeting shall appoint, shall act as secretary of such
meeting and keep the minutes thereof.
Section 8. Quorum. The presence, in person or represented by
proxy, of stockholders entitled to cast at least a majority of the votes which
all stockholders are entitled to cast on the particular matter shall constitute
a quorum for the purpose of considering such matter at a meeting of the
stockholders, except as otherwise provided by statute or by the Certificate of
Incorporation and in this Section 8. If, however, a meeting of stockholders
cannot be organized because a quorum has not attended, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting at which the adjournment is taken of the time and
place of the adjourned meeting, until a quorum shall be present or represented.
In case of a meeting for the election of directors, such meeting may be
adjourned only from day to day or for such longer periods, not exceeding
fifteen days each, until such directors have been elected. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
specified in the notice thereof; provided, however, that in the case of a
meeting for the election of directors, those who are
<PAGE> 6
5
present or represented at the second of such adjourned meetings, although less
than the number specified in this Section 8, shall constitute a quorum for the
purpose of electing directors. If the adjournment is for more than thirty days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 9. Vote Required. When a quorum is present at any
meeting, the vote of stockholders present, in person or by proxy, entitled to
cast at least a majority of the votes which all stockholders present are
entitled to cast on the particular matter shall decide any question brought
before such meeting, unless the question is one upon which, by express
provision of the laws of the State of Delaware or of the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 10. Proxies; Appointment and Revocation. Unless
otherwise provided in the Certificate of Incorporation and subject to the
provisions of Section 213 of the Delaware General Corporation Law, each
stockholder of record shall at every meeting of the stockholders be entitled to
one vote for each share of the capital stock having voting power held by such
stockholder in person or by proxy appointed by an instrument in writing,
executed by such stockholder or by his attorney thereunto authorized, or by a
telegram, cable
<PAGE> 7
6
or telex, filed with the Secretary of the Corporation; but no proxy shall be
voted after three years from the date, unless the proxy expressly provides for
a longer period. A proxy, unless coupled with an interest, shall be revocable
at will, notwithstanding any other agreement or any provision in the proxy to
the contrary, but the revocation of a proxy shall be effective until notice
thereof has been given to the Secretary of the Corporation. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of such death or
incapacity is given to the Secretary of the Corporation.
Section 11. Judges of Election. In advance of any meeting of
stockholders, the Board of Directors may appoint judges of election, who need
not be stockholders, to act at such meeting or any adjournment thereof. If
judges of election be not so appointed, the chairman of any such meeting may,
and on the request of any stockholder or his proxy shall, make such appointment
at the meeting. The number of judges shall be one or three as shall be
determined by the Board of Directors, except that, if appointed at the meeting
on the request of one or more stockholders or proxies, the holders of a
majority of the shares of the Corporation present and entitled to vote shall
determine whether one or three judges are to be appointed. No person who is a
candidate for office shall act as a judge.
<PAGE> 8
7
In case any person appointed as a judge fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Board of Directors in advance of the convening of the meeting, or at the
meeting by the officer or person acting as chairman.
The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes, determine the result, and do such other acts as may be
proper to conduct the election or vote with fairness to all stockholders. The
judges of election shall perform their duties impartially, in good faith, to
the best of their ability, and as expeditiously as is practical. If there be
three judges of election, the decision, act or certificate of a majority shall
be effective in all respects as the decision, act or certificate of all.
On request of the chairman of the meeting, or of any
stockholder or his proxy, the judges shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate
of any fact found by them. Any report or certificate made by them shall be
prima facie evidence of the facts stated therein.
<PAGE> 9
8
Section 12. Action by Written Consent. Whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or
in connection with any corporate action by any provisions of the statutes, the
meeting and vote of stockholders may be dispensed with if a consent or consents
in writing, setting forth such corporate action being taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, and such
consent or consents shall be filed with the Secretary of the Corporation;
provided, however, that action taken without a meeting and by less than
unanimous written consent shall not become effective until after at least ten
days' written notice of such action shall have been given to each stockholder
of record entitled to vote thereon.
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which shall
constitute the whole board shall be as determined from time to time by
resolution of the Board of Directors and, until so determined, such number
shall be five. Directors shall be elected at the annual meeting of
<PAGE> 10
9
the stockholders, and each director elected shall hold office until his
successor is duly elected and shall qualify or until his death, resignation or
removal. Directors need not be stockholders.
Section 2. Vacancies; New Directorships. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled (subject to the provisions of Article III, Section 14,
of these By-laws in the case of removal) by a majority of the directors then in
office, though less than a quorum, or by a sole remaining director, and each
director so chosen shall hold office until the next annual election and until
his successor is duly elected and shall qualify or until his death, resignation
or removal. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. When one or more directors shall
resign from the board effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective; and each such director so
chosen shall hold office as provided in this Section in the filling of other
vacancies.
Section 3. Management of Corporation. The business and affairs
of the Corporation shall be managed by or under the direction of its Board of
Directors which may
<PAGE> 11
10
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-laws directed or required to be exercised or done by the stockholders.
Section 4. Place of Meetings of the Board of Directors. The Board of
Directors of the Corporation may hold meetings, both regular and special,
either within or without the State of Delaware.
Section 5. Annual Meeting of Board of Directors. After each annual
election of directors and on the same day, the Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction
of other business, at the place where such annual election is held. Notice of
such meeting need not be given. Such meetings may be called and held at any
other time and place which shall be specified in a notice or waiver of notice
thereof as in the case of a special meeting of the Board of Directors.
Section 6. Regular Meetings of the Board of Directors. The regular
meetings of the Board of Directors shall be held and at such time or times and
at such place or places as shall be designated by the Board of Directors from
time to time.
Section 7. Special Meetings of the Board of Directors. Special
meetings of the Board of Directors may be called by the President or by a
majority of the Board of
<PAGE> 12
11
Directors on two days' notice to each director, either personally or by mail,
telegram, cable or telex. Special meetings shall be called by the President or
by the Secretary in like manner and on like notice on the written request of a
majority of directors, and the place and time of such special meeting shall be
as designated in the notice of such meetings.
Section 8. Quorum. At all meetings of the Board of Directors three
of the directors in office shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation or By-laws. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. Organization of Meetings of Board of Directors. At each
meeting of the Board of Directors the President or, in his absence, a director
chosen by a majority of the directors present shall act as chairman. The
Secretary or, in his absence, an Assistant Secretary of the Corporation or, in
the absence of the Secretary and all Assistant Secretaries, a person whom the
chairman of such meeting shall appoint, shall act as secretary of such meeting
and keep the minutes thereof.
<PAGE> 13
12
Section 10. Meetings by Telephone Conference. One or more
directors of the Corporation may participate in any meeting of the Board of
Directors or of any committee thereof by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to
this Section 10 shall constitute presence in person at such meeting.
Section 11. Action by Written Consent. Unless otherwise
restricted by the Certificate of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all members of the
Board or committee, as the case may be, sign a consent or consents in writing
setting forth the action so taken, and the writing or writings are filed with
the Secretary of the Corporation and the minutes of proceedings of the board or
committee.
Section 12. Committees of Directors. The Board of Directors
may, by resolution passed by a majority of the whole board, designate one or
more committees, each committee to consist of two or more directors of the
Corporation, and to have such power and authority, and to perform such duties,
as the resolution designating the committee shall prescribe. Such committee or
committees shall have such name or names
<PAGE> 14
13
as may be determined from time to time by resolution adopted by the Board of
Directors.
Section 13. Minutes of Committee Meetings. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
Section 14. Removal of Directors. Any director or directors
may be removed, either with or without cause, at any time, by the affirmative
vote of the stockholders entitled to cast at least a majority of the votes
which all stockholders would be entitled to cast at any annual election of
directors of the Corporation, at a special meeting of the stockholders called
and held for that purpose; and the vacancy in the Board of Directors caused by
any such removal may be filled, by such stockholders at such meeting, or, if
the stockholders shall fail to fill such vacancy, as provided by these By-laws.
Section 15. Compensation of Directors. The directors shall
receive such compensation for their services as the Board of Directors may from
time to time determine; provided, however, that directors who are also officers
or employees of the Corporation or a subsidiary of the Corporation shall not be
entitled to any such compensation as a director; and all directors shall be
reimbursed for their expenses of attendance at each regular or special meeting
of the Board of Directors. Members of any committee or directors
<PAGE> 15
14
may be allowed like compensation and reimbursement for expenses for serving as
members of any such committee and for attending committee meetings.
Section 16. Resignation. Any director of the Corporation may
resign at any time by giving written notice of his resignation to the President
or to the Secretary. Such resignation shall take effect at the date of receipt
of such notice by the President or the Secretary, or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
ARTICLE IV
NOTICES
Section 1. Method of Giving Notice. Whenever, under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-laws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but such notice may be given in
writing, by mail, or by telegram, cable or telex, charges prepaid, addressed to
such director or stockholder, to his address as it appears on the books of the
Corporation or supplied by him to the Corporation for the purpose of notice,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or with a telegraph office for transmission
to such person.
<PAGE> 16
15
Section 2. Waiver of Notice. Whenever any notice is required
to be given under the provisions of any statute, the Certificate of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether given before or after the
time stated therein, shall be deemed equivalent thereto. Attendance of a
person at a meeting of stockholders, in person or by proxy, or at a meeting of
the Board of Directors shall constitute a waiver of notice of such meeting,
except when a person attends such meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called
or convened. Except in the case of a special meeting of stockholders, neither
the business to be transacted at, nor the purpose of, any meeting need be
specified in any written waiver of notice unless so required by the
Certificate of Incorporation or these By-laws.
ARTICLE V
OFFICERS
Section 1. Election. The officers of the Corporation shall be
chosen by the Board of Directors at its first meeting after each annual meeting
of stockholders and shall consist of a President, one or more Vice Presidents,
a Secretary and a Treasurer. Any number of offices may be
<PAGE> 17
16
held by the same person, unless the Certificate of Incorporation or these
By-laws otherwise provide.
Section 2. Term of Office; Removal; Vacancies. The officers of
the Corporation shall hold office until their successors are chosen and qualify
or until their death, resignation or removal. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of
the Corporation shall be filled by the Board of Directors.
Section 3. President. The President shall be the chief
executive officer of the Corporation and, subject to the authority of the Board
of Directors, shall have the general control and management of the business and
affairs of the Corporation.
Section 4. Vice Presidents. The Vice Presidents shall perform
such duties and have such powers relating to general control and management of
the business and affairs of the Corporation as the President, subject to the
authority of the Board of Directors, shall determine.
Section 5. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of the Corporation and of the Board of
Directors in a book to be kept for that purpose and shall perform like
<PAGE> 18
17
duties for the standing committees of the Board of Directors, when required. He
shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or by the President,
under whose supervision he shall be. He shall have custody of the corporate
seal of the Corporation and he, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it and, when so affixed, it may
be attested to by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. The Secretary shall also have such other powers and perform such
other duties as from time to time may be assigned to him by the President.
Section 6. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements,
<PAGE> 19
18
and shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.
Section 7. Subordinate Officers. In addition to the officers
enumerated in this Article V, the Corporation may have such other officers,
agents and employees as the Board of Directors may determine, including one or
more Assistant Secretaries and one or more Assistant Treasurers, each of whom
shall hold office for such period, have such authority and perform such duties
as the Board of Directors may from time to time determine. The Board of
Directors may delegate to the President, any Vice President, the Secretary or
the Treasurer the power to appoint or remove any such subordinate officers,
agents or employees.
Section 8. Removal. Any officer may be removed, either with or
without cause, by the vote of a majority of
<PAGE> 20
19
the directors then in office at a meeting called for the purpose, or, except in
case of any officer elected by the Board of Directors, by any officer upon whom
the powers of removal may be conferred by the Board of Directors.
Section 9. Resignation. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or the
Secretary of the Corporation. Such resignation shall take effect at the date of
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 10. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
for the unexpired portion of the term in the manner prescribed in these By-laws
for regular election or appointment to such office.
Section 11. Officers' Salaries. The salaries of the officers
shall be fixed from time to time by the Board of Directors, and none of such
officers shall be prevented from receiving a salary by reason of the fact that
he is also a director of the Corporation. The provisions of this Section 11 are
subject to the provisions of Section 15 of Article III of these By-laws in the
case of officers who are also directors.
See Section 12. Amendments.
<PAGE> 21
20
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Authority of Officers. The Board of Directors,
except as otherwise provided in these By-laws, may authorize any officer or
officers, agent or agents or employee or employees of the Corporation to enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation, and such authority may be general or confined to
specific instances; and, unless so authorized by the Board of Directors, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable pecuniarily for any purpose or to any amount.
Section 2. Authorized Loan; Security. No loan shall be
contracted on behalf of the Corporation, and no negotiable paper shall be
issued, endorsed or accepted in its name, unless authorized by the Board of
Directors. Such authority may be general or confined to specific instances.
When so authorized, the officer or officers thereunder authorized may effect
loans and advances at any time for the Corporation from any bank, trust company
or other institution, or from any firm, corporation or individual and for such
loans and advances may make, execute and deliver promissory notes or other
evidences of indebtedness of the
<PAGE> 22
21
Corporation; and, when authorized as aforesaid, as security for the payment of
any and all loans, advances, indebtedness and liabilities of the Corporation,
such officers may mortgage, pledge, hypothecate or transfer any real or
personal property at any time owned or held by the Corporation, and to that end
execute instruments of mortgage or pledge or otherwise transfer such property.
Section 3. Endorsement of Checks, etc. All checks, drafts,
bills of exchange or other orders for the payment of money, obligations, notes
or other evidences of indebtedness, bills of lading, warehouse receipts and
insurance certificates of the Corporation shall be signed or endorsed by such
officer or officers, agent or agents, attorney or attorneys or employee or
employees of the Corporation as shall from time to time be determined by
resolution of the Board of Directors. Each such officers and employees shall
give such bond, if any, as the Board of Directors may require.
Section 4. Deposit of Funds. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositaries as the Board
of Directors may from time to time designate, or as may be designated by any
officer or officers, agent or agents, attorney or attorneys or employee or
employees of the Corporation to whom such power may be delegated by the Board
of Directors.
<PAGE> 23
22
Section 5. Bank Accounts. The Board of Directors may from time
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositaries as it may designate or
as may be designated by any officer or officers, agent or agents, attorney or
attorneys or employee or employees of the Corporation to whom power in that
respect shall have been delegated by the Board of Directors. The Board may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-laws, as it may deem expedient.
Section 6. Rights of Corporation as Stockholder. Unless
otherwise provided by resolution adopted by the Board of Directors, the
President or any Vice President may from time to time appoint an attorney or
attorneys, or agent or agents, to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities in any other corporation, to vote or to consent in
respect of such stock or other securities; and the President or any Vice
President may instruct the person or persons so appointed as to the manner of
exercising such powers and rights and may execute or cause to be executed in
the name and on behalf of the Corporation and under it's corporate seal, or
otherwise, all such written proxies, powers of attorney or other written
instruments as he may deem necessary in order that the Corporation may exercise
such powers and rights.
<PAGE> 24
23
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. Stockholder Entitled to Certificates. Every holder
of stock in the Corporation shall be entitled to have a certificate, signed by,
or in the name of the Corporation by, the President and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
Each such certificate shall be sealed with the corporate seal, which may be
facsimile, engraved or printed. If the Corporation shall be authorized to issue
more than one class of stock, every certificate representing shares shall set
forth upon the face or back of the certificate, or shall state that the
Corporation will furnish to any stockholder upon request and without charge, a
full or summary statement of the designations, preferences, limitations and
relative rights of the shares of each class authorized to be issued and, if the
Corporation is authorized to issue any preferred or special class in series,
the variations in the relative rights and preferences between the shares of
each such series so far as the same have been fixed and determined and the
authority of the Board of Directors to fix and determined the relative rights
and preferences of subsequent series.
Section 2. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be
<PAGE> 25
24
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 3. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent or agents of the Corporation of a certificate
for shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 4. Fixing Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any
<PAGE> 26
25
adjournment thereof, or entitled to receive payment or any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. If no
record date is fixed, then (a) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held and (b) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of, or to vote at,
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting in which case notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 5. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of
<PAGE> 27
26
a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall not be bound
to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
INDEMNIFICATION
Section 1. Who May Be Indemnified. (a) Other Than by or in the
Right of the Corporation. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement
<PAGE> 28
27
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceedings, had reasonable cause to
believe that his conduct was unlawful.
(b) By or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection
<PAGE> 29
28
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) Indemnification for Expenses. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in paragraph (a) or (b), or in defense of any claim, issue of matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Determination of Entitlement to Indemnification. Any
indemnification under paragraph (a) or (b) (unless ordered by a court) shall be
made by the Corporation
<PAGE> 30
29
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in paragraph (a) or (b). Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable, a majority vote of a quorum of
disinterested directors, by independent legal counsel in a written opinion, or
(3) by the stockholders.
(e) Advance of Expenses. Expenses incurred in defending
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the manner provided in paragraph (d)
upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation as authorized in this
Article.
Section 2. Indemnification, Not Exclusive Right. The
indemnification provided by this Article shall not be deemed exclusive of any
other right to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise,
<PAGE> 31
30
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 3. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
<PAGE> 32
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Section 2. Reserves. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the directors from time to time in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall end on the thirtieth day of September in each year.
Section 4. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
ARTICLE X
AMENDMENTS
These By-laws may be altered, amended or repealed and new
By-laws may be adopted by the vote of stockholders entitled to cast at least a
majority of the votes which all stockholders are entitled to cast thereon or by
the majority
<PAGE> 33
32
vote of the members of the Board of Directors at any regular or special meeting
of the stockholders or the Board of Directors duly convened after notice to the
stockholders or directors of that purpose.
<PAGE> 34
AMENDMENT TO THE BYLAWS OF TRAFALGAR HOUSE OIL AND GAS INC.
June 1, 1984
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which
shall constitute the whole board shall be as determined from time to time by
resolution of the Board of Directors and, until so determined, such number
shall be eight. Directors shall be elected at the annual meeting of the
stockholders, and each director elected shall hold office until his successor
is duly elected and shall qualify or until his death, resignation or removal.
Directors need not be stockholders.
<PAGE> 35
AMENDMENT TO THE BYLAWS OF TRAFALGAR HOUSE OIL AND GAS INC.
July 31, 1984
ARTICLE V
OFFICERS
Section 12. The Chairman of the Board. The Chairman of the
Board, who shall be a single individual chosen from among the Directors, shall
be responsible for the management of operations of the Corporation, subject,
however, to the control of the Board of Directors. He shall perform all duties
incident to the office of Chairman of the Board and such other duties as may be
assigned to him by the Board of Directors.
<PAGE> 36
AMENDMENT TO THE BYLAWS OF TRAFALGAR HOUSE OIL AND GAS INC.
October 9, 1986
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which
shall constitute the whole board shall be as determined from time to time by
resolution of the Board of Directors and, until so determined, such number shall
be ten. Directors shall be elected at the annual meeting of the stockholders,
and each director elected shall hold office until his successor is duly elected
and shall qualify or until his death, resignation or removal. Directors need not
be stockholders.
<PAGE> 37
AMENDMENT TO THE BYLAWS OF TRAFALGAR HOUSE OIL AND GAS INC.
April 2, 1987
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which
shall constitute the whole board shall be as determined from time to time by
resolution of the Board of Directors and, until so determined, such number shall
be nine. Directors shall be elected at the annual meeting of the stockholders,
and each directors elected shall hold office until his successor is duly elected
and shall qualify or until his death, resignation or removal. Directors need not
be stockholders.
<PAGE> 38
AMENDMENT TO THE BY-LAWS OF TRAFALGAR HOUSE OIL AND GAS INC.
NOVEMBER 24, 1987
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which
shall constitute the whole board shall be as determined from time to time by
resolution of the Board of Directors and, until so determined, such number shall
be six. Directors shall be elected at the annual meeting of stockholders and
each director elected shall hold office until his successor is duly elected and
shall qualify or until his death, resignation or removal. Directors need not be
stockholders.
<PAGE> 39
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
SEPTEMBER 21, 1989
ARTICLE V
OFFICERS
Section 3. President. The President shall be the chief
executive officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise, control, and direct the business and
affairs of the Corporation. In the absence of the Chairman of the Board or the
Vice Chairman of the Board (if such offices are created by the Board), the
President shall preside at all meetings of the Board of Directors and of the
stockholders. The President shall keep the Board of Directors fully informed and
shall consult them concerning the business of the Corporation. He may sign with
the Secretary or any other officer of the Corporation thereunto authorized by
the Board of Directors, certificates for shares of the Corporation and any
deeds, bonds, mortgages, contracts, checks, notes, drafts or other instruments
the execution of which has been authorized by the Board of Directors or these
By-laws, except in cases where the signing and execution thereof has been
expressly delegated by these By-laws or by the Board of Directors to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
executed. He shall vote, or give a proxy to any other officer of the Corporation
to vote, all shares of stock of any other corporation standing in the name of or
controlled by the Corporation and in general he shall perform all other duties
normally incident to the office of President and such other duties as may be
prescribed by the stockholders, the Board of Directors or any committee of
directors from time to time.
<PAGE> 40
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
SEPTEMBER 21, 1989
ARTICLE V
OFFICERS
Section 13. Chief Executive -- Exploration and Production.
Deleted.
<PAGE> 41
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
SEPTEMBER 21, 1989
ARTICLE IX
GENERAL PROVISIONS
Section 3. Fiscal Year. The fiscal year of the Corporation
shall end on the thirty-first day of March in each year.
<PAGE> 42
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
DECEMBER 7, 1989
ARTICLE V
OFFICERS
Section 13. Vice Chairman of the Board. The Vice Chairman of
the Board shall, in the absence of the Chairman of the Board, preside at all
meetings of the Board of Directors or the stockholders of the Corporation. The
Vice Chairman of the Board shall assist the Chairman of the Board in formulating
matters of general policy for the Corporation and perform such other duties as
usually pertain to the office or as may be prescribed by the Board of Directors.
<PAGE> 43
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
OCTOBER 31, 1991
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which
shall constitute the whole board shall be as determined from time to time by
resolution of the Board of Directors and, until so determined, such number shall
be seven. Directors shall be elected at the annual meeting of stockholders and
each director elected shall hold office until his successor is duly elected and
shall qualify or until his death, resignation or removal. Directors need not be
stockholders.
<PAGE> 44
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
JANUARY 12, 1995
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors which
shall constitute the whole board shall be as determined from time to time by
resolution of the Board of Directors and, until so determined, such number shall
be eight. Directors shall be elected at the annual meeting of stockholders and
each director elected shall hold office until his successor is duly elected and
shall qualify or until his death, resignation or removal. Directors need not be
stockholders.
<PAGE> 45
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
JANUARY 12, 1995
ARTICLE V
OFFICERS
Section 3. President. The President shall be the chief
executive officer of the Corporation and, subject to the control of the Board
of Directors, shall in general supervise, control, and direct the business and
affairs of the Corporation. In the absence of the Chairman of the Board, Deputy
Chairman of the Board, or the Vice Chairman of the Board (if such offices are
created by the Board), the President shall preside at all meetings of the Board
of Directors and of the stockholders. The President shall keep the Board of
Directors fully informed and shall consult them concerning the business of the
Corporation. He may sign with the Secretary or any other officer of the
Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation and any deeds, bonds, mortgages, contracts, checks,
notes, drafts or other instruments the execution of which has been authorized by
the Board of Directors or these By-laws, except in cases where the signing and
execution thereof has been expressly delegated by these By-laws or by the Board
of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed. He shall vote, or give a proxy to any
other officer of the Corporation to vote, all shares of stock of any other
corporation standing in the name of or controlled by the Corporation and in
general he shall perform all other duties normally incident to the office of
President and such other duties as may be prescribed by the stockholders, the
Board of Directors or any committee of directors from time to time.
<PAGE> 46
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
JANUARY 12, 1995
ARTICLE V
OFFICERS
Section 13. Vice Chairman of the Board. The Vice Chairman of
the Board shall, in the absence of the Chairman of the Board or the Deputy
Chairman of the Board, preside at all meetings of the Board of Directors or the
stockholders of the Corporation. The Vice Chairman of the Board shall assist the
Chairman of the Board in formulating matters of general policy for the
Corporation and perform such other duties as usually pertain to the office or as
may be prescribed by the Board of Directors.
<PAGE> 47
AMENDMENT TO THE BY-LAWS OF HARDY OIL & GAS USA INC.
JANUARY 12, 1995
ARTICLE V
OFFICERS
Section 14. Deputy Chairman of the Board. The Deputy Chairman
of the Board shall, in the absence of the Chairman of the Board, preside at all
meetings of the Board of Directors or the stockholders of the Corporation. The
Deputy Chairman of the Board shall assist the Chairman of the Board in
formulating matters of general policy for the Corporation and perform such
other duties as usually pertain to the office or as may be prescribed by the
Board of Directors.
<PAGE> 48
AMENDMENT TO THE BYLAWS OF HARDY OIL & GAS USA INC.
MAY 17, 1996
ARTICLE IX
GENERAL PROVISIONS
Section 3. Fiscal Year. The fiscal year of the Corporation
shall end on the thirty-first day of December in each year.
<PAGE> 1
EXHIBIT 4.1
================================================================================
MARINER ENERGY, INC., Issuer
10-1/2% Senior Subordinated Notes Due 2006
-------------------------
INDENTURE
Dated as of August 1, 1996
-------------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.05
(b) .............................. 12.03
(c) .............................. 12.03
313(a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. 7.06
(c) .............................. 12.02
(d) .............................. 7.06
314(a) .............................. 4.02; 4.13;
12.02
(b) .............................. N.A.
(c)(1) .............................. 12.04
(c)(2) .............................. 12.04
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. 12.05
(f) .............................. N.A.
315(a) .............................. 7.01
(b) .............................. 7.05; 12.02
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316(a)(last sentence) ....................... 12.06
(a)(1)(A) .............................. 6.05
(a)(1)(B) .............................. 6.04
(a)(2) .............................. N.A.
(b) .............................. 6.07
317(a)(1) .............................. 6.08
(a)(2) .............................. 6.09
(b) .............................. 2.04
318(a) .............................. 12.01
</TABLE>
N.A. means Not Applicable.
- ---------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1 Page
----
<S> <C> <C>
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions ............................ 1
SECTION 1.02. Other Definitions ...................... 28
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act ........................ 29
SECTION 1.04. Rules of Construction .................. 29
ARTICLE 2
The Securities
--------------
SECTION 2.01. Form and Dating ........................ 30
SECTION 2.02. Execution and Authentication ........... 30
SECTION 2.03. Registrar and Paying Agent ............. 31
SECTION 2.04. Paying Agent To Hold Money in Trust..... 32
SECTION 2.05. Securityholder Lists ................... 32
SECTION 2.06. Replacement Securities ................. 32
SECTION 2.07. Outstanding Securities ................. 33
SECTION 2.08. Temporary Securities ................... 33
SECTION 2.09. Cancellation ........................... 33
SECTION 2.10. Defaulted Interest ..................... 34
SECTION 2.11. CUSIP Numbers .......................... 34
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee ..................... 34
SECTION 3.02. Selection of Securities To Be
Redeemed ............................. 35
SECTION 3.03. Notice of Redemption ................... 35
SECTION 3.04. Effect of Notice of Redemption ......... 36
SECTION 3.05. Deposit of Redemption Price ............ 36
SECTION 3.06. Securities Redeemed in Part ............ 36
</TABLE>
<PAGE> 4
2
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities .................. 36
SECTION 4.02. SEC Reports ............................ 37
SECTION 4.03. Limitation on Indebtedness ............. 37
SECTION 4.04. Limitation on Restricted Payments ...... 40
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries ......................... 43
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock ..................... 44
SECTION 4.07. Limitation on Affiliate Transactions.... 47
SECTION 4.08. Change of Control ...................... 48
SECTION 4.09. Limitation on the Sale or Issuance
of Capital Stock of Restricted
Subsidiaries.......................... 50
SECTION 4.10. Limitation on Liens..................... 50
SECTION 4.11. Limitation on Sale/Leaseback
Transactions.......................... 50
SECTION 4.12. Future Guarantors....................... 50
SECTION 4.13. Compliance Certificates ................ 51
SECTION 4.14. Further Instruments and Acts ........... 51
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer
Assets ............................... 51
SECTION 5.02. When Subsidiary Guarantors May
Merge or Transfer Assets.............. 52
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default ...................... 53
SECTION 6.02. Acceleration ........................... 56
SECTION 6.03. Other Remedies ......................... 56
SECTION 6.04. Waiver of Past Defaults ................ 56
SECTION 6.05. Control by Majority .................... 57
SECTION 6.06. Limitation on Suits .................... 57
SECTION 6.07. Rights of Holders To Receive Payment ... 58
SECTION 6.08. Collection Suit by Trustee ............. 58
</TABLE>
<PAGE> 5
3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.09. Trustee May File Proofs of Claim ....... 58
SECTION 6.10. Priorities ............................. 58
SECTION 6.11. Undertaking for Costs .................. 59
SECTION 6.12. Waiver of Stay or Extension Laws ....... 59
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee ...................... 60
SECTION 7.02. Rights of Trustee ...................... 61
SECTION 7.03. Individual Rights of Trustee ........... 62
SECTION 7.04. Trustee's Disclaimer ................... 62
SECTION 7.05. Notice of Defaults ..................... 62
SECTION 7.06. Reports by Trustee to Holders .......... 62
SECTION 7.07. Compensation and Indemnity ............. 63
SECTION 7.08. Replacement of Trustee ................. 63
SECTION 7.09. Successor Trustee by Merger ............ 65
SECTION 7.10. Eligibility; Disqualification .......... 65
SECTION 7.11. Preferential Collection of Claims
Against Company ...................... 65
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities;
Defeasance ........................... 66
SECTION 8.02. Conditions to Defeasance ............... 67
SECTION 8.03. Application of Trust Money ............. 68
SECTION 8.04. Repayment to Company ................... 68
SECTION 8.05. Indemnity for Government
Obligations .......................... 69
SECTION 8.06. Reinstatement .......................... 69
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders ............. 69
SECTION 9.02. With Consent of Holders ................ 70
SECTION 9.03. Compliance with Trust Indenture Act .... 72
SECTION 9.04. Revocation and Effect of Consents
and Waivers .......................... 72
</TABLE>
<PAGE> 6
4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 9.05. Notation on or Exchange of
Securities ........................... 72
SECTION 9.06. Trustee To Sign Amendments ............. 73
SECTION 9.07. Payment for Consent .................... 73
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate .............. 73
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy .......................... 73
SECTION 10.03. Default on Designated Senior
Indebtedness ........................ 74
SECTION 10.04. Acceleration of Payment of
Securities .......................... 75
SECTION 10.05. When Distribution Must Be Paid
Over ................................ 75
SECTION 10.06. Subrogation ........................... 76
SECTION 10.07. Relative Rights ....................... 76
SECTION 10.08. Subordination May Not Be Impaired
by Company .......................... 76
SECTION 10.09. Rights of Trustee and Paying
Agent ............................... 76
SECTION 10.10. Distribution or Notice to
Representative ...................... 77
SECTION 10.11. Article 10 Not To Prevent Events of
Default or Limit Right To
Accelerate .......................... 77
SECTION 10.12. Trust Moneys Not Subordinated ......... 77
SECTION 10.13. Trustee Entitled To Rely .............. 77
SECTION 10.14. Trustee To Effectuate
Subordination ....................... 78
SECTION 10.15. Trustee Not Fiduciary for Holders
of Senior Indebtedness .............. 78
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions .......................... 78
ARTICLE 11
Subsidiary Guaranty
-------------------
SECTION 11.01. Guarantee ............................. 79
SECTION 11.02. Limitation on Liability ............... 81
SECTION 11.03. Successors and Assigns ................ 82
</TABLE>
<PAGE> 7
5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 11.04. No Waiver ............................. 82
SECTION 11.05. Modification .......................... 82
SECTION 11.06. Release of Subsidiary Guarantor ....... 82
ARTICLE 12
Miscellaneous
--------------
SECTION 12.01. Trust Indenture Act Controls .......... 83
SECTION 12.02. Notices ............................... 83
SECTION 12.03. Communication by Holders with Other
Holders ............................. 84
SECTION 12.04. Certificate and Opinion as to
Conditions Precedent ................ 84
SECTION 12.05. Statements Required in Certificate
or Opinion .......................... 84
SECTION 12.06. When Securities Disregarded ............ 85
SECTION 12.07. Rules by Trustee, Paying Agent and
Registrar ........................... 85
SECTION 12.08. Legal Holidays ........................ 85
SECTION 12.09. Governing Law ......................... 85
SECTION 12.10. No Recourse Against Others ............ 85
SECTION 12.11. Successors ............................ 86
SECTION 12.12. Multiple Originals .................... 86
SECTION 12.13. Table of Contents; Headings ........... 86
</TABLE>
Appendix A - Provisions Relating to Initial Securities
and Exchange Securities.
Exhibit 1 to
Appendix A - Form of Face of Initial Security.
Exhibit A - Form of Face of Exchange Security.
<PAGE> 8
INDENTURE dated as of August 1, 1996, between
Mariner Energy, Inc., a Delaware corporation (the
"Company"), and United States Trust Company of New
York, a New York banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's
10-1/2% Senior Subordinated Notes Due 2006 (the "Initial Securities") and, if
and when issued pursuant to a registered exchange for Initial Securities, the
Company's 10-1/2% Senior Subordinated Notes Due 2006 (the "Exchange
Securities", together with the Initial Securities, the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
Section 1.01. Definitions.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) in the Oil and Gas Business; (ii) the
Capital Stock of a Person that becomes a Restricted Subsidiary as a result of
the acquisition of such Capital Stock by the Company or another Restricted
Subsidiary or (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary; provided, however, that
any such Restricted Subsidiary described in clauses (ii) or (iii) above is
primarily engaged in the Oil and Gas Business.
"Adjusted Consolidated Assets" means at any time the total
amount of assets of the Company and its consolidated Restricted Subsidiaries
(less applicable depreciation, amortization and other valuation reserves),
after deducting therefrom all current liabilities of the Company and its
consolidated Restricted Subsidiaries (excluding intercompany items), all as set
forth on the consolidated balance sheet of the Company and its consolidated
Restricted Subsidiaries as of the end of the most recent fiscal quarter ended
at least 45 days prior to the date of determination.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or
<PAGE> 9
2
controlled by or under direct or indirect common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of
Section 4.04, Section 4.06 and Section 4.07 only, "Affiliate" shall also mean
any beneficial owner of Capital Stock representing 5% or more of the total
voting power of the Voting Stock (on a fully diluted basis) of the Company or of
rights or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary), (ii) all or substantially all the assets of any
division or line of business of the Company or any Restricted Subsidiary or
(iii) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary.
Notwithstanding the foregoing, none of the following shall be deemed to be an
Asset Disposition: (1) a disposition by a Restricted Subsidiary to the Company
or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (2)
for purposes of Section 4.06 only, a disposition that constitutes a Restricted
Payment permitted by Section 4.04, (3) the sale or transfer (whether or not in
the ordinary course of business) of oil and gas properties or direct or
indirect interests in real property; provided, however, that at the time of
such sale or transfer such properties do not have associated with them any
proved reserves, (4) the abandonment, farm-out, lease or sublease of developed
or undeveloped oil and gas properties in the ordinary course of business, (5)
the trade or exchange by the Company or any Subsidiary of the Company of any
oil and gas property owned or held by the Company or such Subsidiary for any
oil and gas property owned or held by another Person or (6) the sale
<PAGE> 10
3
or transfer of hydrocarbons or other mineral products or surplus or obsolete
equipment in the ordinary course of business.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate implicit in the Sale/Leaseback Transaction) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by (ii) the sum of all
such payments.
"Banks" has the meaning specified in the Credit Agreement.
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such
Board.
"Borrowing Base" means, as of any date, the aggregate amount
of borrowing availability as of such date under all Credit Facilities that
determine availability on the basis of a borrowing base or other asset-based
calculation; provided, however, that in no event shall the Borrowing Base
exceed $250.0 million.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is
required to be classified and accounted for as a capital lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last
<PAGE> 11
4
payment or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Change of Control" means the occurrence of any of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that for purposes of this clause
(i) such person shall be deemed to have "beneficial ownership" of all
shares that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Company; provided, however, that the Permitted
Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the
Company than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election
a majority of the Board of Directors (for the purposes of this clause
(i), such other person shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation, if such
other person is the beneficial owner (as defined in this clause (i)),
directly or indirectly, of more than 35% of the voting power of the
Voting Stock of such parent corporation and the Permitted Holders
beneficially own (as defined in this proviso), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent corporation and do not have the right or ability
by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent
corporation);
<PAGE> 12
5
(ii) during any period of two consecutive years from and after
the Issue Date, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors
whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of
a majority of the directors of the Company then still in office who
were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then
in office; or
(iii) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of the
Company to another Person (other than a Person that is controlled by
the Permitted Holders), and, in the case of any such merger or
consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of the Company are changed
into or exchanged for cash, securities or property, unless pursuant to
such transaction such securities are changed or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent, immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor and, for
purposes of any provision contained herein and required by the TIA, each other
obligor on the indenture securities.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the
most recent four consecutive fiscal quarters ending at least 45 days prior to
the date of such determination to (ii) Consolidated Interest Expense for such
four fiscal quarters; provided, however, that (1) if the Company or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains
<PAGE> 13
6
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such Indebtedness
had been Incurred on the first day of such period and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period, (2) if the Company or any Restricted Subsidiary has
repaid, repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA
and Consolidated Interest Expense for such period shall be calculated on a pro
forma basis as if such discharge had occurred on the first day of such period
and as if the Company or such Restricted Subsidiary has not earned the interest
income actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition (other than an
Asset Disposition involving assets having a fair market value of less than $2.0
million), EBITDA for such period shall be reduced by an amount equal to EBITDA
(if positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to EBITDA
(if negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a
<PAGE> 14
7
Restricted Subsidiary) or an acquisition (including by way of lease) of assets,
including any acquisition of assets occurring in connection with a transaction
requiring a calculation to be made hereunder, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period and (5) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition, any
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (3) or (4) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to
be given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting Officer of
the Company. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Current Liabilities" as of the date of
determination means the aggregate amount of liabilities of the Company and its
consolidated Restricted Subsidiaries which may properly be classified as
current liabilities (including taxes accrued as estimated), on a consolidated
basis, after eliminating (i) all intercompany items between the Company and any
Restricted Subsidiary and (ii) all current maturities of long-term
Indebtedness, all as determined in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries, plus, to the extent not included in such total interest expense,
and to the
<PAGE> 15
8
extent incurred by the Company or its Restricted Subsidiaries, without
duplication, (i) interest expense attributable to capital leases and imputed
interest with respect to Attributable Debt, (ii) amortization of debt discount
and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest
expenses, (v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (vi) net costs
associated with Hedging Obligations (including amortization of fees), (vii)
Preferred Stock dividends in respect of all Preferred Stock held by Persons
other than the Company or a Wholly Owned Subsidiary, excluding however any
dividends on Preferred Stock of the Company unless such Preferred Stock is
Disqualified Stock, (viii) interest incurred in connection with Investments in
discontinued operations, and (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by the Company or
any Restricted Subsidiary or secured by a Lien on assets of the Company or any
Restricted Subsidiary to the extent such Indebtedness constitutes Indebtedness
of the Company or any Restricted Subsidiary (whether or not such Guarantee or
Lien is called upon); provided, however, "Consolidated Interest Expense" shall
not include any Consolidated Interest Expense with respect to any Indebtedness
Incurred pursuant to Section 4.03(b)(8).
"Consolidated Net Income" means, for any period, the net
income of the Company and its consolidated Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income of any Person (other than the Company) if such Person is not a
Restricted Subsidiary, except that (A) subject to the exclusion contained in
clause (iv) below, the Company's equity in the net income of any such Person
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to a Restricted
Subsidiary, to the limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net income
(loss) of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted Subsidiary
is subject to restrictions, directly or indirectly, on the
<PAGE> 16
9
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income; (iv) any gain or loss
realized upon the sale or other disposition of any assets of the Company or its
consolidated Subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course
of business and any gain or loss realized upon the sale or other disposition of
any Capital Stock of any Person; (v) extraordinary gains or losses; and (vi)
the cumulative effect of a change in accounting principles. Notwithstanding
the foregoing, for the purposes of Section 4.04 only, there shall be excluded
from Consolidated Net Income any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under Section
4.04(a)(3)(E).
"Consolidated Net Tangible Assets", as of any date of
determination, means the total amount of assets (less accumulated depreciation
and amortization, allowances for doubtful receivables, other applicable
reserves and other properly deductible items) which would appear on a
consolidated balance sheet of the Company and its consolidated Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP, and
after giving effect to purchase accounting and after deducting therefrom
Consolidated Current Labilities and, to the extent otherwise included, the
amounts of: (i) minority interests in consolidated Subsidiaries held by
Persons other than the Company as a Restricted Subsidiary; (ii) excess of cost
over fair value of assets of businesses acquired, as determined in good faith
by the Board of Directors; (iii) any revaluation or other write-up in book
value of assets subsequent to the Issue Date as a result of a change in the
<PAGE> 17
10
method of valuation in accordance with GAAP consistently applied; (iv)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights,
licenses, organization or developmental expenses and other intangible items;
(v) treasury stock; (vi) cash set apart and held in a sinking or other
analogous fund established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in Consolidated
Current Liabilities; and (vii) Investments in and assets of Unrestricted
Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of the Company ending at least 45 days prior to
the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of the
Company plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Credit Agreement" means that certain Credit Agreement, dated
as of June 28, 1996, by and among the Company and NationsBank of Texas, N.A.,
as agent and as a lender, and certain other institutions, as lenders, providing
for up to $150.0 million of Indebtedness, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part, from time to time.
"Credit Facilities" means, with respect to the Company or any
Restricted Subsidiary, one or more debt facilities (including the Credit
Agreement) or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, production payments,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
<PAGE> 18
11
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all obligations of
the Company or any Restricted Subsidiary under any Credit Facility and (ii) any
other Senior Indebtedness of the Company which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date
of determination, the holders thereof are committed to lend up to, at least
$25.0 million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness
or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the first anniversary
of the Stated Maturity of the Securities; provided, however, that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an Asset Disposition or Change of
Control occurring prior to the first anniversary of the Stated Maturity of the
Securities shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions contained in
Sections 4.06 and 4.08.
"Dollar-Denominated Production Payments" means production
payment obligations recorded as liabilities in accordance with GAAP, together
with all undertakings and obligations in connection therewith.
<PAGE> 19
12
"EBITDA" for any period means the sum of Consolidated Net
Income, plus Consolidated Interest Expense plus the following to the extent
deducted in calculating such Consolidated Net Income: (a) provision for taxes
based on income or profits, (b) depletion and depreciation expense, (c)
amortization expense and (d) all other non-cash charges (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash charges in any future period or amortization of a prepaid cash expense
that was paid in a prior period), and less, to the extent included in
calculating such Consolidated Net Income, the sum of (x) the amount of deferred
revenues that are amortized during such period and are attributable to reserves
that are subject to Volumetric Production Payments and (y) amounts recorded in
accordance with GAAP as repayments of principal and interest pursuant to
Dollar-Denominated Production Payments. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of the Company shall
be added to the Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect on the Issue Date, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements
<PAGE> 20
13
in staff accounting bulletins and similar written statements from the
accounting staff of the SEC.
"Guarantee" means, without duplication, any obligation,
contingent or otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness of any Person and any obligation, direct or indirect, contingent
or otherwise, of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well,
to purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
The term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Oil and Gas Hedging Contract, Interest Rate
Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of
principal of a non-interest bearing or other discount security shall be deemed
the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or
<PAGE> 21
14
other similar instruments for the payment of which such Person is responsible
or liable; (ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered into by
such Person; (iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person the liquidation
preference with respect to, any Preferred Stock (but excluding, in each case,
any accrued dividends); (vi) all obligations of such Person relating to any
Production Payment or in respect of production imbalances (but excluding
production imbalances arising in the ordinary course of business); (vii) all
obligations of the type referred to in clauses (i) through (vi) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee (including, with
respect to any Production Payment, any warranties or guarantees of production
or payment by such Person with respect to such Production Payment but excluding
other contractual obligations of such Person with respect to such Production
Payment); (viii) all obligations of the type referred to in clauses (i) through
(vii) of other Persons secured by any Lien on any property or asset of such
first-mentioned Person (whether or not such obligation is assumed by such
first-mentioned Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person
at any date shall be
<PAGE> 22
15
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at
such date.
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Interest Rate Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Restricted Subsidiary
against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of the
lender) or other extensions of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes
of the definition of "Unrestricted Subsidiary", the definition of "Restricted
Payment" and Section 4.04, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of the Company at the time
that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Securities are
originally issued.
<PAGE> 23
16
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
"Limited Recourse Indebtedness" means, with respect to any
Production Payments, Indebtedness, the terms of which limit the liability of
the Company and its Restricted Subsidiaries solely to the hydrocarbons covered
by such Production Payments; provided, however, that no default with respect to
such Indebtedness would permit any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Net Available Cash" from an Asset Disposition means cash
payments received therefrom (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, but excluding any other consideration
received in the form of assumption by the acquiring Person of Indebtedness or
other obligations relating to such properties or assets or received in any
other noncash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by
its terms, or in order to obtain a necessary consent to such Asset Disposition,
or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and (iv) the deduction of appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities
associated with the property or other assets disposed in such Asset Disposition
and retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such
<PAGE> 24
17
issuance or sale net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Net Present Value" means, with respect to any proved
hydrocarbons reserves, the discounted future net cash flows associated with
such reserves, determined in accordance with the rules and regulations of the
SEC in effect on the Issue Date.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Oil and Gas Business" means the business of the exploration
for, and exploitation, development, acquisition, production, processing (but
not refining), marketing, storage and transportation of, hydrocarbons, and
other related energy and natural resource businesses (including oil and gas
services businesses related to the foregoing).
"Oil and Gas Hedging Contract" means any oil and gas purchase
or hedging agreement, and other agreement or arrangement, in each case, that is
designed to provide protection against oil and gas price fluctuations.
"Opinion of Counsel" means a written opinion from
legal counsel who is acceptable to the Trustee. The counsel
may be an employee of or counsel to the Company or the Trustee.
"Parent" means Mariner Holdings, Inc., a Delaware corporation,
and its successors.
"Permitted Business Investment" means any investment made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively exploiting, exploring for,
acquiring, developing, producing, processing, gathering, marketing or
transporting oil and gas through agreements, transactions, interests or
arrangements which permit one to share risks or costs, comply with regulatory
requirements
<PAGE> 25
18
regarding local ownership or satisfy other objectives customarily achieved
though the conduct of Oil and Gas Business jointly with third parties,
including, without limitation, (i) ownership interests in oil and gas
properties, processing facilities, gathering systems or ancillary real property
interests and (ii) Investments in the form of or pursuant to operating
agreements, processing agreements, farm-in agreements, farm-out agreements,
development agreements, area of mutual interest agreements, unitization
agreements, pooling agreements, joint bidding agreements, service contracts,
joint venture agreements, partnership agreements (whether general or limited),
subscription agreements, stock purchase agreements and other similar agreements
with third parties.
"Permitted Holders" means (a) Enron Corp., (b) the California
Public Employees' Retirement System or (c) Joint Energy Development Investments
Limited Partnership ("JEDI") or another entity or entities, as long as JEDI or
such other entity or entities is controlled, directly or indirectly, by (i)
Enron Corp., (ii) the California Public Employees' Retirement System or (iii)
any combination of any of the foregoing entities.
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is an Oil and
Gas Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is an Oil and Gas
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any Restricted Subsidiary if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary
deems reasonable under the circumstances; (v) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees made in
the ordinary course of business; (vii) stock, obligations or securities
received in settlement of debts created in the
<PAGE> 26
19
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any Person to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to Section 4.06 and (ix)
Permitted Business Investments.
"Permitted Liens" means, with respect to any Person, (a)
pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or United
States government bonds to secure surety or appeal bonds to which such Person
is a party, or deposits as security for contested taxes or import duties or for
the payment of rent, in each case Incurred in the ordinary course of business;
(b) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith by
appropriate proceedings or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be proceeding
with an appeal or other proceedings for review; (c) Liens for property taxes
not yet subject to penalties for non-payment or which are being contested in
good faith and by appropriate proceedings; (d) Liens in favor of issuers of
surety bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; provided,
however, that such letters of credit do not constitute Indebtedness; (e) minor
survey exceptions, minor encumbrances, easements or reservations of, or rights
of others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real property or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
impair their use in the operation of the business of such Person; (f) Liens
securing Indebtedness Incurred to finance the construction, purchase or lease
of, or repairs, improvements or additions to, property of such Person;
provided, however, that the Lien may not extend to any other property owned by
such Person or any of its Subsidiaries at the time the Lien is Incurred, and
the Indebtedness secured by the Lien may not be Incurred more than 180 days
after the
<PAGE> 27
20
later of the acquisition, completion of construction, repair, improvement,
addition or commencement of full operation of the property subject to the Lien;
(g) Liens securing Indebtedness permitted under Section 4.03(b)(1) or Section
4.03(b)(8); provided, however, that any such Lien securing Indebtedness
described in Section 4.03(b)(8) shall be limited to the hydrocarbons related
thereto; (h) Liens existing on the Issue Date; (i) Liens on property or shares
of Capital Stock of another Person at the time such other Person becomes a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such other
Person becoming such a Subsidiary; provided further, however, that such Lien
may not extend to any other property owned by such Person or any of its
Subsidiaries; (j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or assumed
in connection with, or in contemplation of, such acquisition; provided further,
however, that the Liens may not extend to any other property owned by such
Person or any of its Subsidiaries; (k) Liens securing Indebtedness or other
obligations of a Subsidiary of such Person owing to such Person or a wholly
owned Subsidiary of such Person (or, in the case of the Company, to a Wholly
Owned Subsidiary); (l) Liens securing Hedging Obligations so long as such
Hedging Obligations relate to Indebtedness that is, and is permitted to be
under this Indenture, secured by a Lien on the same property securing such
Hedging Obligations; (m) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien
referred to in the foregoing clauses (f), (h), (i) and (j); provided, however,
that (x) such new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements to or on such property) and
(y) the Indebtedness secured by such Lien at such time is not increased to any
amount greater than the sum of (A) the outstanding principal amount or, if
greater, committed amount of the Indebtedness described under clause (f),
(h),(i) or (j) at the time the original Lien became a Permitted Lien and (B) an
amount necessary to pay any fees and expenses, including premiums, related to
such refinancing, refunding, extension, renewal or replacement; (n) Liens on,
or related to, properties to secure all or part of the costs incurred in the
ordinary course of
<PAGE> 28
21
business of exploration, drilling, development or operation thereof; (o) Liens
on pipeline or pipeline facilities which arise out of operation of law; (p)
Liens reserved in oil and gas mineral leases for bonus or rental payments and
for compliance with the terms of such leases; and (q) Liens arising under
partnership agreements, oil and gas leases, farm- out agreements, division
orders, contracts for the sale, purchase, exchange, transportation or
processing (but not the refining) of oil, gas or other hydrocarbons,
unitization and pooling declarations and agreements, development agreements,
operating agreements, area of mutual interest agreements, and other similar
agreements which are customary in the Oil and Gas Business. Notwithstanding
the foregoing, "Permitted Liens" will not include any Lien described in clause
(f), (i) or (j) above to the extent (A) such Lien applies to any Additional
Assets or Permitted Business Investment acquired directly or indirectly from
Net Available Cash pursuant to Section 4.06(a)(i)(B) or Section 4.06(c) and (B)
the fair value of such Additional Assets or Permitted Business Investment is
less than the sum of (x) the amount of Indebtedness secured by such Lien plus
(y) the amount of Net Available Cash so invested in such Additional Assets or
Permitted Business Investment.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security
plus the premium, if any, payable on the Security which is due or overdue or is
to become due at the relevant time.
"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.
<PAGE> 29
22
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity
Offering has been consummated and (y) at least 15% of the total issued and
outstanding common stock of the Company has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances
any Indebtedness of the Company or any Restricted Subsidiary existing on the
Issue Date or Incurred in compliance with this Indenture including Indebtedness
that Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or
if Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Representative" means any trustee, agent or representative
(if any) for an issue of Senior Indebtedness of the Company.
<PAGE> 30
23
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the direct
or indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock)) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of
any Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company
that is not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company
secured by a Lien.
<PAGE> 31
24
"Securities" means the Securities issued under this Indenture.
"Senior Indebtedness" means with respect to any Person (i)
Indebtedness of such Person, and all obligations of such Person under any
Credit Facility, whether outstanding on the Issue Date or thereafter Incurred,
and (ii) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to such
Person to the extent post-filing interest is allowed in such proceeding) in
respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable unless, with
respect to obligations described in the immediately preceding clause (i) or
(ii), in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are subordinate
in right of payment to the Securities or the applicable Subsidiary Guaranty, as
the case may be; provided, however, that Senior Indebtedness shall not include
(1) any obligation of such Person to any Subsidiary of such Person, (2) any
liability for Federal, state, local or other taxes owed or owing by such
Person, (3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Person (and any
accrued and unpaid interest in respect thereof) which is subordinate or junior
in any respect to any other Indebtedness or other obligation of such Person or
(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of this Indenture (other than Indebtedness under any
Credit Facility that is Incurred on the basis of a representation by the
Company to the applicable lenders that such person is permitted to Incur such
Indebtedness under this Indenture).
"Senior Subordinated Indebtedness" means (i) with respect to
the Company, the Securities and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank pari passu with the
Securities in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness and (ii) with respect to any Subsidiary Guarantor, the
Subsidiary Guaranty of such Subsidiary Guarantor and any other Indebtedness of
<PAGE> 32
25
such Subsidiary Guarantor that specifically provides that such Indebtedness is
to rank pari passu with such Subsidiary Guaranty in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of such Subsidiary Guarantor which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Stockholders' Agreement" means that certain Stockholders'
Agreement, dated as of April 2, 1996, by and among Enron Capital & Trade
Resources Corp., Mystery Acquisition, Inc. and certain senior personnel of the
Company, as amended or restated.
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Restricted Subsidiary of the
Company that Guarantees the Company's obligations with respect to the
Securities pursuant to a
<PAGE> 33
26
Subsidiary Guaranty, by execution of a supplemental indenture to this
Indenture.
"Subsidiary Guaranty" means a Guarantee, pursuant to Article
11 of this Indenture, by a Subsidiary Guarantor of the Company's obligations
with respect to the Securities.
"Temporary Cash Investments" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations guaranteed by the United States of America or any
agency thereof, (ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000 (or
the foreign currency equivalent thereof) and has outstanding debt which is
rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor, (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors Service,
Inc. or "A-1" (or higher) according to Standard & Poor's Ratings Group, and (v)
investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture.
<PAGE> 34
27
"Total Assets" of the Company means the total consolidated
assets of the Company and its Restricted Subsidiaries, as shown on the most
recent balance sheet of the Company.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien
on any property of, the Company or any other Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under Section 4.04. The Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however,
that immediately after giving effect to such designation (x) the Company could
Incur $1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be by the Company to the Trustee by promptly filing with the
Trustee a copy of the board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof)
<PAGE> 35
28
for the payment of which the full faith and credit of the United States of
America is pledged and which are not callable at the issuer's option.
"Volumetric Production Payments" means production payment
obligations recorded as deferred revenue in accordance with GAAP, together with
all undertakings and obligations in connection therewith.
"Voting Stock" of a Person means all classes of Capital Stock
or other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all
the Capital Stock of which (other than directors' qualifying shares and shares
held by other Persons to the extent such shares are required by applicable law
to be held by a Person other than the Company or a Restricted Subsidiary) is
owned by the Company or one or more Wholly Owned Subsidiaries.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction" ........... 4.07
"Bankruptcy Law" .................. 6.01
"Blockage Notice".................. 10.03
"covenant defeasance option" ...... 8.01(b)
"Custodian" ....................... 6.01
"Event of Default" ................ 6.01
"Excess Proceeds" ................. 4.06(a)
"Excess Proceeds Offer" ........... 4.06(b)(i)
"Excess Proceeds Payment".......... 4.06(b)(i)
"Excess Proceeds Payment Date" .... 4.06(b)(ii)
"legal defeasance option" ......... 8.01(b)
"Legal Holiday" ................... 12.08
"Offering Memorandum".............. 4.04(b)
"pay the Securities" .............. 10.03
"Paying Agent" .................... 2.03
"Payment Blockage Period" ......... 10.03
"Registrar" ....................... 2.03
"Successor Company" ............... 5.01
</TABLE>
<PAGE> 36
29
Section 1.03. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory provisions of the TIA which
are incorporated by reference in and made a part of this Indenture. The
following TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities and, to the extent
Subsidiary Guaranties are given, such Subsidiary Guaranties.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company and
any other obligor on the indenture securities, including any Subsidiary
Guarantors.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
Section 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
<PAGE> 37
30
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the Company dated such date
prepared in accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with
respect to such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally
issued shall refer to the date the Initial Securities were originally
issued.
ARTICLE 2
The Securities
Section 2.01. Form and Dating. Provisions relating to the
Initial Securities and the Exchange Securities are set forth in Appendix A,
which is hereby incorporated in and expressly made part of this Indenture. The
Initial Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to Appendix A which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject, if any, or usage (provided that any such
notation, legend or endorsement is in a form acceptable to the Company). Each
Security shall be dated the date of its authentication. The terms of the
Securities set forth in Exhibit 1 to Appendix A and Exhibit A are part of the
terms of this Indenture.
Section 2.02. Execution and Authentication. Two Officers
shall sign the Securities for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
<PAGE> 38
31
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or
agent for service of notices and demands.
Section 2.03. Registrar and Paying Agent. The Company shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
The Company may have one or more co-registrars and one or more additional
paying agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co- registrar not a party to this
Indenture, which shall incorporate the terms of the TIA. The agreement shall
implement the provisions of this Indenture that relate to such agent. The
Company shall notify the Trustee of the name and address of any such agent. If
the Company fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such and shall be entitled to appropriate compensation therefor pursuant
to Section 7.07. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer
agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Securities.
<PAGE> 39
32
Section 2.04. Paying Agent To Hold Money in Trust. Prior to
each due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent a sum sufficient to pay such principal and
interest when so becoming due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall hold
in trust for the benefit of Securityholders or the Trustee all money held by
the Paying Agent for the payment of principal of or interest on the Securities
and shall notify the Trustee of any default by the Company in making any such
payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate the money held by it as Paying Agent and hold it as a separate trust
fund. The Company at any time may require a Paying Agent to pay all money held
by it to the Trustee and to account for any funds disbursed by the Paying
Agent. Upon complying with this Section, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
Section 2.05. Securityholder Lists. The Trustee shall
preserve in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee
is not the Registrar, the Company shall furnish to the Trustee, in writing at
least five Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Securityholders.
Section 2.06. Replacement Securities. If a mutilated
Security is surrendered to the Registrar or if the Holder of a Security claims
that the Security has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Security if the
requirements of Section 8-405 of the Uniform Commercial Code are met and the
Holder satisfies any other reasonable requirements of the Trustee. If required
by the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from
any loss which any of them may suffer if a Security is replaced. The Company
and the Trustee may charge the Holder for their expenses in replacing a
Security.
Every replacement Security is an additional obligation of the
Company.
<PAGE> 40
33
Section 2.07. Outstanding Securities. Securities outstanding
at any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.06, it ceases
to be outstanding unless the Trustee and the Company receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date money
sufficient to pay all principal and interest payable on that date with respect
to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
Section 2.08. Temporary Securities. Until definitive
Securities are ready for delivery, the Company may prepare and the Trustee
shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities and deliver them in exchange for temporary
Securities.
Section 2.09. Cancellation. The Company at any time may
deliver Securities to the Trustee for cancellation. The Registrar and the
Paying Agent shall forward to the Trustee any Securities surrendered to them
for registration of transfer, exchange or payment. The Trustee and no one else
shall cancel and destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancellation and deliver a certificate of such destruction
to the Company unless the Company directs the Trustee to deliver canceled
Securities to the Company. The Company may not issue new Securities to replace
Securities
<PAGE> 41
34
it has redeemed, paid or delivered to the Trustee for cancellation.
Section 2.10. Defaulted Interest. If the Company defaults in
a payment of interest on the Securities, the Company shall pay defaulted
interest (plus interest on such defaulted interest to the extent lawful) in any
lawful manner. The Company may pay the defaulted interest to the persons who
are Securityholders on a subsequent special record date. The Company shall fix
or cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
Section 2.11. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE 3
Redemption
Section 3.01. Notices to Trustee. If the Company elects to
redeem Securities pursuant to paragraph 5 of the Securities, it shall notify
the Trustee in writing of the redemption date, the principal amount of
Securities to be redeemed and the paragraph of the Securities pursuant to which
the redemption will occur.
The Company shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
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35
Section 3.02. Selection of Securities To Be Redeemed. If
fewer than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by a method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee considers fair and appropriate and in accordance with methods generally
used at the time of selection by fiduciaries in similar circumstances. The
Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of them the Trustee selects shall be in amounts of $1,000 or a
whole multiple of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called
for redemption. The Trustee shall notify the Company promptly of the
Securities or portions of Securities to be redeemed.
Section 3.03. Notice of Redemption. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;
(6) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on
Securities (or
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36
portion thereof) called for redemption ceases to accrue on and after
the redemption date; and
(7) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
Section 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable
on the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
Section 3.05. Deposit of Redemption Price. Prior to the
redemption date, the Company shall deposit with the Paying Agent (or, if the
Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to
the Trustee for cancellation.
Section 3.06. Securities Redeemed in Part. Upon surrender of
a Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE 4
Covenants
Section 4.01. Payment of Securities. The Company shall
promptly pay the principal of and interest on the Securities on the dates and
in the manner provided in the Securities and in this Indenture. Principal and
interest
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37
shall be considered paid on the date due if on such date the Trustee or the
Paying Agent holds in accordance with this Indenture money sufficient to pay
all principal and interest then due and the Trustee or the Paying Agent, as the
case may be, is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the
rate specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
Section 4.02. SEC Reports. The Company shall file with the
Trustee and provide Securityholders, within 15 days after it files them with
the SEC, copies of its annual report and the information, documents and other
reports which the Company is required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
required to remain subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall continue to file with the SEC and
provide the Trustee and Securityholders with the annual reports and the
information, documents and other reports which are specified in Sections 13 and
15(d) of the Exchange Act (excluding, however, information with respect to
benefit plans and long-term compensation arrangements). The Company also shall
comply with the other provisions of TIA Section 314(a).
Section 4.03. Limitation on Indebtedness. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, Incur, directly
or indirectly, any Indebtedness; provided, however, that the Company or a
Subsidiary Guarantor may Incur Indebtedness if, on the date of such Incurrence
and after giving effect thereto, the Consolidated Coverage Ratio exceeds 2.5 to
1.
(b) Notwithstanding the foregoing paragraph (a), the Company
and its Restricted Subsidiaries may Incur any or all of the following
Indebtedness:
(1) Indebtedness of the Company or a Subsidiary Guarantor
Incurred pursuant to any Credit Facility, so long as the aggregate
principal amount of all Indebtedness outstanding under all Credit
Facilities does not, at any one time, exceed the Borrowing Base;
provided, however, that if the Company or a Subsidiary
<PAGE> 45
38
Guarantor Incurs any Indebtedness pursuant to this Section 4.03(b)(1)
that would cause the total principal amount of Indebtedness
outstanding under this Section 4.03(b)(1) to exceed an amount equal to
$150.0 million (less the aggregate amount of all Net Available Cash of
Asset Dispositions applied to reduce Senior Indebtedness pursuant to
Section 4.06(a)(i)(A), the Consolidated Coverage Ratio on the date of
such Incurrence must be at least 2.0 to 1;
(2) Indebtedness owed to and held by the Company or a Wholly
Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Indebtedness by the issuer thereof;
(3) the Securities and any Guarantee of the Securities;
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in Section 4.03(b)(1), (2) or (3));
(5) Indebtedness or Preferred Stock of a Subsidiary Incurred
and outstanding on or prior to the date on which such Subsidiary was
acquired by the Company (other than Indebtedness or Preferred Stock
Incurred in connection with, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Subsidiary
became a Subsidiary or was acquired by the Company); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to Section 4.03(a);
(6) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to Section 4.03(a) or pursuant to Section
4.03(b)(1), (3), (4) or (5) or this Section 4.03(b)(6); provided,
however, that to the extent such Refinancing Indebtedness directly or
indirectly Refinances Indebtedness or Preferred Stock of a Subsidiary
described in Section 4.03(b)(5), such
<PAGE> 46
39
Refinancing Indebtedness shall be Incurred only by such Subsidiary or
the Company;
(7) Indebtedness of the Company or a Subsidiary Guarantor
represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case Incurred for this purpose of
financing all or any part of the purchase price or cost of
construction or improvement of property used in an Oil and Gas
Business or Incurred to Refinance any such purchase price or cost of
construction or improvement, in each case Incurred no later than 365
days after the date of such acquisition or the date of completion of
such construction or improvement; provided, however, that the
principal amount of any Indebtedness Incurred pursuant to this Section
4.03(b)(7) in any calendar year shall not exceed $10 million;
(8) Indebtedness with respect to Production Payments;
provided, however, that any such Indebtedness shall be Limited
Recourse Indebtedness; provided further, however, that the Net Present
Value of the reserves related to such Production Payments shall not
exceed 30% of the Total Assets of the Company at any time;
(9) Indebtedness consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the
Company and its Restricted Subsidiaries pursuant to this Indenture;
(10) Indebtedness under Oil and Gas Hedging Contracts and
Currency Agreements entered into in the ordinary course of business
for the purpose of limiting risks that arise in the ordinary course of
business of the Company; and
(11) Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by Section 4.03(b)(1) through (10) above or
Section 4.03(a)) does not exceed $15.0 million; provided, however,
that the aggregate principal amount of the Indebtedness Incurred
pursuant to this Section 4.03(b)(11) by Restricted Subsidiaries and
outstanding at any time does not exceed $10.0 million.
<PAGE> 47
40
(c) Notwithstanding the foregoing, the Company shall not
Incur any Indebtedness pursuant to the foregoing Section 4.03(b) if the
proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to the
Securities to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section
4.03, (i) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above.
(e) Notwithstanding Sections 4.03(a) and (b) above, the
Company shall not Incur (i) any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness,
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (ii)
any Secured Indebtedness that is not Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure the
Securities equally and ratably with such Secured Indebtedness for so long as
such Indebtedness is secured by a Lien.
Section 4.04. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any
Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if
at the time the Company or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default shall have occurred and be continuing (or would result
therefrom); (2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments since the Issue Date would
exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the Securities
are originally issued to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (or, in case such
<PAGE> 48
41
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B)
the aggregate Net Cash Proceeds received by the Company from the issuance or
sale of its Capital Stock (other than Disqualified Stock) subsequent to the
Issue Date (other than an issuance or sale to a Restricted Subsidiary of the
Company and other than an issuance or sale to an employee stock ownership plan
or to a trust established by the Company or any of its Subsidiaries for the
benefit of their employees); (C) the aggregate Net Cash Proceeds received by
the Company from the issue or sale subsequent to the Issue Date of its Capital
Stock (other than Disqualified Stock) to an employee stock ownership plan;
provided, however, that if such employee stock ownership plan incurs any
Indebtedness with respect thereto, such aggregate amount shall be limited to an
amount equal to any increase in the Consolidated Net Worth of the Company
resulting from principal repayments made by such employee stock ownership plan
with respect to such Indebtedness; (D) the amount by which Indebtedness of the
Company is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the Issue
Date, of any Indebtedness of the Company convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company (less the amount
of any cash, or the fair value of any other property, distributed by the
Company upon such conversion or exchange); and (E) an amount equal to the sum
of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting
from dividends, repayments of loans or advances or other transfers of assets,
in each case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated
a Restricted Subsidiary; provided, however, that the foregoing sum shall not
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated Obligations of
the Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of Capital Stock of the Company (other than Disqualified Stock
and other Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership
<PAGE> 49
42
plan or to a trust established by the Company or any of its Subsidiaries for
the benefit of their employees); provided, however, that (A) such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale shall be excluded from
the calculation of amounts under Section 4.04(a)(3)(B) or Section
4.04(a)(3)(C), as applicable; (ii) any purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to Section 4.03; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration thereof if at
such date of declaration such dividend would have complied with this Section
4.04; provided, however, that at the time of payment of such dividend, no other
Default shall have occurred and be continuing (or result therefrom); provided
further, however, that such dividend shall be included in the calculation of
the amount of Restricted Payments; (iv) the repurchase of shares of, or options
to purchase shares of, common stock of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the Company
or any of its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments thereto)
approved by the Board of Directors under which such individuals purchase or
sell or are granted the option to purchase or sell, shares of such common
stock; provided, however, that the aggregate amount of such repurchases shall
not exceed $1.0 million in any calendar year; provided further, however, that
such repurchases shall be excluded in the calculation of the amount of
Restricted Payments; (v) Restricted Payments to Parent to the extent required
(x) to pay for general corporate and overhead expenses incurred by Parent;
provided, however, that such Restricted Payments shall not exceed $200,000 in
any calendar year or (y) to pay amounts owing by Parent pursuant to or in
connection with the transactions contemplated by the agreements existing on the
date of and as described under the caption "Certain Transactions" in the
Offering Memorandum dated August 9, 1996, related to the sale of the Securities
(the "Offering Memorandum"), a copy of which has been deposited with the
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Trustee; provided further, however, that such Restricted Payments shall be
excluded in the calculation of the amount of Restricted Payments; (vi) a cash
dividend on or about the Issue Date in an amount not to exceed $42.5 million;
provided, however, that such dividend shall be excluded in the calculation of
the amount of Restricted Payments; or (vii) other Restricted Payments in an
aggregate amount not to exceed $10.0 million; provided, however, that such
Restricted Payments shall be excluded in the calculation of the amount of
Restricted Payments.
Section 4.05. Limitation on Restrictions on Distributions
from Restricted Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the ability of
any Restricted Subsidiary (a) to pay dividends or make any other distributions
on its Capital Stock or pay any Indebtedness owed to the Company or a
Restricted Subsidiary, (b) to make any loans or advances to the Company or a
Restricted Subsidiary or (c) to transfer any of its property or assets to the
Company or a Restricted Subsidiary, except: (i) any encumbrance or restriction
pursuant to an agreement in effect at or entered into on the Issue Date; (ii)
any encumbrance or restriction with respect to a Restricted Subsidiary pursuant
to an agreement relating to any Indebtedness Incurred by such Restricted
Subsidiary on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration in,
or to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was acquired by
the Company) and outstanding on such date; (iii) any encumbrance or restriction
pursuant to an agreement effecting a Refinancing of Indebtedness Incurred
pursuant to an agreement referred to in clause (i) or (ii) or (iii) of this
Section 4.05 or contained in any amendment to an agreement referred to in
clause (i) or (ii) or (iii) of this Section 4.05 ; provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the Securityholders than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such agreements; (iv) any such encumbrance
or restriction consisting of customary nonassignment provisions in leases
governing leasehold interests to the extent such provisions
<PAGE> 51
44
restrict the transfer of the lease or the property leased thereunder; (v) in
the case of clause (c) above, restrictions contained in security agreements or
mortgages securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages; and (vi) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition.
Section 4.06. Limitation on Sales of Assets and Subsidiary
Stock. (a) In the event and to the extent that the Net Available Cash
received by the Company or any Restricted Subsidiary from one or more Asset
Dispositions occurring on or after the Issue Date in any period of 12
consecutive months exceeds 10% of Adjusted Consolidated Assets as of the
beginning of such 12-month period, then the Company shall (i) within 180 days
(in the case of clause (A) below) or 360 days (in the case of clause (B) below)
after the date such Net Available Cash so received exceeds such 10% of Adjusted
Consolidated Assets (A) apply an amount equal to such excess Net Available Cash
to repay Senior Indebtedness of the Company or Indebtedness of a Restricted
Subsidiary, in each case owing to a Person other than the Company or any
Affiliate of the Company or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A), in Additional Assets or a Permitted Business
Investment or (ii) apply such excess Net Available Cash (to the extent not
applied pursuant to clause (i)) as provided in the following paragraphs of this
Section 4.06. The amount of such excess Net Available Cash required to be
applied during the applicable period and not applied as so required by the end
of such period shall constitute "Excess Proceeds".
(b)(i) If, as of the first day of any calendar month, the
aggregate amount of Excess Proceeds not theretofore subject to an Excess
Proceeds Offer totals at least $5.0 million, the Company must, not later than
the fifteenth Business Day of such month, make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate principal
amount of Securities equal to the Excess Proceeds (rounded down to the nearest
multiple of $1,000) on such date, at a purchase price equal to 100% of the
principal amount of such Securities, plus, in
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each case, accrued interest (if any) to the date of purchase (the "Excess
Proceeds Payment").
(ii) The Company shall commence an Excess Proceeds Offer with
respect to the Securities by mailing a notice to the Trustee and each Holder
stating: (A) that the Excess Proceeds Offer is being made pursuant to this
Section 4.06 and that all Securities validity tendered will be accepted for
payment on a pro rata basis; (B) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the "Excess Proceeds Payment Date"); (C)
that any Security not tendered will continue to accrue interest pursuant to its
terms; (D) that, unless the Company defaults in the payment of the Excess
Proceeds Payment, any Security accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest on and after the Excess Proceeds
Payment Date; (E) that Holders electing to have a Security purchased pursuant
to the Excess Proceeds Offer will be required to surrender the Security,
together with the form entitled "Option of Holder to Elect Purchase" on the
reverse side of the Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Excess Proceeds Payment Date; (F) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the third Business Day immediately preceding the
Excess Proceeds Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Securities
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Securities purchased; and (G) that Holders whose
Securities are being purchased only in part will be issued new Securities equal
in principal amount to the unpurchased portion of the Securities surrendered;
provided, however, that each Security purchased and each new Security issued
shall be in a principal amount of $1,000 or integral multiples thereof.
(iii) On the Excess Proceeds Payment Date, the Company shall
(A) accept for payment on a pro rata basis Securities or portions thereof
tendered pursuant to the Excess Proceeds Offer, (B) deposit with the Paying
Agent money sufficient to pay the purchase price of all Securities or portions
thereof so accepted, and (C) deliver, or cause to be delivered, to the Trustee
all Securities or portions thereof so accepted together with an Officers'
Certificate
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specifying the Securities or portions thereof so accepted for payment by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered;
provided, however; that each Security purchased and each new Security issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Excess Proceeds Offer as soon
as practicable after the Excess Proceeds Payment Date. For purposes of this
Section 4.06, the Trustee shall act as the Paying Agent.
(iv) The Company will comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations thereunder in the event that such Excess Proceeds are
received by the Company under this Section 4.06 and the Company is required to
repurchase Securities as described above. To the extent that the provisions of
any securities laws or regulations conflict with the provisions of this Section
4.06, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.06 by virtue thereof.
(c) In the event of the transfer of substantially all (but
not all) the property and assets of the Company as an entirety to a Person in a
transaction permitted by Section 5.01, the Successor Company (as defined
therein) shall be deemed to have sold the properties and assets of the Company
not so transferred for purposes of the covenant described hereunder, and shall
comply with the provisions of the covenant described hereunder with respect to
such deemed sale as if it were an Asset Disposition and the Successor Company
shall be deemed to have received Net Available Cash in an amount equal to the
fair market value (as determined in good faith by the Board of Directors) of
the properties and assets not so transferred or sold.
(d) In the event of an Asset Disposition by the Company or
any Restricted Subsidiary that consists of a sale of hydrocarbons and results
in Production Payments, the Company or such Restricted Subsidiary shall apply
an amount equal to the Net Available Cash received by the Company or such
Restricted Subsidiary to (i) reduce Senior Indebtedness of the Company or
Indebtedness of a Restricted Subsidiary,
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47
in each case owing to a Person other than the Company or any Affiliate of the
Company, within 180 days after the date such Net Available Cash is so received
or (ii) invest in Additional Assets or a Permitted Business Investment within
360 days after the date such Net Available Cash is so received.
(e) The Company shall not sell, lease, transfer or otherwise
dispose of any assets owned by the Company on the Issue Date to any Subsidiary
which is or thereafter becomes a Subsidiary Guarantor unless the book value of
all such assets sold, leased, transferred or otherwise disposed of to such
Subsidiaries is less than 15% of the Total Assets of the Company on the Issue
Date.
Section 4.07. Limitation on Affiliate Transactions. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, enter
into or permit to exist any transaction (including the purchase, sale, lease or
exchange of any property, employee compensation arrangements or the rendering
of any service) with any Affiliate of the Company (an "Affiliate Transaction")
unless the terms thereof (1) are no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate, (2) if such Affiliate Transaction involves an amount in excess of
$1.0 million, is set forth in writing and has been approved by a majority of
the members of the Board of Directors having no personal stake in such
Affiliate Transaction or (3) if such Affiliate Transaction involves an amount
in excess of $5.0 million, has been determined by a nationally recognized
investment banking firm to be fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (i)
any sale of hydrocarbons or other mineral products or the entering into or
performance of Oil and Gas Hedging Contracts, gas gathering, transportation or
processing contracts or oil or natural gas marketing or exchange contracts, in
each case, in the ordinary course of business, so long as the terms of any such
transaction are approved by a majority of the members of the Board of Directors
who are disinterested with respect to such transaction as being the most
favorable of at least (x) two bids, quotes or proposals, at least one of which
is from a Person that is not an Affiliate of the Company (in the event
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48
that the Company determines in good faith that it is able to obtain only two
bids, quotes or proposals with respect to such transaction) or (y) three bids,
quotes or proposals, at least two of which are from Persons that are not
Affiliates of the Company (in all other circumstances), (ii) the sale to an
Affiliate of the Company of Capital Stock of the Company that does not
constitute Disqualified Stock, (iii) transactions contemplated by any
employment agreement or other compensation plan or arrangement entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with industry practice, (iv) transactions between or
among the Company and its Restricted Subsidiaries, (v) Restricted Payments and
Permitted Investments that are permitted by Section 4.04 and (vi) the
transactions described in the Offering Memorandum under the caption "Certain
Transactions".
Section 4.08. Change of Control. (a) Upon the occurrence of
a Change of Control, each Holder shall have the right to require that the
Company repurchase such Holder's Securities at a purchase price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest on the relevant interest payment
date), in accordance with the terms contemplated in Section 4.08(b). In the
event that at the time of such Change of Control the terms of the Indebtedness
under the Credit Agreement restrict or prohibit the repurchase of Securities
pursuant to this Section, then prior to the mailing of the notice to Holders
provided for in Section 4.08(b) below but in any event within 30 days following
any Change of Control, the Company shall (i) repay in full all Indebtedness
under the Credit Agreement or offer to repay in full all such Indebtedness and
repay such Indebtedness of each lender which has accepted such offer or (ii)
obtain the requisite consent under the agreements governing the Indebtedness
under the Credit Agreement to permit the repurchase of the Securities as
provided for in Section 4.08(b).
(b) Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the right to
require the Company to purchase such Holder's Securities at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of Holders of
record
<PAGE> 56
49
on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control);
(3) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (4) the instructions
determined by the Company, consistent with this Section 4.08, that a Holder
must follow in order to have its Securities purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business days
prior to the purchase date. Holders will be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business Day
prior to the purchase date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Security
which was delivered for purchase by the Holder and a statement that such Holder
is withdrawing his election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the
Company under this Section shall be delivered by the Trustee for cancellation,
and the Company shall pay the purchase price plus accrued and unpaid interest,
if any, to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section 4.08. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under this Section
4.08 by virtue thereof.
(f) Notwithstanding the foregoing, the Company shall not be
required to comply with the provisions of this Section 4.08 to the extent any
other Person complies with such provisions as if such Person were the Company.
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Section 4.09. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries. The Company shall not sell or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary, and shall
not permit any Restricted Subsidiary, directly or indirectly, to issue or sell
or otherwise dispose of any shares of its Capital Stock except (i) to the
Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect
to such issuance, sale or other disposition, the Company and its Restricted
Subsidiaries would own less than 20% of the Voting Stock of such Restricted
Subsidiary and have no greater economic interest in such Restricted Subsidiary
or (iii) to the extent such shares represent directors' qualifying shares or
shares required by applicable law to be held by a Person other than the Company
or a Restricted Subsidiary.
Section 4.10. Limitation on Liens. The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
Incur or permit to exist any Lien of any nature whatsoever on any of its
properties (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired, other than Permitted Liens, without
effectively providing that the Securities shall be secured equally and ratably
with (or prior to) the obligations so secured for so long as such obligations
are so secured.
Section 4.11. Limitation on Sale/Leaseback Transactions. The
Company shall not, and shall not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless (i) the
Company or such Restricted Subsidiary would be entitled to (A) Incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to Section 4.03 and (B) create a Lien on
such property securing such Attributable Debt without equally and ratably
securing the Securities pursuant to Section 4.10, (ii) the net proceeds
received by the Company or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair value (as determined
by the Board of Directors) of such property and (iii) the Company applies the
proceeds of such transaction in compliance with Section 4.06.
Section 4.12. Future Guarantors. Prior to the time that any
Restricted Subsidiary Incurs any Indebtedness permitted under Section 4.03, the
Company shall cause such Restricted Subsidiary to Guarantee the Securities
pursuant
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to a Subsidiary Guaranty on the terms and conditions set forth in this
Indenture.
Section 4.13. Compliance Certificate. The Company shall
deliver to the Trustee within 120 days after the end of each fiscal year of the
Company an Officers' Certificate stating that in the course of the performance
by the signers of their duties as Officers of the Company they would normally
have knowledge of any Default and whether or not the signers know of any
Default that occurred during such period. If they do, the certificate shall
describe the Default, its status and what action the Company is taking or
proposes to take with respect thereto. The Company also shall comply with TIA
Section 314(a)(4).
Section 4.14. Further Instruments and Acts. Upon request of
the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE 5
Successor Company
Section 5.01. When Company May Merge or Transfer Assets. The
Company shall not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation organized and existing
under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Securities and
this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such
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52
transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount which
is not less than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture
(if any) comply with this Indenture;
provided, however, that clauses (iii) and (iv) shall not be applicable to any
such transaction solely between the Company and any Wholly Owned Subsidiary.
The Successor Company shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture, but the predecessor Company in the case of a conveyance, transfer or
lease of all or substantially all its assets shall not be released from the
obligation to pay the principal of and interest on the Securities.
Section 5.02. When Subsidiary Guarantors May Merge or
Transfer Assets. The Company will not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or series of transactions, all or substantially all of its assets
to any Person unless: (i) the resulting, surviving or transferee Person shall
expressly assume by written agreement, in a form acceptable to the Trustee, all
the obligations of such Subsidiary Guarantor, if any, under its Subsidiary
Guaranty; (ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which becomes
an obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at time of such
transaction), no Default shall have occurred and be continuing; and (iii) the
Company delivers to the
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Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such agreement, if any, complies
with this Indenture. Notwithstanding the foregoing, if any Subsidiary
Guarantor is released from its obligations under its Subsidiary Guaranty
pursuant to Section 11.06, such Subsidiary Guarantor's successor or transferee
shall be released from all of such Subsidiary Guarantor's obligations under its
Subsidiary Guaranty.
ARTICLE 6
Defaults and Remedies
Section 6.01. Events of Default. An "Event of Default"
occurs if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable, whether or not such
payment shall be prohibited by Article 10, and such default continues
for a period of 30 days;
(2) the Company (i) defaults in the payment of the principal
of any Security when the same becomes due and payable at its Stated
Maturity, upon redemption, upon declaration or otherwise, whether or
not such payment shall be prohibited by Article 10 or (ii) fails to
redeem or purchase Securities when required pursuant to this Indenture
or the Securities, whether or not such redemption or purchase shall be
prohibited by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06 (other than a failure to purchase Securities when required
under Section 4.06), 4.07, 4.08 (other than a failure to purchase
Securities when required under Section 4.08), 4.09, 4.10, 4.11 or 4.12
and such failure continues for 30 days after the notice specified
below;
(5) the Company fails to comply with any of its agreements in
the Securities or this Indenture (other than those referred to in (1),
(2), (3) or (4) above)
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54
and such failure continues for 60 days after the notice specified
below;
(6) Indebtedness of the Company or any Significant Subsidiary
(other than Limited Recourse Indebtedness) is not paid within any
applicable grace period after final maturity or is accelerated by the
holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $10.0 million or its
foreign currency equivalent at the time;
(7) the Company or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating
to insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and
the order or decree remains unstayed and in effect for 60
days;
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(9) any judgment or decree for the payment of money in excess
of $10.0 million or its foreign currency equivalent at the time is
entered against the Company or any Significant Subsidiary and is not
discharged and either (A) an enforcement proceeding has been commenced
by any creditor upon such judgment or decree or (B) there is a period
of 60 days following the entry of such judgment or decree during which
such judgment or decree is not discharged, waived or the execution
thereof stayed; or
(10) any Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty.
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (4), (5) or (9) is not an Event of
Default until the Trustee or the Holders of at least 25% in principal amount of
the Securities notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such notice. Such
notice must specify the Default, demand that it be remedied and state that such
notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clause (6) and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (4)
or (5), its status and what action the Company is taking or proposes to take
with respect thereto.
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Section 6.02. Acceleration. If an Event of Default (other
than an Event of Default specified in Section 6.01(7) or (8) with respect to
the Company) occurs and is continuing, the Trustee by written notice to the
Company, or the Holders of at least 25% in principal amount of the outstanding
Securities by written notice to the Company and the Trustee, may declare the
principal of and accrued interest on all the Securities to be due and payable.
Upon such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 6.01(7) or (8) with
respect to the Company or a Subsidiary Guarantor occurs, the principal of and
interest on all the Securities shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Securityholders. The Holders of a majority in principal amount of the
Securities by written notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
Section 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
Section 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by written notice to the Trustee
may waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Security or (ii) a Default in
respect of a provision that under Section 9.02 cannot be amended without the
consent of each
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Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
Section 6.05. Control by Majority. The Holders of a majority
in principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture
or, subject to Section 7.01, that the Trustee determines is unduly prejudicial
to the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses
caused by taking or not taking such action.
Section 6.06. Limitation on Suits. A Securityholder may not
pursue any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
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Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and interest on the Securities held by such
Holder, on or after the respective due dates expressed in the Securities, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company for the whole amount then due and owing (together with
interest on any unpaid interest to the extent lawful) and the amounts provided
for in Section 7.07.
Section 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
Section 6.10. Priorities. If the Trustee collects any money
or property pursuant to this Article 6, it shall pay out the money or property
in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness to the extent
required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest,
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59
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal and interest,
respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Company shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
Section 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit
by Holders of more than an aggregate of 10% in principal amount of the
Securities.
Section 6.12. Waiver of Stay or Extension Laws. The Company
(to the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and shall not hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been
enacted.
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ARTICLE 7
Trustee
Section 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine such
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
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(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee
to advance, expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, However, the Trustee may so advance or expend its own
funds if, in its own reasonable judgment, the Trustee believes that repayment
of such funds or adequate indemnity against such risk or liability has been
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
Section 7.02. Rights of Trustee. (a) The Trustee may rely
on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
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(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
Section 7.03. Individual Rights of Trustee. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Company or its Affiliates with the
same rights it would have if it were not Trustee. Any Paying Agent, Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for
any statement of the Company in the Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
Section 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a Default in payment of principal of or interest on any Security
(including payments pursuant to the mandatory redemption provisions of such
Security, if any), the Trustee may withhold the notice if and so long as the
Trust Officer responsible for administering this Indenture and the Securities
in good faith determines that withholding the notice is in the interests of
Securityholders.
Section 7.06. Reports by Trustee to Holders. As promptly as
practicable after each April 1 beginning with the April 1 following the date of
this Indenture, and in any event prior to June 1 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of April 1 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b).
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A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange (if any) on
which the Securities are listed. The Company agrees to notify promptly the
Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.
Section 7.07. Compensation and Indemnity. The Company shall
pay to the Trustee from time to time and upon its request reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Company shall indemnify the Trustee
against any and all loss, liability or expense (including attorneys' fees)
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have
separate counsel and the Company shall pay the fees and expenses of such
counsel. The Company need not reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section
shall survive the discharge of this Indenture. When the Trustee incurs
expenses after the occurrence of a Default specified in Section 6.01(7) or (8)
with respect to the Company, the expenses are intended to constitute expenses
of administration under the Bankruptcy Law.
Section 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Company.
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The Holders of a majority in principal amount of the Securities may remove the
Trustee by so notifying the Trustee and may appoint a successor Trustee. The
Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Company's obligations under
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Section 7.07 shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
Section 7.10. Eligibility; Disqualification. The Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The
Trustee shall have a combined capital and surplus of at least $50.0 million as
set forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities or certificates of interest or
participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against
Company. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
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ARTICLE 8
Discharge of Indenture; Defeasance
Section 8.01. Discharge of Liability on Securities;
Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.06) for
cancellation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article 3 hereof and the Company irrevocably deposits with the
Trustee funds sufficient to pay at maturity or upon redemption all outstanding
Securities, including interest thereon to maturity or such redemption date
(other than Securities replaced pursuant to Section 2.06), and if in either
case the Company pays all other sums payable hereunder by the Company, then
this Indenture shall, subject to Section 8.01(c), cease to be of further
effect. The Trustee shall acknowledge satisfaction and discharge of this
Indenture on demand of the Company accompanied by an Officers' Certificate and
an Opinion of Counsel and at the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any
time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11 and 4.12 and the
operation of Sections 6.01(4), 6.01(6), 6.01(7) (but only with respect to
Significant Subsidiaries) and 6.01(9) ("covenant defeasance option"). The
Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default. If
the Company exercises its covenant defeasance option, payment of the Securities
may not be accelerated because of an Event of Default specified in Sections
6.01(4), 6.01(6), 6.01(7) (but only with respect to Significant Subsidiaries),
6.01(8) (but only with respect to Significant Subsidiaries) or 6.01(9) or
because of the failure of the Company to comply with Sections 5.01(iii) and
(iv). If the Company exercises its legal defeasance option or its covenant
defeasance option, each Subsidiary Guarantor, if any, will be released from all
its obligations with respect to its Subsidiary Guaranty.
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Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 7.07, 7.08 and Article 8 shall
survive until the Securities have been paid in full. Thereafter, the Company's
obligations in Sections 7.07, 8.04 and 8.05 shall survive.
Section 8.02. Conditions to Defeasance. The Company may
exercise its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of
principal and interest on the Securities to maturity or redemption, as
the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal of and interest when due and
without reinvestment on the deposited U.S. Government Obligations plus
any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and
interest when due on all the Securities to maturity or redemption, as
the case may be;
(3) 123 days pass after the deposit is made and during the
123-day period no Default specified in Section 6.01(7) or (8) with
respect to the Company occurs which is continuing at the end of the
period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under
the Investment Company Act of 1940;
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(6) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Securityholders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Securityholders will not recognize income, gain or
loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance and discharge of the Securities
as contemplated by this Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article 3.
Section 8.03. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant
to this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article 10.
Section 8.04. Repayment to Company. The Trustee and the
Paying Agent shall promptly turn over to the Company upon request any excess
money or securities held by them at any time.
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Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company upon request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
Section 8.05. Indemnity for Government Obligations. The
Company shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
the principal and interest received on such U.S. Government Obligations.
Section 8.06. Reinstatement. If the Trustee or Paying Agent
is unable to apply any money or U.S. Government Obligations in accordance with
this Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE 9
Amendments
Section 9.01. Without Consent of Holders. The Company and
the Trustee may amend this Indenture or the Securities without notice to or
consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
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(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes
of Section 163(f) of the Code or in a manner such that the
uncertificated Securities are described in Section 163(f)(2)(B) of the
Code;
(4) to make any change in Article 10 that would limit or
terminate the benefits available to any holder of Senior Indebtedness
(or Representatives therefor) under Article 10;
(5) to add guarantees with respect to the Securities,
including adding any Subsidiary of the Company as a Subsidiary
Guarantor under Article 12, or to secure the Securities;
(6) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company;
(7) to comply with any requirements of the SEC in connection
with qualifying this Indenture under the TIA; or
(8) to make any change that does not adversely affect the
rights of any Securityholder.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent
to such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect therein, shall not impair or affect the validity of an amendment under
this Section.
Section 9.02. With Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in
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principal amount of the Securities. However, without the consent of each
Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the rate of or extend the time for payment of
interest on any Security;
(3) reduce the principal of or extend the Stated Maturity of
any Security;
(4) reduce the premium payable upon the redemption or required
purchase of any Security or change the time at which any Security may
be redeemed in accordance with Article 3;
(5) make any Security payable in money other than that stated
in the Security;
(6) make any change in Article 10 or that adversely affects
the rights of any Securityholder under Article 10;
(7) make any change in Section 6.04 or 6.07 or the second
sentence of this Section; or
(8) make any change in any Subsidiary Guaranty that would
adversely affect the Securityholders.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 or the fourth paragraph of
Section 11.01 of any holder of Senior Indebtedness then outstanding unless the
holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect
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therein, shall not impair or affect the validity of an amendment under this
Section.
Section 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
Section 9.04. Revocation and Effect of Consents and Waivers.
A consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to give such consent or to revoke any
consent previously given or to take any such action, whether or not such
Persons continue to be Holders after such record date. No such consent shall
be valid or effective for more than 120 days after such record date.
Section 9.05. Notation on or Exchange of Securities. If an
amendment changes the terms of a Security, the Trustee may require the Holder
of the Security to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Security regarding the changed terms and return it
to the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
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Section 9.06. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article 9 if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture.
Section 9.07. Payment for Consent. Neither the Company nor
any Affiliate of the Company shall, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of this Indenture or the Securities unless such
consideration is offered to be paid or agreed to be paid to all Holders that so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
ARTICLE 10
Subordination
Section 10.01. Agreement To Subordinate. The Company agrees,
and each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment of all
Senior Indebtedness and that the subordination is for the benefit of and
enforceable by the holders of Senior Indebtedness. The Securities shall in all
respects rank pari passu with all other Senior Subordinated Indebtedness of the
Company and only Indebtedness of the Company which is Senior Indebtedness shall
rank senior to the Securities in accordance with the provisions set forth
herein. All provisions of this Article 10 shall be subject to Section 10.12.
Section 10.02. Liquidation, Dissolution, Bankruptcy. Upon
any payment or distribution of the assets of the Company to creditors upon a
total or partial liquidation or a total or partial dissolution of the Company
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or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to
receive payment in full of the Senior Indebtedness before
Securityholders shall be entitled to receive any payment of principal
of or interest on the Securities; and
(2) until the Senior Indebtedness is paid in full, any
distribution to which Securityholders would be entitled but for this
Article 10 shall be made to holders of Senior Indebtedness as their
interests may appear, except that Securityholders may receive shares
of stock and any debt securities that are subordinated to Senior
Indebtedness to at least the same extent as the Securities.
Section 10.03. Default on Designated Senior Indebtedness.
The Company may not pay the principal of or interest on the Securities or make
any deposit pursuant to Section 8.01 and may not repurchase, redeem or
otherwise retire any Securities (collectively, "pay the Securities") if (i) any
Designated Senior Indebtedness is not paid when due or (ii) any other default
on Designated Senior Indebtedness occurs and the maturity of such Designated
Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, (x) the default has been cured or waived and any such acceleration
has been rescinded or (y) such Senior Indebtedness has been paid in full;
provided, however, that the Company may pay the Securities without regard to
the foregoing if the Company and the Trustee receive written notice approving
such payment from the Representatives of the Designated Senior Indebtedness.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Company may not pay the Securities for a period (a "Payment Blockage
Period") commencing upon the receipt by the Company and the Trustee of written
notice (a "Blockage Notice") of such default from the Representative of such
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
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Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full of such Designated Senior Indebtedness or (iii) because the
default giving rise to such Blockage Notice is no longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this
Section), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders shall have accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the
Securities after such Payment Blockage Period. Not more than one Blockage
Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period; provided, however, that if any Blockage Notice within such 360-day
period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the lenders under any Credit Agreement), the
Representative of the lenders under any Credit Agreement may give another
Blockage Notice within such period; provided further, however, that in no event
may the total number of days during which any Payment Blockage Period or
Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this Section, no default or event of
default which existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Section 10.04. Acceleration of Payment of Securities. If
payment of the Securities is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representatives) of the acceleration.
Section 10.05. When Distribution Must Be Paid Over. If a
distribution is made to Securityholders that because of this Article 10 should
not have been made to them, the Securityholders who receive the distribution
shall
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hold it in trust for holders of Senior Indebtedness and pay it over to them as
their interests may appear.
Section 10.06. Subrogation. After all Senior Indebtedness is
paid in full and until the Securities are paid in full, Securityholders shall
be subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under
this Article 10 to holders of Senior Indebtedness which otherwise would have
been made to Securityholders is not, as between the Company and
Securityholders, a payment by the Company on Senior Indebtedness.
Section 10.07. Relative Rights. This Article 10 defines the
relative rights of Securityholders and holders of Senior Indebtedness. Nothing
in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising
its available remedies upon a Default, subject to the rights of
holders of Senior Indebtedness to receive distributions otherwise
payable to Securityholders.
Section 10.08. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Indebtedness to enforce the subordination of
the Indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.
Section 10.9. Rights of Trustee and Paying Agent.
Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make
payments on the Securities and shall not be charged with knowledge of the
existence of facts that would prohibit the making of any such payments unless,
not less than two Business Days prior to the date of such payment, a Trust
Officer of the Trustee receives notice satisfactory to it that payments may not
be made under this Article 10. The Company, the Registrar or co-registrar, the
Paying Agent, a Representative or a holder of Senior Indebtedness may give the
notice; provided, however, that,
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if an issue of Senior Indebtedness has a Representative, only the
Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
The Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 with respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 7.07.
Section 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative (if any).
Section 10.11. Article 10 Not To Prevent Events of Default or
Limit Right To Accelerate. The failure to make a payment pursuant to the
Securities by reason of any provision in this Article 10 shall not be construed
as preventing the occurrence of a Default. Nothing in this Article 10 shall
have any effect on the right of the Securityholders or the Trustee to
accelerate the maturity of the Securities.
Section 10.12. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments from money
or the proceeds of U.S. Government Obligations deposited in trust with the
Trustee in accordance with the provisions of Article 8 for the payment of
principal of and interest on the Securities shall not be subordinated to the
prior payment of any Senior Indebtedness or subject to the restrictions set
forth in this Article 10, and none of the Securityholders shall be obligated to
pay over any such amount to the Company or any holder of Senior Indebtedness of
the Company or any other creditor of the Company.
Section 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
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jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article 10. In the event that the
Trustee determines, in good faith, that evidence is required with respect to
the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article 10, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Senior Indebtedness held by such Person, the extent
to which such Person is entitled to participate in such payment or Distribution
and other facts pertinent to the rights of such Person under this Article 10,
and, if such evidence is not furnished, the Trustee may defer any payment to
such Person pending judicial determination as to the right of such Person to
receive such payment. The provisions of Sections 7.01 and 7.02 shall be
applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 10.
Section 10.14. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Securityholders and the
holders of Senior Indebtedness as provided in this Article 10 and appoints the
Trustee as attorney-in-fact for any and all such purposes.
Section 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness.
Section 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and
are intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness, whether such Senior Indebtedness
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was created or acquired before or after the issuance of the Securities, to
acquire and continue to hold, or to continue to hold, such Senior Indebtedness
and such holder of Senior Indebtedness shall be deemed conclusively to have
relied on such subordination provisions in acquiring and continuing to hold, or
in continuing to hold, such Senior Indebtedness.
ARTICLE 11
Subsidiary Guaranty
Section 11.01. Guarantee. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally, on a senior
subordinated basis to each Holder and to the Trustee and its successors and
assigns (a) the full and punctual payment of principal of and interest on the
Securities when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other monetary obligations of the Company under this
Indenture and the Securities and (b) the full and punctual performance within
applicable grace periods of all other obligations of the Company under this
Indenture and the Securities (all the foregoing being hereinafter collectively
called the "Obligations"). Each Subsidiary Guarantor further agrees that the
Obligations of the Company may be extended or renewed, in whole or in part,
without notice or further assent from such Subsidiary Guarantor, and that such
Subsidiary Guarantor shall remain bound under this Article 11 notwithstanding
any extension or renewal of any such Obligation.
Each Subsidiary Guarantor waives presentation to, demand of,
payment from and protest to the Company of any of the Obligations and also
waives notice of protest for nonpayment. Each Subsidiary Guarantor waives
notice of any default under the Securities or the Obligations. The obligations
of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure
of any Holder or the Trustee to assert any claim or demand or to enforce any
right or remedy against the Company or any other Person under this Indenture,
the Securities or any other agreement or otherwise; (b) any extension or
renewal of any thereof; (c) any rescission, waiver, amendment or modification
of any of the terms or provisions of this Indenture, the Securities or any
other agreement; (d) the release of any security held by any Holder or the
Trustee for the Obligations or any of them; (e) the failure of any Holder or
Trustee to exercise
<PAGE> 87
80
any right or remedy against any other Subsidiary Guarantor of the Obligations
or (f) any change in the ownership of such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guaranty herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Holder or the Trustee to any security held for
payment of the Obligations.
Each Subsidiary Guaranty, as it relates to the principal of,
premium (if any) and interest on the Securities shall be, to the extent and
manner set forth in Article 10, subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of such Subsidiary Guarantor and
each such Subsidiary Guarantor's Subsidiary Guaranty is made subject to such
provisions of this Indenture.
The obligations of each Subsidiary Guarantor hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason, including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense of setoff, counterclaim,
recoupment or termination whatsoever or by reason of the invalidity, illegality
or unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor
herein shall not be discharged or impaired or otherwise affected by the failure
of any Holder or the Trustee to assert any claim or demand or to enforce any
remedy under this indenture, the Securities or any other agreement, by any
waiver or modification of any thereof, by any default, failure or delay, wilful
or otherwise, in the performance of the obligations, or by any other act or
thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of such Subsidiary Guarantor or would
otherwise operate as a discharge of such Subsidiary Guarantor as a matter of
law or equity.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guaranty shall continue to be effective or be reinstated, as the case may be,
if at any time payment, or any part thereof, of principal of or interest on any
Obligation is rescinded or must otherwise be restored by any
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81
Holder or the Trustee upon the bankruptcy or reorganization of the Company or
otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any obligation when and as the same shall
become due, whether at maturity, by acceleration, by redemption or otherwise,
or to perform or comply with any other obligation, each Subsidiary Guarantor
shall, upon receipt of written demand by the Trustee, forthwith pay, or cause
to be paid, in cash, to the Holders or the Trustee an amount equal to the sum
of (i) the unpaid principal amount of such Obligations, (ii) accrued and unpaid
interest on such Obligations (but only to the extent not prohibited by law) and
(iii) all other monetary Obligations of the Company to the Holders and the
Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled
to any right of subrogation in relation to the Holders in respect of any
Obligations guaranteed hereby until payment in full of all Obligations. Each
Subsidiary Guarantor further agrees that, as between it, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations Guaranteed hereby may be accelerated as provided in Article 6 for
the purposes of such Subsidiary Guarantor's Subsidiary Guaranty,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations Guaranteed hereby, and (y) in the
event of any declaration of acceleration of such obligations as provided in
Article 6, such obligations (whether or not due and payable) shall forthwith
become due and payable by the Subsidiary Guarantor for the purposes of this
Section.
Each Subsidiary Guarantor also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Holder in enforcing any rights under this Section.
Section 11.02. Limitation on Liability. Any term or
provision of this Indenture to the contrary notwithstanding, the maximum,
aggregate amount of the obligations guaranteed hereunder by any Subsidiary
Guarantor shall not exceed the maximum amount that can, after giving effect to
all other contingent and fixed liabilities of such Subsidiary Guarantor (other
than any liabilities of such
<PAGE> 89
82
Subsidiary Guarantor with respect to any Subordinated Obligation), be hereby
guaranteed without rendering this Indenture, as it relates to the Subsidiary
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors
generally.
Section 11.03. Successors and Assigns. This Article 11 shall
be binding upon each Subsidiary Guarantor and its respective successors and
assigns and shall enure to the benefit of the successors and assigns of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges conferred upon
that party in this Indenture and in the Securities shall automatically extend
to and be vested in such transferee or assignee, all subject to the terms and
conditions of this Indenture.
Section 11.04. No Waiver. Neither a failure nor a delay on
the part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article 11 shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of
any right, power or privilege. The rights, remedies and benefits of the
Trustee and the Holders herein expressly specified are cumulative and not
exclusive of any other rights, remedies or benefits which either may have under
this Article 11 at law, in equity, by statute or otherwise.
Section 11.05. Modification. No modification, amendment or
waiver of any provision of this Article 11, nor the consent to any departure by
any Subsidiary Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Trustee, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand on any Subsidiary Guarantor in any
case shall entitle such Subsidiary Guarantor to any other or further notice or
demand in the same, similar or other circumstances.
Section 11.06. Release of Subsidiary Guarantor. Upon the
sale or disposition (by merger or otherwise) of any Subsidiary Guarantor to an
entity which is not an Affiliate of the Company or any of its Subsidiaries and
which sale is otherwise in compliance with the terms of this Indenture, such
Subsidiary Guarantor shall be deemed released from all
<PAGE> 90
83
obligations under this Article 11 without any further action required on the
part of the Trustee, or any Holder. At the request of the Company, the Trustee
shall execute and deliver an appropriate instrument evidencing such release.
ARTICLE 12
Miscellaneous
Section 12.01. Trust Indenture Act Controls. If any
provision of this Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by the TIA, the
required provision shall control.
Section 12.02. Notices. Any notice or communication shall be
in writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company:
Mariner Energy, Inc.
580 WestLake Park Blvd., Suite 1300
Houston, TX 77079
Attention of James M. Fitzpatrick, Esq.
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention of Corporate Trust Department
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Securityholder shall
be mailed to the Securityholder at the Securityholder's address as it appears
on the registration books of the Registrar and shall be sufficiently given if
so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its
<PAGE> 91
84
sufficiency with respect to other Securityholders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
Section 12.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to
take or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
<PAGE> 92
85
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
Section 12.06. When Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at
the time shall be considered in any such determination.
Section 12.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
Section 12.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not required to
be open in the State of New York. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
Section 12.09. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance with, the laws of
the State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
Section 12.10. No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security,
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86
each Securityholder shall waive and release all such liability. The waiver and
release shall be part of the consideration for the issue of the Securities.
Section 12.11. Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successors.
Section 12.12. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough
to prove this Indenture.
Section 12.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
MARINER ENERGY, INC.,
by
/s/ ROBERT E. HENDERSON
Name: Robert E. Henderson
Title: President and Chief
Executive Officer
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee,
by
/s/ CHRISTINE C. COLLINS
Name: Christine C. Collins
Title: Assistant Vice President
<PAGE> 94
APPENDIX A
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A,
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7)) AND TO CERTAIN PERSONS IN OFFSHORE
TRANSACTIONS IN RELIANCE ON REGULATION S.
PROVISIONS RELATING TO INITIAL SECURITIES AND
EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix A the following terms shall
have the meanings indicated below:
"Definitive Security" means a certificated Initial Security
bearing the restricted securities legend set forth in Section 2.3(d) and which
is held by an IAI in accordance with Section 2.1(c).
"Depository" means The Depository Trust Company, its nominees
and their respective successors.
"Exchange Securities" means the 10-1/2% Senior Subordinated
Notes Due to be issued pursuant to this Indenture in connection with a
Registered Exchange Offer pursuant to the Registration Agreement.
"IAI" means an institutional "accredited investor" as
described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Morgan Stanley & Co. Incorporated,
ECT Securities Corp. and NationsBanc Capital Markets, Inc.
"Initial Securities" means the 10-1/2% Senior Subordinated
Notes Due 2006, issued under this Indenture on or about the date hereof.
"Placement Agreement" means the Placement Agreement dated
August 9, 1996, among the Company and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A under the Securities Act.
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"Registered Exchange Offer" means the offer by the Company,
pursuant to the Registration Agreement, to certain Holders of Initial
Securities, to issue and deliver to such Holders, in exchange for the Initial
Securities, a like aggregate principal amount of Exchange Securities registered
under the Securities Act.
"Registration Agreement" means the Registration Agreement
dated August 9, 1996, among the Company and the Initial Purchasers.
"Securities" means the Initial Securities and the Exchange
Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a
Global Security (as appointed by the Depository), or any successor person
thereto and shall initially be the Trustee.
"Shelf Registration Statement" means the registration
statement issued by the Company, in connection with the offer and sale of
Initial Securities, pursuant to the Registration Agreement.
"Transfer Restricted Securities" means Definitive Securities
and Securities that bear or are required to bear the legend set forth in
Section 2.3(d) hereto.
1.2 Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section:
---- --------
<S> <C>
"Agent Members" . . . . . . . . . . . . . . . . . . . 2.1(b)
"Global Security" . . . . . . . . . . . . . . . . . . 2.1(a)
"Regulation S" . . . . . . . . . . . . . . . . . . . 2.1(a)
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . 2.1(a)
</TABLE>
<PAGE> 96
3
2. The Securities.
2.1 Form and Dating.
The Initial Securities are being offered and sold by the
Company pursuant to the Placement Agreement.
(a) Global Securities. Initial Securities offered and sold
to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in
reliance on Regulation S under the Securities Act ("Regulation S"), in each
case as provided in the Placement Agreement, shall be issued initially in the
form of one or more permanent global Securities in definitive, fully registered
form without interest coupons with the global securities legend and restricted
securities legend set forth in Exhibit 1 hereto (each, a Global Security"),
which shall be deposited on behalf of the purchasers of the Initial Securities
represented thereby with the Trustee, at its New York office, as custodian for
the Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from
time to time be increased or decreased by adjustments made on the records of
the Trustee and the Depository or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to a Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (b)
shall be delivered by the Trustee to such Depository or pursuant to such
Depository's instructions or held by the Trustee as custodian for the
Depository.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository or by the Trustee as the
custodian of the Depository or under such Global Security, and the Depository
may be treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such
<PAGE> 97
4
Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices of such
Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(c) Certificated Securities. Except as provided in this
Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in Global
Securities will not be entitled to receive physical delivery of certificated
Securities. Purchasers of Initial Securities who are IAIs and are not QIBs and
did not purchase Initial Securities sold in reliance on Regulation S will
receive Definitive Securities; provided, however, that upon transfer of such
Definitive Securities to a QIB, such Definitive Securities will, unless the
Global Security has previously been exchanged, be exchanged for an interest in
a Global Security pursuant to the provisions of Section 2.3.
2.2 Authentication. The Trustee shall authenticate and
deliver: (1) Initial Securities for original issue in an aggregate principal
amount of $100,000,000 and (2) Exchange Securities for issue only in a
Registered Exchange Offer, pursuant to the Registration Agreement, for a like
principal amount of Initial Securities, in each case upon a written order of
the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. Such order shall specify
the amount of the Securities to be authenticated and the date on which the
original issue of Securities is to be authenticated and whether the Securities
are to be Initial Securities or Exchange Securities. The aggregate principal
amount of Securities outstanding at any time may not exceed $100,000,000 except
as provided in Section 2.06 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange
of Definitive Securities. When Definitive Securities are presented to the
Registrar or a co-registrar with a request:
(x) to register the transfer of such Definitive Securities; or
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5
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized
denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company
and the Registrar or co-registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing; and
(ii) are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act, pursuant to
Section 2.3(b) or pursuant to clause (A), (B) or (C) below, and are
accompanied by the following additional information and documents, as
applicable:
(A) if such Definitive Securities are being delivered
to the Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such
Holder to that effect (in the form set forth on the reverse of
the Security); or
(B) if such Definitive Securities are being
transferred to the Company, a certification to that effect (in
the form set forth on the reverse of the Security); or
(C) if such Definitive Securities are being
transferred (w) pursuant to an exemption from registration in
accordance with Rule 144; or (x) in reliance on another
exemption from the registration requirements of the Securities
Act: (i) a certification to that effect (in the form set forth
on the reverse of the Security) and (ii) if the Company or
Registrar so requests, an opinion of counsel or other evidence
reasonably satisfactory to them as to the compliance with the
restrictions set forth in the legend set forth in Section
2.3(d)(i).
<PAGE> 99
6
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of the
Security, that such Definitive Security is being transferred (A) to a
QIB in accordance with Rule 144A, or (B) outside the United States in
an offshore transaction within the meaning of Regulation S and in
compliance with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an adjustment on its books
and records with respect to such Global Security to reflect an
increase in the aggregate principal amount of the Securities
represented by the Global Security, such instructions to contain
information regarding the Depositary account to be credited with such
increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Definitive Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Definitive Security so cancelled. If no
Global Securities are then outstanding, the Company shall issue and the Trustee
shall authenticate, upon written order of the Company in the form of an
Officers' Certificate, a new Global Security in the appropriate principal
amount.
(c) Transfer and Exchange of Global Securities. (i) The
transfer and exchange of Global Securities or beneficial interests therein
shall be effected through the Depository, in accordance with this Indenture
(including applicable restrictions on transfer set forth herein, if any) and
the procedures of the Depository therefor. A transferor
<PAGE> 100
7
of a beneficial interest in a Global Security shall deliver to the Registrar a
written order given in accordance with the Depositary's procedures containing
information regarding the participant account of the Depositary to credited
with a beneficial interest in the Global Security. The Registrar shall, in
accordance with such instructions instruct the Depositary to credit to the
account of the Person specified in such instructions a beneficial interest in
the Global Security and to debit the account of the Person making the transfer
the beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix A
(other than the provisions set forth in Section 2.4), a Global
Security may not be transferred as a whole except by the Depository to
a nominee of the Depository or by a nominee of the Depository to the
Depository or another nominee of the Depository or by the Depository
or any such nominee to a successor Depository or a nominee of such
successor Depository.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.4 or
Section 2.09 of the Indenture, prior to the consummation of a
Registered Exchange Offer or the effectiveness of a Shelf Registration
Statement with respect to such Securities, such Securities may be
exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including the
certification requirements set forth on the reverse of the Initial
Securities intended to ensure that such transfers comply with Rule
144A or Regulation S, as the case may be) and such other procedures as
may from time to time be adopted by the Company.
(d) Legend.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing the Global
Securities and the Definitive Securities (and all Securities issued in
exchange therefor or in substitution thereof) shall bear a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR
<PAGE> 101
8
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN
RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT
TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO MARINER ENERGY, INC. OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS
THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO MARINER
ENERGY, INC. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX
SET FORTH ON THE REVERSE SIDE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND MARINER ENERGY, INC. SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER
<PAGE> 102
9
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS."
Each Definitive Security will also bear the following
additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO
THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER
INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO
CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security
that is a Definitive Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security
for a certificated Security that does not bear the legend set
forth above and rescind any restriction on the transfer of
such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
that is represented by a Global Security, the Registrar shall
permit the Holder thereof to exchange such Transfer Restricted
Security for a certificated Security that does not bear the
legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security, if the Holder
certifies in writing to the Registrar that its request for
such exchange was made in reliance on Rule 144 (such
certification to be in the form set forth on the reverse of
the Security).
<PAGE> 103
10
(iii) After a transfer of any Initial Securities during the
period of the effectiveness of a Shelf Registration Statement with
respect to such Initial Securities, all requirements pertaining to
legends on such Initial Security will cease to apply, the requirements
requiring any such Initial Security issued to certain Holders be
issued in global form will cease to apply, and a certificated Initial
Security without legends will be available to the transferee of the
Holder of such Initial Securities upon exchange of such transferring
Holder's certificated Initial Security or directions to transfer such
Holder's interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer
with respect to the Initial Securities pursuant to which Holders of
such Initial Securities are offered Exchange Securities in exchange
for their Initial Securities, all requirements pertaining to such
Initial Securities that Initial Securities issued to certain Holders
be issued in global form will cease to apply and certificated Initial
Securities with the restricted securities legend set forth in Exhibit
1 hereto will be available to Holders of such Initial Securities that
do not exchange their Initial Securities, and Exchange Securities in
certificated or global form will be available to Holders that exchange
such Initial Securities in such Registered Exchange Offer.
(e) Cancellation or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been
exchanged for certificated or Definitive Securities, redeemed, repurchased or
canceled, such Global Security shall be returned to the Depository for
cancellation or retained and canceled by the Trustee. At any time prior to
such cancellation, if any beneficial interest in a Global Security is exchanged
for certificated or Definitive Securities, redeemed, repurchased or canceled,
the principal amount of Securities represented by such Global Security shall be
reduced and an adjustment shall be made on the books and records of the Trustee
(if it is then the Securities Custodian for such Global Security) with respect
to such Global Security, by the Trustee or the Securities Custodian, to reflect
such reduction.
<PAGE> 104
11
(f) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate certificated
Securities, Definitive Securities and Global Securities at the
Registrar's or co-registrar's request.
(ii) No service charge shall be made for any registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any
such transfer taxes, assessments or similar governmental charge
payable upon exchange or transfer pursuant to Sections 3.06, 4.08 and
9.05 of the Indenture.
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any certificated or
Definitive Security selected for redemption in whole or in part
pursuant to Article 3 of this Indenture, except the unredeemed portion
of any certificated or Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase or redeem Securities or
15 Business Days before an interest payment date.
(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent,
the Registrar or any co-registrar may deem and treat the person in
whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Company, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt
and shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
<PAGE> 105
12
(g) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to
any beneficial owner of a Global Security, a member of, or a
participant in the Depository or other Person with respect to the
accuracy of the records of the Depository or its nominee or of any
participant or member thereof, with respect to any ownership interest
in the Securities or with respect to the delivery to any participant,
member, beneficial owner or other Person (other than the Depository)
of any notice (including any notice of redemption) or the payment of
any amount, under or with respect to such Securities. All notices and
communications to be given to the Holders and all payments to be made
to Holders under the Securities shall be given or made only to or upon
the order of the registered Holders (which shall be the Depository or
its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only
through the Depository subject to the applicable rules and procedures
of the Depository. The Trustee may rely and shall be fully protected
in relying upon information furnished by the Depository with respect
to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with
respect to any transfer of any interest in any Security (including any
transfers between or among Depository participants, members or
beneficial owners in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as
are expressly required by, and to do so if and when expressly required
by, the terms of this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements
hereof.
2.4 Certificated Securities.
(a) A Global Security deposited with the Depository or with
the Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depository
<PAGE> 106
13
notifies the Company that it is unwilling or unable to continue as Depository
for such Global Security or if at any time such Depository ceases to be a
"clearing agency" registered under the Exchange Act and a successor depositary
is not appointed by the Company within 90 days of such notice, or (ii) an Event
of Default has occurred and is continuing or (iii) the Company, in its sole
discretion, notifies the Trustee in writing that it elects to cause the
issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the
beneficial owners thereof pursuant to this Section shall be surrendered by the
Depository to the Trustee located in the Borough of Manhattan, The City of New
York, to be so transferred, in whole or from time to time in part, without
charge, and the Trustee shall authenticate and deliver, upon such transfer of
each portion of such Global Security, an equal aggregate principal amount of
certificated Initial Securities of authorized denominations. Any portion of a
Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 and any integral
multiple thereof and registered in such names as the Depository shall direct.
Any certificated Initial Security delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by Section 2.3(d), bear the
restricted securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the
registered Holder of a Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
(d) In the event of the occurrence of either of the events
specified in Section 2.4(a), the Company will promptly make available to the
Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
<PAGE> 107
EXHIBIT 1
to
APPENDIX A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO MARINER ENERGY, INC. OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
<PAGE> 108
2
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE)
AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO MARINER ENERGY, INC. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE SIDE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE AND MARINER ENERGY, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.] (1)
____________________
(1) Include if a Definitive Security to be held by an institutional
"accredited investor" (as defined in Rule 501(a),(1),(2),(3) or (7) under the
Securities Act).
<PAGE> 109
3
No. $
CUSIP:
ISIN:
10-1/2% Senior Subordinated Note Due 2006
MARINER ENERGY, INC., a Delaware corporation, promises to pay
to , or registered assigns, the principal sum of
Dollars on August 1, 2006.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated: August 14, 1996
MARINER ENERGY, INC.,
by
_______________________
President
_______________________
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES [Seal]
TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by _____________________________
Authorized Signatory
<PAGE> 110
4
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
10-1/2% Senior Subordinated Note Due 2006
1. Interest
Mariner Energy, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on
the principal amount of this Security at the rate per annum shown above;
provided, however, that if by February 14, 1997, neither the Registered
Exchange Offer is consummated nor, if required in lieu thereof pursuant to the
Registration Agreement, the Shelf Registration Statement is declared effective
by the Commission, interest will accrue on this Security from and including
such date at a rate of 0.50% per annum in excess of the interest rate per annum
shown above. The Company will pay interest semiannually on February 1 and
August 1 of each year. Interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 14, 1996. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. The Company shall pay interest on overdue principal
at the rate borne by the Securities plus 1% per annum, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the January 15 or July 15 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository
<PAGE> 111
5
Trust Company. The Company will make all payments in respect of a certificated
Security (including principal, premium and interest), by mailing a check to the
registered address of each Holder thereof; provided, however, that payments on
a certificated Security will be made by wire transfer to a U.S. dollar account
maintained by the payee with a bank in the United States if such Holder elects
payment by wire transfer by giving written notice to the Trustee or the Paying
Agent to such effect designating such account no later than 30 days immediately
preceding the relevant due date for payment (or such other date as the Trustee
may accept in its discretion).
3. Paying Agent and Registrar
Initially, Unites States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of August 1, 1996 ("Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are general unsecured obligations of the
Company limited to $100,000,000 aggregate principal amount (subject to Section
2.06 of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and certain of its Subsidiaries, the
payment of dividends and other distributions on the Capital Stock of the
Company and certain of its Subsidiaries, the purchase or redemption of Capital
Stock of the Company and of certain Capital Stock of such Subsidiaries,
<PAGE> 112
6
the sale or transfer of assets and Subsidiary stock, the creation of Liens, the
entering into of Sale/Leaseback Transactions and transactions with Affiliates.
In addition, the Indenture limits the ability of the Company and certain of its
Subsidiaries to restrict distributions and dividends from Subsidiaries. The
Indenture also restricts the ability of the Company and any Subsidiary
Guarantor to consolidate or merge with or into, or to transfer all or
substantially all their assets to, another person.
The Indenture also provides that, prior to any Subsidiary
Guarantor Incurring any Indebtedness pursuant to Section 4.03 thereof, the
Company shall cause such Subsidiary to Guarantee the Notes pursuant to a
Subsidiary Guaranty. Any such Subsidiary Guaranty will secure the due and
punctual payment of the principal of and interest, if any, on the Securities
and all other amounts payable by the Company under the Indenture and the
Securities when and as the same shall be due and payable, whether at maturity,
by acceleration or otherwise. Any Subsidiary Guaranty will unconditionally
guarantee the Obligations on a senior subordinated basis pursuant to the terms
of the Indenture.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to August 1, 2001. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the related
interest payment date), if redeemed during the 12-month period beginning on or
after August 1 of the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . 105.250%
2002 . . . . . . . . . . . . . . . . . . 102.625
2003 and thereafter . . . . . . . . . . . 100.000
</TABLE>
<PAGE> 113
7
In addition, at any time prior to August 1, 1999, the Company
may redeem up to 35% of the aggregate principal amount of Securities with the
proceeds of a Public Equity Offering following which there is a Public Market,
at any time or from time to time, at a redemption price (expressed as a
percentage of principal amount) of 110.5% plus accrued interest (if any) to
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date);
provided, however, that at least $65,000,000 aggregate principal amount of
Securities must remain outstanding after each such redemption; provided
further, however, that any such redemption shall occur within 60 days of the
date of the closing of such Public Equity Offering.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions, to cause the Company to repurchase
all or any part of the Securities of such Holder at a repurchase price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record
on the relevant record date to receive interest due on the related interest
payment date) as provided in, and subject to the terms of, the Indenture.
<PAGE> 114
8
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give it effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act, minimum denominations of $100,000) and whole
multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of
15 days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
<PAGE> 115
9
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain exceptions set forth
in the Indenture, without the consent of any Securityholder, the Company and
the Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company, or to comply with any
request of the SEC in connection with qualifying the Indenture under the Act,
or to make certain changes in the subordination provisions, or to make any
change that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 or 6 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase Securities when required; (iii) failure by the
Company to comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of
other
<PAGE> 116
10
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$10,000,000; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; and (vi) certain judgments or decrees
for the payment of money in excess of $10,000,000. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Securityholders notice of
any continuing Default (except a Default in payment of principal or interest)
if it determines that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
<PAGE> 117
11
17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Agreement
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS
<PAGE> 118
12
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
<PAGE> 119
13
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
ATTENTION OF JAMES M. FITZPATRICK, ESQ.
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
---------------- ---------------------
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such
<PAGE> 120
14
Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company or any of its Subsidiaries; or
(2) [ ] pursuant to an effective registration statement under
the Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified
institutional buyer" (as defined in Rule 144A under
the Securities Act of 1933) that purchases for its
own account or for the account of a qualified
institutional buyer to whom notice is given that such
transfer is being made in reliance on Rule 144A, in
each case pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
(4) [ ] inside the United States to an institutional
"accredited investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the Securities
Act of 1933) that, prior to such transfer, furnishes
to the Trustee a signed letter containing certain
representations and agreements (the form of which
letter can be obtained from the Trustee); or
(5) [ ] outside the United States in an offshore transaction
within the meaning of Regulation S under the
Securities Act in compliance with Rule 904 under the
Securities Act of 1933; or
(6) [ ] pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Securities evidenced by this certificate in the
name of any person other than the registered holder thereof; provided,
however, that if box (4) or (5) is checked, the Trustee may require,
prior to registering any such transfer of the
<PAGE> 121
15
Securities, such legal opinions, certifications and other information
as the Company has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of
1933, such as the exemption provided by Rule 144 under such Act.
-------------------------
Signature
Signature Guarantee:
- ----------------------------- -------------------------
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
---------------- ------------------------------
NOTICE: To be executed by
an executive officer
<PAGE> 122
16
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount of Signature of
Exchange in Principal in Principal Amount this Global authorized officer
Amount of this of this Global Security following of Trustee or
Global Security Security such decrease or Securities
increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 123
17
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture,
state the amount in principal amount: $
Date: Your Signature:
--------------- ----------------------------------
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee:
---------------------------------------
(Signature must be guaranteed)
<PAGE> 124
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY]
[1/]
[2/]
No. $
CUSIP:
ISIN:
10-1/2% Senior Subordinated Note Due 2006
MARINER ENERGY, INC., a Delaware corporation, promises to pay
to , or registered assigns, the principal sum of
Dollars on August 1, 2006.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15.
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
MARINER ENERGY, INC.,
by
-----------------------------------
President
-----------------------------------
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES [Seal]
TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
--------------------------------
Authorized Signatory
<PAGE> 125
2
- ----------------------------
1/ [If the Security is to be issued in global form add the Global
Securities Legend from Exhibit 1 to Appendix A and the attachment from such
Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF
INCREASES OR DECREASES IN GLOBAL SECURITY".]
2/ [If the Security is a Private Exchange Security issued in a
Private Exchange to an Initial Purchaser holding an unsold portion of its
initial allotment, add the Restricted Securities Legend from Exhibit 1 to
Appendix A and replace the Assignment Form included in this Exhibit A with the
Assignment Form included in such Exhibit 1.]
<PAGE> 126
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
10-1/2% Senior Subordinated Note Due 2006
1. Interest
Mariner Energy, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on
the principal amount of this Security at the rate per annum shown above [;
provided, however, that if by February 14, 1997, neither the Registered
Exchange Offer is consummated nor, if required in lieu thereof pursuant to the
Registration Agreement, the Shelf Registration Statement is declared effective
by the Commission, interest will accrue on this Security from and including
such date at a rate of 0.50% per annum in excess of the interest rate per annum
shown above. 3/] The Company will pay interest semiannually on February 1 and
August 1 of each year. Interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 14, 1996. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. The Company shall pay interest on overdue principal
at the rate borne by the Securities plus 1% per annum, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the January 15 or July 15 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to
- ----------------------------
3/ Insert if at the time of issuance of the Exchange Security neither the
Registered Exchange Offer has been consummated nor a Shelf Registration
Statement has been declared effective in accordance with the Registration
Agreement.
<PAGE> 127
4
collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of Securities
(including principal, premium and interest) will be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no U.S. dollar account maintained by the payee with a bank in the United
States is designated by any holder to the Trustee or the Paying Agent at least
30 days prior to the relevant due date for payment (or such other date as the
Trustee may accept in its discretion), by mailing a check to the registered
address of such holder.
3. Paying Agent and Registrar
Initially, Unites States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of August 1, 1996 ("Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are general unsecured obligations of the
Company limited to $100,000,000 aggregate principal amount (subject to Section
2.06 of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and certain of its Subsidiaries, the
payment of dividends and other distributions on the Capital Stock of the
Company and certain of its Subsidiaries, the purchase or redemption of Capital
Stock of
<PAGE> 128
5
the Company and of certain Capital Stock of such Subsidiaries, the sale or
transfer of assets and Subsidiary stock, the creation of Liens, the entering
into of Sale/Leaseback Transactions and transactions with Affiliates. In
addition, the Indenture limits the ability of the Company and certain of its
Subsidiaries to restrict distributions and dividends from Subsidiaries. The
Indenture also restricts the ability of the Company and any Subsidiary
Guarantor to consolidate or merge with or into, or to transfer all or
substantially all their assets to, another person.
The Indenture also provides that, prior to any Subsidiary
Guarantor Incurring any Indebtedness pursuant to Section 4.03 thereof, the
Company shall cause such Subsidiary to Guarantee the Notes pursuant to a
Subsidiary Guaranty. Any such Subsidiary Guaranty will secure the due and
punctual payment of the principal of and interest, if any, on the Securities
and all other amounts payable by the Company under the Indenture and the
Securities when and as the same shall be due and payable, whether at maturity,
by acceleration or otherwise. Any Subsidiary Guaranty will unconditionally
guarantee the Obligations on a senior subordinated basis pursuant to the terms
of the Indenture.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to August 1, 2001. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the related
interest payment date), if redeemed during the 12-month period beginning on or
after August 1 of the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . 105.250%
2002 . . . . . . . . . . . . . . . . . . 102.625
2003 and thereafter . . . . . . . . . . . 100.000
</TABLE>
<PAGE> 129
6
In addition, at any time prior to August 1, 1999, the Company
may redeem up to 35% of the aggregate principal amount of Securities with the
proceeds of a Public Equity Offering following which there is a Public Market,
at any time or from time to time, at a redemption price (expressed as a
percentage of principal amount) of 110.5% plus accrued interest (if any) to
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date);
provided, however, that at least $65,000,000 aggregate principal amount of
Securities must remain outstanding after each such redemption; provided
further, however, that any such redemption shall occur within 60 days of the
date of the closing of such Public Equity Offering.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions, to cause the Company to repurchase
all or any part of the Securities of such Holder at a repurchase price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record
on the relevant record date to receive interest due on the related interest
payment date) as provided in, and subject to the terms of, the Indenture.
<PAGE> 130
7
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give it effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act, minimum denominations of $100,000) and whole
multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of
15 days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
<PAGE> 131
8
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain exceptions set forth
in the Indenture, without the consent of any Securityholder, the Company and
the Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company, or to comply with any
request of the SEC in connection with qualifying the Indenture under the Act,
or to make certain changes in the subordination provisions, or to make any
change that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 or 6 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase Securities when required; (iii) failure by the
Company to comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of
other
<PAGE> 132
9
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$10,000,000; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; and (vi) certain judgments or decrees
for the payment of money in excess of $10,000,000. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Securityholders notice of
any continuing Default (except a Default in payment of principal or interest)
if it determines that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
<PAGE> 133
10
17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Agreement
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS
<PAGE> 134
11
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
<PAGE> 135
12
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
ATTENTION OF JAMES M. FITZPATRICK, ESQ.
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
--------------------- -----------------------------------
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE> 136
13
OPTION OF HOLDER TO ELECT PURCHASE
IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED
BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.08 OF THE INDENTURE, CHECK THE
BOX:
[ ]
IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS
SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.08 OF THE
INDENTURE, STATE THE AMOUNT: $
DATE: YOUR SIGNATURE:
------------------ ---------------------------------------
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE
OF THE SECURITY)
SIGNATURE GUARANTEE:
-----------------------------------------------------------
(SIGNATURE MUST BE GUARANTEED BY A MEMBER FIRM OF THE NEW
YORK STOCK EXCHANGE OR A COMMERCIAL BANK OR TRUST COMPANY)
<PAGE> 1
EXHIBIT 4.2
MARINER ENERGY, INC.
REGISTRATION AGREEMENT
August 9, 1996
Morgan Stanley & Co.
Incorporated for itself
and the other several Purchasers
named below
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Mariner Energy, Inc., a Delaware corporation (the "Company"), proposes
to issue and sell to certain purchasers (the "Purchasers"), upon the terms set
forth in a placement agreement of even date hereof (the "Placement Agreement"),
$100,000,000 principal amount of its 10-1/2% Senior Subordinated Notes Due 2006
(the "Notes"). The Notes will be issued pursuant to an Indenture, dated as of
August 1, 1996 (the "Indenture") between the Company, as issuer, and United
States Trust Company of New York, as trustee (in such capacity, the "Trustee").
As an inducement to the Purchasers to enter into the Placement Agreement and in
satisfaction of a condition to your obligations thereunder, the Company agrees
with the Purchasers, for the benefit of the registered holders of the Notes
(including the Purchasers) and the Exchange Notes (as defined below)
(collectively, the "Holders"), as follows:
SECTION 1. Registered Exchange Offer. The Company shall use its best
efforts to prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Exchange Offer Registration
Statement") on an appropriate form under the Securities Act of 1933 (the
"Securities Act"), with respect to an offer (the "Registered Exchange Offer")
to the Holders of Transfer Restricted Notes (as defined in Section 6 hereof),
who are not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer, to issue and deliver to such
Holders, in exchange for the Notes, a like
<PAGE> 2
2
aggregate principal amount of debt securities (the "Exchange Notes") of the
Company issued under the Indenture and identical in all material respects to the
Notes (except for the transfer restrictions relating to the Notes) that would be
registered under the Securities Act. The Company shall use its best efforts to
cause such Exchange Offer Registration Statement to become effective under the
Securities Act within 150 days after the date of original issue of the Notes and
shall keep the Exchange Offer Registration Statement effective for not less than
20 Business Days (as defined in the Indenture)(or longer, if required by
applicable law) after the date notice of the Registered Exchange Offer is mailed
to the Holders (such period being called the "Exchange Offer Registration
Period").
If the Company effects the Registered Exchange Offer, the Company will
be entitled to close the Registered Exchange Offer 20 Business Days after the
commencement thereof provided that the Company has accepted all the Notes
theretofore validly tendered in accordance with the terms of the Registered
Exchange Offer.
Following the declaration of the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Notes electing to exchange such
Transfer Restricted Notes for Exchange Notes (assuming that such Holder is not
an affiliate of the Company within the meaning of the Securities Act, acquires
the Exchange Notes in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the Exchange
Notes and is not prohibited by any law or policy of the Commission from
participating in the Registered Exchange Offer) to trade such Exchange Notes
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. In connection with such Registered
Exchange Offer, the Company shall use its best efforts to consummate the
Registered Exchange Offer and shall comply with the applicable requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and other
applicable laws and regulations in connection with the Registered Exchange
Offer.
<PAGE> 3
3
The Company and the Purchasers acknowledge that, pursuant to current
interpretations by the Commission's staff of Section 5 of the Securities Act, in
the absence of an applicable exemption therefrom, (i) each Holder, including any
Purchaser, which is a broker-dealer electing to exchange Notes, acquired for its
own account as a result of market making activities or other trading activities,
for Exchange Notes (an "Exchanging Dealer"), is required to deliver a prospectus
containing the information set forth in Annex A hereto on the cover, in Annex B
hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section, and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange Notes
received by such Exchanging Dealer pursuant to the Registered Exchange Offer and
(ii) if the Purchasers are permitted to and elect to sell Exchange Notes
acquired in exchange for Notes constituting any portion of an unsold allotment,
they are required to deliver a prospectus containing the information required by
Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in
connection with such sale.
The Company also shall include within the prospectus contained in the
Exchange Offer Registration Statement statements as are currently customary to
be contained therein, reasonably acceptable to the Purchasers, summarizing the
positions taken or policies made by the staff of the Commission with respect to
the potential "underwriter" status of any broker-dealer that is the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes
received by such broker-dealer in the Registered Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
publicly disseminated by the staff of the Commission or such positions or
policies, in the reasonable judgment of the Purchasers based upon advice of
counsel (which may be in-house counsel), represent the prevailing views of the
staff of the Commission.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein, in order to permit such prospectus to be lawfully delivered
by the Purchasers and all Exchanging Dealers subject to the prospectus delivery
requirements of the Securities Act and shall make such prospectuses available
to the Purchasers and such Exchanging Dealers for such period of time after the
consummation of the Registered Exchange Offer as such
<PAGE> 4
4
persons must comply with such requirements in order to resell the Exchange
Notes; provided, however, that such period shall not exceed 180 days (unless
extended pursuant to Section 3(j) below); provided further, however, that such
persons shall not be authorized by the Company to deliver and shall not deliver
any such prospectus after the expiration of such period in connection with the
resales contemplated by this paragraph.
The Company shall make available for a period of 90 days after the
consummation of the Registered Exchange Offer, a copy of the prospectus, and
any amendment or supplement thereto, forming part of the Exchange Offer
Registration Statement to any broker-dealer for use in connection with any
resale of any Exchange Notes. The Notes and the Exchange Notes are herein
collectively called the "Securities".
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 20
Business Days (or longer, if required by applicable law) after the date
notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York,
which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Registered Exchange Offer shall remain open; and
(e) otherwise comply in all material respects with all applicable
laws.
As soon as practicable after the close of the Registered Exchange
Offer, the Company shall:
<PAGE> 5
5
(i) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all the Notes so accepted for exchange; and
(iii) issue, and cause the Trustee to authenticate and deliver
promptly to each Holder of the Notes, Exchange Notes equal in
principal amount to the Notes of such Holder so accepted for exchange.
The Indenture will provide that the Exchange Notes will not be subject
to the transfer restrictions set forth in the Indenture and that the Exchange
Notes and the Notes will vote and consent together on all matters as one class
and that none of the Exchange Notes or the Notes will have the right to vote or
consent as a class separate from one another on any matter.
Interest on each Exchange Note issued pursuant to the Registered
Exchange Offer will accrue from the last interest payment date on which
interest was paid on the Notes surrendered in exchange therefor or, if no
interest has been paid on the Notes, from the date of original issue of the
Notes.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Company that at the time of the consummation of
the Registered Exchange Offer (i) any Exchange Notes received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understanding with any person to participate in the
distribution of the Notes or the Exchange Notes within the meaning of the
Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405
of the Securities Act, of the Company or if it is an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes and (v) if such Holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Notes
that were acquired as a result of market-making activities or other trading
activities and that it will be
<PAGE> 6
6
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto and
any prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations
thereunder, (ii) any Exchange Offer Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and (iii) any prospectus forming part
of any Exchange Offer Registration Statement, and any supplement to such
prospectus, at the time of issuance does not include an 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 the light of the
circumstances under which they were made, not misleading.
SECTION 2. Shelf Registration. If (i) the Company determines that a
Registered Exchange Offer, as contemplated by Section 1 hereof, is not
available or may not be consummated as soon as practicable after the last date
the Registered Exchange Offer is open because it would violate applicable law
or the applicable interpretations of the staff of the Commission, (ii) the
Registered Exchange Offer is not consummated within 180 days of the date of
this Agreement, (iii) the Purchasers so request with respect to the Notes not
eligible to be exchanged for Exchange Notes in the Registered Exchange Offer
and held by them following consummation of the Registered Exchange Offer or
(iv) any Holder (other than an Exchanging Dealer) is not eligible to
participate in the Registered Exchange Offer or, in the case of any Holder
(other than an Exchanging Dealer) that participates in the Registered Exchange
Offer, such Holder does not receive freely tradeable Exchange Notes on the date
of the exchange for validly tendered (and not withdrawn) Notes, the Company
shall take the following actions:
(a) The Company shall use its best efforts to prepare and file, as
promptly as practicable (but in no event more than 60 days after so
required or requested pursuant to this Section 2), with the Commission and
thereafter to cause to be declared effective a
<PAGE> 7
7
registration statement (the "Shelf Registration Statement" and, together
with the Exchange Offer Registration Statement, a "Registration Statement")
on an appropriate form under the Securities Act relating to the offer and
sale of the Transfer Restricted Notes by the Holders thereof from time to
time in accordance with the methods of distribution set forth in the Shelf
Registration Statement and Rule 415 under the Securities Act (hereinafter,
the "Shelf Registration"); provided, however, that no Holder (other than the
Purchasers) shall be entitled to have any Securities held by it covered by
such Shelf Registration Statement unless such Holder agrees in writing to be
bound by all the provisions of this Agreement applicable to such Holder.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of the
relevant Securities, until the period referred to in Rule 144(k) under the
Securities Act after the original issue date of the Notes expires (or for
such longer period if extended pursuant to Section 3(j) below) or such
shorter period that will terminate when all the Securities covered by the
Shelf Registration Statement have been sold pursuant thereto.
(c) Notwithstanding any other provisions of this Agreement to the
contrary, the Company shall cause the Shelf Registration Statement and the
related prospectus and any amendment or supplement thereto, as of the
effective date of the Shelf Registration Statement, amendment or
supplement, (i) to comply in all material respects with the applicable
requirements of the Securities Act and the rules and regulations of the
Commission and (ii) not to 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.
No Holder may include any of its Transfer Restricted Notes in any Shelf
Registration pursuant to this Agreement unless and until such Holder furnishes
to the Company in writing, within 30 days after receipt of a request therefor,
such information with respect to such
<PAGE> 8
8
Holder as required by applicable law to be contained in any Shelf Registration
Statement. Each Holder of Transfer Restricted Notes as to which any Shelf
Registration is being effected must agree, in order to enjoy the benefits
thereof, to furnish promptly to the Company all additional information necessary
to make the information previously furnished to the Company by such holder not
misleading.
SECTION 3. Registration Procedures. In connection with any Shelf
Registration contemplated by Section 2 hereof and any Registered Exchange Offer
contemplated by Section 1 hereof, the following provisions, to the extent
applicable, shall apply:
(a) The Company shall (i) furnish to the Purchasers, prior to the
filing thereof with the Commission, a copy of the Registration Statement
and each amendment thereof and each supplement, if any, to the prospectus
included therein and shall not file any such Registration Statement or
amendment thereto or any prospectus or any supplement thereto (including
such documents which, upon filing, would be incorporated or deemed to be
incorporated by reference therein and amendments to such documents other
than documents required to be filed pursuant to the Exchange Act) to which
the Purchasers shall reasonably object, except for any Registration
Statement or amendment thereto or prospectus or supplement thereto (a copy
of which has been previously furnished to the Purchasers and their counsel
(and, in the case of a Shelf Registration Statement, the Holders and their
counsel)) which counsel to the Company has advised the Company in writing
is required to be filed in order to comply with applicable law; (ii)
include, in the prospectus forming a part of the Exchange Offer
Registration Statement, information substantially to the effect set forth
(A) in Annex A hereto on the cover, (B) in Annex B hereto in the "Exchange
Offer Procedures" section and the "Purpose of the Exchange Offer" section,
(C) in Annex C hereto in the "Plan of Distribution" section of the
prospectus forming a part of the Exchange Offer Registration Statement and
(D) include the information set forth in Annex D hereto in the Letter of
Transmittal delivered pursuant to the Registered Exchange Offer; (iii) to
the extent required by law or interpretation of the staff of the
Commission, if requested by the Purchasers, include the information
required by Items 507 or 508 of Regulation S-K under
<PAGE> 9
9
the Securities Act, as applicable, in the prospectus forming a part of the
Exchange Offer Registration Statement; and (iv) to the extent required by
law or interpretation of the staff of the Commission, in the case of a Shelf
Registration Statement, include the names of the Holders who propose to sell
Securities pursuant to the Shelf Registration Statement as selling
securityholders.
(b) The Company shall notify the Purchasers, the Holders and any
Participating Broker-Dealer from whom the Company has received prior
written notice stating that it will be a Participating Broker-Dealer in the
Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof
shall be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made) promptly, and, if requested by
the Purchasers, the Holders or any such Participating Broker-Dealer,
confirm such notice in writing:
(i) when the Registration Statement or any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of any
notification with respect to the suspension of the qualification of the
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose;
(v) of the happening of any event that requires the Company to
make changes in the Registration Statement or the prospectus in order
that the Registration Statement or the prospectus
<PAGE> 10
10
do not contain an untrue statement of a material fact nor omit to state
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
(vi) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate;
(c) The Company shall make every reasonable effort to prevent
the issuance, and if issued to obtain the withdrawal at the earliest
possible time, of any order suspending the effectiveness of the
Registration Statement and shall provide prompt written notice to the
Purchasers and each Holder of the withdrawal of any such order.
(d) The Company shall furnish to each Holder of Securities
included within the coverage of the Shelf Registration, without charge, at
least one conformed copy of the Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules (without documents incorporated therein by reference or exhibits
thereto, unless a Holder so requests in writing).
(e) The Company shall deliver to the Purchasers, and to any
other Holder that so requests, without charge, at least one conformed copy
of the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference or exhibits thereto, unless the
Purchasers or any such Holder so request in writing).
(f) The Company shall deliver to each Holder of Securities
included within the coverage of the Shelf Registration, without charge, as
many copies of the prospectus (including each preliminary prospectus)
included in the Shelf Registration Statement and any amendment or
supplement thereto as such person may reasonably request. The Company
consents, subject to the provisions of this Agreement, to the use of the
prospectus or any amendment or supplement thereto by each of the selling
Holders of the Securities in connection with the offering and sale of the
Securities
<PAGE> 11
11
covered by, and as contemplated by, the prospectus, or any amendment or
supplement thereto, included in the Shelf Registration Statement.
(g) The Company shall deliver to the Purchasers, any
Participating Broker-Dealer or any Exchanging Dealer, without charge, as
many copies of the final prospectus included in the Exchange Offer
Registration Statement and any amendment or supplement thereto as such
person may reasonably request, during the period not exceeding 180 days
following the consummation of the Registered Exchange Offer. The Company
consents, subject to the provisions of this Agreement, to the use of the
prospectus or any amendment or supplement thereto by the Purchasers, if
necessary, any Participating Broker-Dealer or Exchanging Dealer and such
other persons required to deliver a prospectus following the Registered
Exchange Offer in connection with the offering and sale of the Exchange
Notes covered by the prospectus, or any amendment or supplement thereto,
included in such Exchange Offer Registration Statement; provided, however,
that such persons shall not be authorized by the Company to deliver and
shall not deliver any such prospectus after the expiration of the period
referred to in the immediately preceding sentence, in connection with the
resales contemplated by this paragraph.
(h) Prior to any public offering of the Securities pursuant
to any Registration Statement, the Company shall use its best efforts to
register or qualify or cooperate with the Holders of the Securities
included therein and their respective counsel in connection with the
registration or qualification of the Securities for offer and sale under
the securities or Blue Sky laws of such states of the United States as any
Holder of the Securities reasonably requests in writing and do any and all
other acts or things necessary or advisable to enable such Holder to offer
and sell in such jurisdictions the Securities covered by such Registration
Statement owned by such Holder; provided, however, that the Company shall
not be required to (i) qualify generally or as a foreign corporation to do
business in any jurisdiction where it is not then so qualified or (ii) take
any action which would subject it to general service of process or to
taxation in any jurisdiction where it is not then so subject.
<PAGE> 12
12
(i) The Company shall cooperate with the Holders of the
Securities to facilitate the timely preparation and delivery of
certificates representing the Securities to be sold pursuant to any
Shelf Registration Statement free of any restrictive legends and in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the Holders may request at least two business
days prior to closing of any sale of the Securities pursuant to such
Shelf Registration Statement.
(j) Upon the occurrence of any event contemplated by paragraphs
(ii) through (vi) of Section 3(b) above during the period for which the
Company is required to maintain an effective Registration Statement, the
Company shall promptly prepare and file a post-effective amendment to the
Registration Statement or a supplement to the related prospectus and any
other required document so that, as thereafter delivered to Holders of the
Notes or purchasers of Securities, the prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
If the Company notifies the Purchasers, the Holders of the Securities and
any known Participating Broker-Dealer in accordance with paragraphs (ii)
through (v) of Section 3(b) above to suspend the use of the prospectus
until the requisite changes to the prospectus have been made, then the
Purchasers, the Holders of the Securities and any such Participating
Broker-Dealers shall suspend use of such prospectus until the Company has
amended or supplemented the prospectus to correct such misstatement or
omission, and the period of effectiveness of the Shelf Registration
Statement provided for in Section 2(b) above and the Exchange Offer
Registration Statement provided for in Section 1 above shall each be
extended by the number of days from and including the date of the giving of
such notice to and including the date when the Purchasers, the Holders of
the Securities and any known Participating Broker-Dealer shall have
received such amended or supplemented prospectus pursuant to this Section
3(j); provided, however, that the minimum time period before the Company
shall be entitled to close the Registered Exchange Offer shall be extended
only to the extent required by the Commission. The Purchasers, each
<PAGE> 13
13
Holder and any Participating Broker-Dealers agree that upon receipt of any
such notice from the Company it will not distribute copies of the prospectus
that are the subject of such notice and will retain such copies in its
files.
(k) Not later than the effective date of the applicable
Registration Statement, the Company will obtain a CUSIP number for the
Transfer Restricted Notes or the Exchange Notes, as the case may be, and
provide the Trustee with printed certificates for the Notes or the Exchange
Notes, as the case may be, in a form eligible for deposit with The
Depository Trust Company.
(l) The Company will comply with all rules and regulations of
the Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make generally
available to its securities holders (or otherwise provide in accordance
with Section 11(a) of the Securities Act) an earnings statement satisfying
the provisions of Section 11(a) of the Securities Act, no later than 45
days after the end of a 12-month period (or 90 days, if such period is a
fiscal year) beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the Registration Statement,
which statement shall cover such 12-month period.
(m) The Company shall cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended, in a timely manner and
containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Company shall appoint
a new trustee thereunder pursuant to the applicable provisions of the
Indenture.
(n) The Company may require each Holder of Securities to be
sold pursuant to the Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of the
Securities as the Company may from time to time reasonably request for
inclusion in the Shelf Registration Statement, and the Company may exclude
from such registration the Securities of any Holder
<PAGE> 14
14
that unreasonably fails to furnish such information within a reasonable time
after receiving such request.
(o) In the case of any Shelf Registration, the Company shall
enter into such customary agreements (including if requested an
underwriting agreement in customary form) and take all such other action,
if any, as the Holders of a majority of the Securities being sold shall
reasonably request in order to facilitate the disposition of the Securities
pursuant to such Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall
make available for inspection by a representative of the Holders of
Securities being sold, its counsel and an accountant retained by such
Holders, in a manner designed to permit underwriters to satisfy their due
diligence investigation under the Securities Act, all financial and other
records, pertinent corporate documents and properties of the Company
customarily inspected by underwriters in primary underwritten offerings and
cause the officers, directors and employees of the Company and its
subsidiaries to supply all information reasonably requested by, and
customarily supplied in connection with primary underwritten offerings to,
any such representative, attorney or accountant in connection with such
registration; provided, however, such person shall agree in writing that
any records, information or documents that are designated by the Company as
confidential at the time of delivery of such records, information or
documents shall be kept confidential by such persons, unless (i) such
records, information or documents are in the public domain or otherwise
publicly available, (ii) disclosure of such records, information or
documents is required by court or administrative order, (iii) disclosure of
such records, information or documents, in the written opinion of counsel
to such person, is otherwise required by law (including, without
limitation, pursuant to the requirements of the Securities Act) or (iv)
disclosure of such records, information or documents is necessary to avoid
or correct a misstatement or omission in such Registration Statement,
prospectus supplement or any post-effective amendment.
(q) In the case of any Shelf Registration, the Company, if
requested by any Holder of Securities
<PAGE> 15
15
covered thereby, shall (i) to the extent possible, make such representations
and warranties to the Holders and any underwriter of the Securities being
sold, with respect to the business of the Company, the Shelf Registration
Statement, the prospectus included therein and documents incorporated by
reference therein, in each case in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested, (ii) cause its counsel to deliver an
opinion and updates thereof relating to the Securities in customary form
addressed to such Holders and the managing underwriters, if any, and dated,
in the case of the initial opinion, the effective date of such Shelf
Registration Statement covering matters customarily covered in opinions
requested in underwritten offerings, (iii) cause its officers to execute and
deliver such documents and certificates and updates thereof as may be
reasonably requested by any underwriters of the applicable Securities, and
which are customarily delivered in underwritten offerings, to evidence the
continued validity of the representations and warranties of the Company made
pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in an underwriting agreement and (iv) cause its
independent public accountants to provide to the selling Holders of the
applicable Securities and any underwriter therefor a comfort letter in
customary form and covering matters of the type customarily covered in
comfort letters in connection with primary underwritten offerings, subject
to receipt of appropriate documentation as contemplated, and only if
permitted, by Statement of Auditing Standards No. 72.
(r) If a Registered Exchange Offer is to be consummated, upon
delivery of the Notes by Holders to the Company (or to such other Person as
directed by the Company) in exchange for the Exchange Notes, the Company
shall mark, or caused to be marked, on the Notes so exchanged that such
Notes are being canceled in exchange for the Exchange Notes, and in no
event shall the Notes be marked as paid or otherwise satisfied.
(s) The Company will use reasonable efforts to cause the
Securities covered by a Registration Statement to be rated by two
nationally recognized
<PAGE> 16
16
statistical rating organizations (as such term is defined in Rule 436(g)(2)
under the Securities Act) if so requested by Holders of a majority in
aggregate principal amount of Securities covered by such Registration
Statement, or by the managing underwriters, if any.
(t) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member of
an underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice and the By-Laws of the
National Association of Securities Dealers, Inc. ("NASD")) thereof, whether
as a Holder of such Securities or as an underwriter, a placement or sales
agent or a broker or dealer in respect thereof, or otherwise, the Company
shall assist such broker-dealer in complying with the requirements of such
Rules and By-Laws, including by (i) if such Rules or By-Laws, including
Schedule E thereto, shall so require, cooperating in the engagement by such
broker-dealer of a "qualified independent underwriter" (as defined in such
Schedule) to participate in the preparation of the Registration Statement
relating to such Securities, to exercise usual standards of due diligence
in respect thereto and, if any portion of the offering contemplated by such
Registration Statement is an underwritten offering or is made through a
placement or sales agent, to recommend the yield of such Securities, (ii)
indemnifying any such qualified independent underwriter to the extent of
the indemnification of underwriters provided in Section 5 hereof and (iii)
providing such information to such broker-dealer as may be required in
order for such broker-dealer to comply with the requirements of the Rules
of Fair Practice of the NASD.
SECTION 4. Registration Expenses. The Company shall pay all fees and
expenses incident to the performance of or compliance with this Agreement by
the Company including, without limitation, (i) all Commission, stock exchange
or NASD registration and filing fees, (ii) all fees and expenses incurred in
connection with compliance with state securities or Blue Sky laws (including
reasonable fees and disbursements of counsel for any underwriters or holders in
connection with Blue Sky qualification of any of the Securities), (iii) all
expenses of any persons in preparing
<PAGE> 17
17
or assisting in preparing, word processing, printing and distributing any
Registration Statement, any prospectus, any amendments or supplements thereto,
any underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees and (v) the fees and disbursements of counsel for the Company
and in the event of a Shelf Registration, the reasonable fees and disbursements
of one firm of counsel designated by the Holders of a majority in principal
amount of the Securities covered thereby and of the independent public
accountants of the Company, including the expense of any special audits or "cold
comfort" letters required by or incident to such performance and compliance, but
excluding fees and expenses of counsel to the underwriters and underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Securities by a Holder.
SECTION 5. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Holder of the Securities, any Participating Broker-Dealer,
and each person, if any, who controls such Holder or such Participating
Broker-Dealer within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, or is under common control with, or is
controlled by, such Holder or such Participating Broker-Dealer, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred by such Holder or
Participating Broker-Dealer or any such controlling or affiliated person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained
in a Registration Statement or prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to such Participating Broker-Dealer or any Holder
furnished to the Company in writing by such Holder or Participating Broker-
Dealer expressly for use therein; provided that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any
<PAGE> 18
18
Holder or Participating Broker-Dealer from whom the person asserting any such
losses, claims, damages or liabilities purchased Securities, or any person
controlling or affiliated with such Holder or Participating Broker-Dealer, if a
copy of the final prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Holder or Participating Broker-Dealer to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Securities to such person, and if the final
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) As a condition to the enjoyment of the benefit of any Registration
Statement, prospectus or preliminary prospectus or any amendment or supplement
thereto, each Holder of the Securities, severally and not jointly, shall agree
to indemnify and hold harmless the Company, other selling Holders, directors of
the Company, the officers of the Company who sign a Registration Statement and
each person, if any, who controls the Company or any selling Holders, within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Holder, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in a
Registration Statement, any preliminary prospectus, prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the reasonable fees and expenses of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the
<PAGE> 19
19
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. If an indemnified party includes (x) the Purchasers or such
controlling persons of the Purchasers, such firm shall be designated in writing
by Morgan Stanley & Co. Incorporated or (y) Holders of Securities (other than
the Purchasers) or controlling persons of such Holders, such firm shall be
designated in writing by Holders of a majority in aggregate principal amount of
such Securities. In all other cases, such firm shall be designated by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 90 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement, unless the reasonableness of such fees and expenses is being
challenged in good faith by the indemnifying party. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
<PAGE> 20
20
(d) To the extent the indemnification provided for in paragraph (a) or
(b) of this Section 5 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other hand
from the exchange of the Notes pursuant to the Registered Exchange Offer or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying party on the one hand and the indemnified party on the other hand
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by such Holder, Participating
Broker-Dealer or other indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, the Holders of Securities shall not be required
to contribute any amount in excess of the amount by which the total price at
which the Notes were sold by such Holder pursuant to a Registration Statement
exceeds the amount of any damages that such Holders have otherwise been
required to pay by reason of such untrue or
<PAGE> 21
21
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The indemnity and contribution
provisions contained in this Section 5 shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any indemnified party and (iii) the sale
of the Securities. The remedies provided for in this Section 5 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
SECTION 6. Additional Interest under Certain Circumstances. (a)
Additional interest (the "Additional Interest") with respect to the Securities
shall be assessed if by February 14, 1997, neither the Registered Exchange
Offer is consummated nor, if required in lieu thereof, the Shelf Registration
Statement is declared effective by the Commission. Additional Interest shall
accrue on the Securities over and above the interest set forth in the title of
the Securities from and including such date for so long as the Securities
remain outstanding at a rate of 0.5% per annum.
Any amount of Additional Interest due pursuant to the foregoing
paragraph will be payable in cash on the regular interest payment dates with
respect to the Securities. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Notes, multiplied by a fraction, the numerator of which
is the number of days such Additional Interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360.
(b) "Transfer Restricted Notes" means each Security until (i) the date
on which such Transfer Restricted Note has been exchanged by a person other
than a broker-dealer for a freely transferrable Exchange Note in the Registered
Exchange Offer, (ii) following the exchange by a broker-dealer in the
Registered Exchange Offer of a Transfer Restricted Note for an Exchange Note,
the date on which such Exchange Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such
<PAGE> 22
22
Transfer Restricted Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Transfer Restricted Note is distributed to the public
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or is saleable pursuant to Rule 144(k) (or any similar provision
then in force) under the Securities Act.
SECTION 7. Rules 144 and 144A. The Company shall use its best efforts
to file the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Company is not required
to file such reports, it will, upon the request of any Holder of Transfer
Restricted Notes, make publicly available other information so long as
necessary to permit sales of Securities pursuant to Rules 144 and 144A provided
that sales could otherwise be made under such rules. The Company covenants
that it will take such further action as any Holder of Transfer Restricted
Notes may reasonably request, all to the extent required from time to time to
enable such Holder to sell Transfer Restricted Notes without registration under
the Securities Act within the limitation of the exemptions provided by Rules
144 and 144A (including the requirements of Rule 144A(d)(4)). Upon the request
of any Holder of Transfer Restricted Notes, the Company shall deliver to such
Holder a written statement as to whether it has complied with such
requirements. Notwithstanding the foregoing, nothing in this Section 7 shall
be deemed to require the Company to register any of its securities pursuant to
the Exchange Act. The Company will provide a copy of this Agreement to
prospective purchasers of Notes identified to the Company by the Purchasers
upon request.
SECTION 8. Underwritten Registrations. If any of the Transfer
Restricted Notes covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering ("Managing Underwriters") will be
selected by the Holders of a majority in aggregate principal amount of such
Transfer Restricted Notes included in such offering, but such selection must be
approved by the Company, which approval will not be unreasonably withheld or
delayed.
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted Notes
on the basis
<PAGE> 23
23
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
SECTION 9. Miscellaneous. (a) Amendments and Waivers. The
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
except by the Company and the written consent of the Holders of a majority in
principal amount of the Securities affected by such amendment, modification,
supplement, waiver or consent.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class
mail, facsimile transmission, or air courier which guarantees overnight
delivery:
(1) if to a Holder of the Securities, at the most current
address given by such Holder to the Company in accordance with the
provisions of this Section 9(b), which address initially is, with respect
to each Holder, the address of such Holder to which confirmation of the
sale of the Notes to such Holder was first sent by the Purchasers, with a
copy in like manner to you as follows:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Fax No.: (212) 761-0260
Attention: Managing Director, Syndicate
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax No.: (212) 474-3700
Attention: Kris F. Heinzelman
<PAGE> 24
24
(2) if to the Company, at the following address:
Mariner Energy, Inc.
580 WestLake Park Blvd.
Suite 1300
Houston, TX 77079
Fax No.: (713) 584-5555
Attention: Robert E. Henderson
with a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney St., Suite 5100
Houston, TX 77010-3095
Fax No.: (713) 651-5246
Attention: Charles H. Still
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when
receipt is acknowledged by recipient's facsimile machine operator, if sent by
facsimile transmission; and on the day following the day sent, if sent by
overnight air courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter into,
any agreement with respect to its Securities that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(d) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF
<PAGE> 25
25
THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(h) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(i) Securities Held by the Company. Whenever the consent or approval
of Holders of a specified percentage of principal amount of Securities is
required hereunder, Securities held by the Company or its affiliates (other
than Holders of Securities if such Holders are deemed to be affiliates solely
by reason of their holdings of such Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Purchasers and the Company in accordance with its terms.
Very truly yours,
MARINER ENERGY, INC.,
by /s/ ROBERT E. HENDERSON
Name: Robert E. Henderson
Title: President and Chief
Executive Officer
<PAGE> 26
26
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
ECT Securities Corp.
NationsBanc Capital Markets, Inc.
Acting severally on behalf
of themselves and the
several Purchasers
named herein.
by Morgan Stanley & Co.
Incorporated
by /s/ DARREN THOMPSON
---------------------------
Name: Darren Thompson
Title: Vice President
<PAGE> 27
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a brokerdealer in connection
with resales of Exchange Notes received in exchange for Existing Notes where
such Existing Notes were acquired by such broker-dealer as a result of
marketmaking activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution".
<PAGE> 28
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of marketmaking activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution".
<PAGE> 29
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of marketmaking activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.*/
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that
- ----------------------------------
*/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE> 30
2
it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE> 31
ANNEX D
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
<PAGE> 1
EXHIBIT 4.3
CREDIT AGREEMENT
among
MARINER ENERGY, INC.,
as Borrower,
NATIONSBANK OF TEXAS, N.A.,
as Agent
and
The Financial Institutions Listed on Schedule 1 Hereto,
as Banks
$150,000,000
dated
June 28, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - TERMS DEFINED....................................................................................... 1
SECTION 1.1. Definitions..................................................................... 1
SECTION 1.2. Accounting Terms and Determinations............................................. 19
SECTION 1.3. Petroleum Terms................................................................. 20
ARTICLE II - THE CREDIT......................................................................................... 20
SECTION 2.1. Commitments..................................................................... 20
SECTION 2.2. Method of Borrowing............................................................. 21
SECTION 2.3. Method of Requesting Letters of Credit.......................................... 22
SECTION 2.4. Notes........................................................................... 23
SECTION 2.5. Interest Rates; Payments........................................................ 23
SECTION 2.6. Prepayments..................................................................... 25
SECTION 2.7. Reduction of Commitments........................................................ 25
SECTION 2.8. Termination of Commitments; Final Maturity...................................... 25
SECTION 2.9. Application of Payments......................................................... 26
SECTION 2.10. Commitment Fee.................................................................. 26
SECTION 2.11. Closing Fee..................................................................... 26
SECTION 2.12. Agency and other Fees........................................................... 26
ARTICLE III - GENERAL PROVISIONS................................................................................ 26
SECTION 3.1. Delivery and Endorsement of Notes............................................... 26
SECTION 3.2. General Provisions as to Payments............................................... 27
SECTION 3.3. Funding Losses.................................................................. 27
SECTION 3.4. Foreign Lenders, Participants, and Assignees.................................... 28
ARTICLE IV - BORROWING BASE..................................................................................... 28
SECTION 4.1. Reserve Report; Proposed Borrowing Base......................................... 28
SECTION 4.2. Scheduled Redeterminations of the Borrowing Base; Procedures and Standards...... 28
SECTION 4.3 Special Redeterminations........................................................ 29
SECTION 4.4. Borrowing Base Deficiency....................................................... 29
SECTION 4.5. Initial Borrowing Base.......................................................... 30
</TABLE>
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<TABLE>
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ARTICLE V - COLLATERAL AND GUARANTYS............................................................................ 30
SECTION 5.1. Security........................................................................ 30
SECTION 5.2 Guarantys....................................................................... 31
ARTICLE VI - CONDITIONS PRECEDENT............................................................................... 31
SECTION 6.1. Conditions to Initial Borrowing and
Participation in Letter of Credit Exposure.................................. 31
SECTION 6.2. Conditions to Each Borrowing and each Letter of Credit.......................... 34
SECTION 6.3. Materiality of Conditions....................................................... 34
ARTICLE VII - REPRESENTATIONS AND WARRANTIES.................................................................... 35
SECTION 7.1. Borrower's Corporate Existence and Power........................................ 35
SECTION 7.2. Guarantor's Corporate Existence and Power....................................... 35
SECTION 7.3. Corporate Authority and Governmental Authorization; Contravention............... 35
SECTION 7.4. Binding Effect.................................................................. 35
SECTION 7.5. Financial Information........................................................... 35
SECTION 7.6. Litigation...................................................................... 36
SECTION 7.7. ERISA........................................................................... 36
SECTION 7.8. Taxes and Filing of Tax Returns................................................. 37
SECTION 7.9. Ownership of Properties Generally............................................... 37
SECTION 7.10. Mineral Interests............................................................... 37
SECTION 7.11. Licenses, Permits, Etc.......................................................... 38
SECTION 7.12. Compliance with Law............................................................. 38
SECTION 7.13. Full Disclosure................................................................. 38
SECTION 7.14. Organizational Structure; Nature of Business.................................... 38
SECTION 7.15. Environmental Matters........................................................... 39
SECTION 7.16. Burdensome Obligations.......................................................... 39
SECTION 7.17. Fiscal Year..................................................................... 39
SECTION 7.18. No Default...................................................................... 39
SECTION 7.19. Government Regulation........................................................... 39
SECTION 7.20. Insider......................................................................... 40
SECTION 7.21. Gas Balancing Agreements and Advance Payment Contracts.......................... 40
ARTICLE VIII - AFFIRMATIVE COVENANTS............................................................................ 40
SECTION 8.1. Information..................................................................... 40
SECTION 8.2. Business of Borrower and Guarantor.............................................. 42
SECTION 8.3. Maintenance of Existence........................................................ 43
SECTION 8.4. Title Data...................................................................... 43
SECTION 8.5. Right of Inspection............................................................. 43
</TABLE>
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<TABLE>
<S> <C>
SECTION 8.6. Maintenance of Insurance........................................................ 43
SECTION 8.7. Payment of Taxes and Claims..................................................... 44
SECTION 8.8. Compliance with Laws and Documents.............................................. 44
SECTION 8.9. Maintenance and Operation of Properties and Equipment........................... 44
SECTION 8.10. Environmental Law Compliance.................................................... 45
SECTION 8.11. ERISA Reporting Requirements.................................................... 45
SECTION 8.12. Additional Documents............................................................ 46
ARTICLE IX - NEGATIVE COVENANTS................................................................................. 46
SECTION 9.1. Incurrence of Debt.............................................................. 46
SECTION 9.2. Restricted Payments............................................................. 46
SECTION 9.3. Negative Pledge................................................................. 47
SECTION 9.4. Consolidations, Mergers and Subsidiaries........................................ 47
SECTION 9.5. Asset Dispositions.............................................................. 47
SECTION 9.6. State and Federal Leases........................................................ 47
SECTION 9.7. Use of Proceeds................................................................ 47
SECTION 9.8. Investments..................................................................... 48
SECTION 9.9. Transactions with Affiliates.................................................... 48
SECTION 9.10. ERISA. ........................................................................ 48
SECTION 9.11. Oil and Gas Hedge Transactions.................................................. 48
SECTION 9.12. Fiscal Year..................................................................... 49
SECTION 9.13. Change in Business.............................................................. 49
ARTICLE X - FINANCIAL COVENANTS................................................................................. 49
SECTION 10.1. Fixed Charge Coverage Ratio..................................................... 49
SECTION 10.2. Interest Coverage Ratio......................................................... 49
ARTICLE XI - DEFAULTS AND REMEDIES.............................................................................. 49
SECTION 11.1. Events of Default............................................................... 49
SECTION 11.2. Remedies........................................................................ 51
ARTICLE XII - AGENT............................................................................................. 51
SECTION 12.1. Appointment and Authorization................................................... 51
SECTION 12.2. Agent and Affiliates............................................................ 52
SECTION 12.3. Action by Agent................................................................. 52
SECTION 12.4. Consultation with Experts....................................................... 52
SECTION 12.5. LIABILITY OF AGENT.............................................................. 52
SECTION 12.6. Delegation of Duties............................................................ 53
SECTION 12.7. Indemnification................................................................. 53
SECTION 12.8. Credit Decision................................................................. 53
</TABLE>
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<TABLE>
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SECTION 12.9. Successor Agent................................................................ 53
ARTICLE XIII - PROTECTION OF YIELD; CHANGE IN LAWS.............................................................. 54
SECTION 13.1. Inadequate Basis for Determining
Interest Rate Applicable to Eurodollar Tranches............................. 54
SECTION 13.2. Illegality of Eurodollar Tranches.............................................. 54
SECTION 13.3. Increased Cost of Eurodollar Tranche........................................... 55
SECTION 13.4. Adjusted Base Rate Tranche Substituted for Affected Eurodollar Tranche......... 56
SECTION 13.5. Capital Adequacy............................................................... 56
SECTION 13.6. Taxes.......................................................................... 57
SECTION 13.7. Discretion of Banks as to Manner of Funding.................................... 57
SECTION 13.8. Limitations.................................................................... 58
ARTICLE XIV - MISCELLANEOUS..................................................................................... 58
SECTION 14.1. Notices........................................................................ 58
SECTION 14.2. No Waivers..................................................................... 58
SECTION 14.3. Expenses; Documentary Taxes; Indemnification................................... 58
SECTION 14.4. Right and Sharing of Set-Offs.................................................. 59
SECTION 14.5. Amendments and Waivers......................................................... 60
SECTION 14.6. Survival....................................................................... 60
SECTION 14.7. Limitation on Interest......................................................... 61
SECTION 14.8. Invalid Provisions............................................................. 61
SECTION 14.9. Waiver of Consumer Credit Laws................................................. 61
SECTION 14.10. Successors and Assigns......................................................... 61
SECTION 14.11. TEXAS LAW...................................................................... 63
SECTION 14.12. Consent to Jurisdiction; Waiver of Immunities.................................. 63
SECTION 14.13. Counterparts; Effectiveness.................................................... 64
SECTION 14.14. No Third Party Beneficiaries................................................... 64
SECTION 14.15. Confidentiality................................................................ 64
SECTION 14.16. COMPLETE AGREEMENT............................................................. 64
SECTION 14.17. WAIVER OF JURY TRIAL........................................................... 64
</TABLE>
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<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is entered into as of the 28th
day of June, 1996, among MARINER ENERGY, INC., a Delaware corporation
("Borrower"), NATIONSBANK OF TEXAS, N.A., as Agent ("Agent"), and the financial
institutions listed on Schedule 1 hereto (individually a "Bank" and collectively
"Banks").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Banks provide Borrower with a
revolving credit facility, and Banks are willing to provide such facility on the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, pursuant to Article XII of this Agreement, NationsBank of
Texas, N.A. has been appointed Agent for Banks hereunder.
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, Agent and Banks agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Adjusted Base Rate" means, on any day, the greater of (a) the Base
Rate in effect on such day, or (b) the sum of (i) the Federal Funds Rate in
effect on such day, plus (ii) one-half of one percent (.5%). Each change in the
Adjusted Base Rate shall become effective automatically and without notice to
Borrower or any Bank upon the effective date of each change in the Federal Funds
Rate or the Base Rate, as the case may be.
"Adjusted Base Rate Tranche" means the portion of the principal of the
Loan bearing interest with reference to the Adjusted Base Rate.
"Adjusted Eurodollar Rate" applicable to any Interest Period, means a
rate per annum equal to the quotient obtained (rounded upwards, if necessary to
the next higher 1/16 of 1%) by dividing (i) the applicable Eurodollar Rate by
(ii) 1.00 minus the Eurodollar Reserve Percentage.
"Advance Payment Contract" means any contract whereby Borrower either
(a) receives or becomes entitled to receive (either directly or indirectly) any
payment (an "Advance Payment") to be applied toward payment of the purchase
price of Hydrocarbons produced or to be produced from Mineral Interests owned by
Borrower and which Advance Payment is paid or to be paid in
<PAGE> 7
advance of actual delivery of such production to or for the account of the
purchaser regardless of such production, or (b) grants an option or right of
refusal to the purchaser to take delivery of such production in lieu of payment,
and, in either of the foregoing instances, the Advance Payment is, or is to be,
applied as payment in full for such production when sold and delivered or is, or
is to be, applied as payment for a portion only of the purchase price thereof or
of a percentage or share of such production; provided that inclusion of the
standard "take or pay" provision in any gas sales or purchase contract or any
other similar contract shall not, in and of itself, constitute such contract as
an Advance Payment Contract for the purposes hereof.
"Affiliate" means, as to any Person, any Subsidiary of such Person, or
any other Person which, directly or indirectly, controls, is controlled by, or
is under common control with, such Person and, with respect to Borrower and
Guarantor, means, any director or executive officer of Borrower or Guarantor,
and any Person who holds ten percent (10%) or more of the voting stock of
Borrower or Guarantor. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or partnership interests, or by contract or
otherwise. With respect to any Person who is an individual, the term "Affiliate"
shall include any parent, spouse, sibling or lineal descendant of such Person,
and any trust as to which such Person (or any of the Affiliates described in
this sentence) is a trustee or beneficiary. The term "Affiliate" shall expressly
exclude ECT, Enron Corp. and the California Public Employees' Retirement System
and any Person, other than JEDI, that controls, is controlled by, or is under
common control with ECT, Enron Corp. or the California Public Employees'
Retirement System.
"Agent" means NationsBank of Texas, N.A. in its capacity as agent for
Banks hereunder or any successor thereto.
"Agreement" means this Agreement as the same may hereafter be modified,
amended or supplemented from time to time.
"Applicable Environmental Law" means any federal, state or local law,
common law, ordinance, regulation or policy, as well as order, decree, permit,
judgment or injunction issued, promulgated, approved, or entered thereunder,
relating to the environment or the transportation, disposal, discharge or
storage of Hazardous Substances, or the environmental conditions on, under, or
about any real property owned, leased or operated at any time by Borrower or
Guarantor including, without limitation, soil and groundwater conditions.
-2-
<PAGE> 8
"Applicable Margin" means, for any Fiscal Quarter (or shorter period
for which such a determination is made), with respect to each Type of Tranche,
an amount determined by reference to the Average Borrowing Base Utilization
during such period, in accordance with the table below (subject to adjustment as
provided in Section 2.5(d)):
<TABLE>
<CAPTION>
==========================================================================================================================
Average Borrowing Applicable Margin Applicable Margin for
Base Utilization for Adjusted Base Rate Tranches Eurodollar Tranches
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
less than or equal to .50 to 1 0% .75%
- --------------------------------------------------------------------------------------------------------------------------
greater than .50 to 1 less than or equal to .75 to 1 0% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
greater than .75 to 1 0% 1.25%
==========================================================================================================================
</TABLE>
"Approved Petroleum Engineer" means Ryder Scott Company or any other
reputable firm of independent petroleum engineers as shall be selected by
Borrower and approved by Required Banks, such approval not to be unreasonably
withheld.
"Assignee" has the meaning given such term in Section 14.10(c).
"Assignment and Assumption Agreement" has the meaning given such term
in Section 14.10(c).
"Authorized Officer" means, as to any Person, its Chief Executive
Officer, its President, its Chief Financial Officer, any of its Vice Presidents,
its Treasurer or its corporate Secretary or any equivalent officer.
"Availability" means, as of any date, the remainder of (a) the
Borrowing Base in effect on such date, minus (b) the Outstanding Credit on such
date.
"Average Borrowing Base Utilization" means, for any Fiscal Quarter (or
shorter period as to which such a determination is made) the ratio of the
average Outstanding Credit during such period to the average Borrowing Base
during such period.
"Bank" means any financial institution reflected on Schedule 1 hereto
as having a Commitment and its successors and permitted Assignees, and "Banks"
shall mean all Banks.
"Base Rate" means the floating rate of interest established from time
to time by Agent as its "prime rate" of interest, which rate is not the lowest
rate of interest charged by Agent, each change in the Base Rate to become
effective without notice to Borrower on the effective date of each such change.
"Borrower" means Mariner Energy, Inc., a Delaware corporation.
-3-
<PAGE> 9
"Borrowing" means any disbursement to Borrower under, or to satisfy the
obligations of Borrower or Guarantor under, any of the Loan Papers. Any
Borrowing which will constitute an Adjusted Base Rate Tranche is referred to
herein as an "Adjusted Base Rate Borrowing," and any Borrowing which will
constitute a Eurodollar Tranche is referred to herein as a "Eurodollar
Borrowing."
"Borrowing Base" means the amount determined from time to time by Agent
(and approved by Banks) pursuant to Article IV as the Borrowing Base hereunder.
"Borrowing Base Deficiency" means, as of any date, the amount, if any,
by which the Outstanding Credit on such date exceeds the Borrowing Base in
effect on such date; provided, that, for purposes of determining the existence
and amount of any Borrowing Base Deficiency, Letter of Credit Exposure will not
be deemed to be outstanding to the extent it is secured by cash or U.S. Treasury
securities in the manner contemplated by Section 2.1(b).
"borrowing base deficiency payment date" shall have the meaning given
such term in Section 4.4.
"Borrowing Date" means the Eurodollar Business Day or the Domestic
Business Day, as the case may be, upon which the proceeds of any Borrowing are
made available to Borrower or to satisfy any obligation of Borrower or
Guarantor.
"Closing Date" means June 28, 1996.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment" means, with respect to any Bank, the commitment of such
Bank to lend its Commitment Percentage of the Total Commitment to Borrower
pursuant to Section 2.1. The amount of each Bank's Commitment is the amount set
forth opposite such Bank's name on Schedule 1 hereto, as such Commitment may be
terminated or reduced from time to time in accordance with the provisions
hereof.
"Commitment Fee Percentage" means, for any Fiscal Quarter (or shorter
period for which such a determination is made), an amount determined by
reference to the Average Borrowing Base Utilization during such period, in
accordance with the table below:
<TABLE>
<CAPTION>
==================================================================================
Average Borrowing Commitment Fee
Base Utilization Percentage
- ----------------------------------------------------------------------------------
<S> <C>
less than or equal to .50 to 1 .250%
- ----------------------------------------------------------------------------------
greater than .50 to 1 less than or equal to .75 to 1 .325%
- ----------------------------------------------------------------------------------
greater than .75 to 1 .375%
==================================================================================
</TABLE>
-4-
<PAGE> 10
"Commitment Percentage" means, with respect to each Bank, the
Commitment Percentage for such Bank set forth on Schedule 1 hereto.
"contract rate" has the meaning given such term in Section 2.5(g).
"Conversion Date" has the meaning given such term in Section 2.5(c).
"Debt" means, for any Person at any time, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all other indebtedness (including capitalized lease obligations, other than
usual and customary oil and gas leases) of such Person on which interest charges
are customarily paid or accrued, except for de minimis indebtedness associated
with company credit cards, (d) all Guarantees by such Person, (e) the unfunded
or unreimbursed portion of all letters of credit issued for the account of such
Person, (f) any amount owed by such Person representing the deferred purchase
price of property or services other than accounts payable incurred in the
ordinary course of business and in accordance with customary trade terms and
which are not more than ninety (90) days past the invoice date, and (g) all
liability of such Person as a general partner of a partnership for obligations
of such partnership of the nature described in (a) through (f) preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice, lapse of time or both would, unless
cured or waived, become an Event of Default.
"Distribution" by any Person, means (a) with respect to any stock
issued by such Person or any partnership, joint venture, limited liability
company, membership or other equity interest of such Person, the retirement,
redemption, purchase, or other acquisition for value of any such stock or
partnership, joint venture, limited liability company, membership or other
equity interest, (b) the declaration or payment of any dividend or other
distribution (other than distributions in kind) on or with respect to any stock,
partnership, joint venture, limited liability company, membership or other
equity interest of any Person, and (c) any other payment (other than
distributions in kind) by such Person with respect to such stock, partnership,
joint venture, limited liability company, membership or other equity interest of
such Person.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which national banks in Houston, Texas, are authorized to close.
"Domestic Lending Office" means, as to each Bank, its office located at
its address identified on Schedule 1 hereto as its Domestic Lending Office or
such other office as such Bank may hereafter designate as its Domestic Lending
Office by notice to Borrower and Agent.
"EBITDA" means net income before provision for income tax, plus
depreciation, depletion, amortization and other non-cash charges, less net
income attributable to gain or loss on the disposition of assets.
-5-
<PAGE> 11
"ECT" means Enron Capital & Trade Resources Corp., a Delaware
corporation.
"Environmental Complaint" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, proceeding,
judgment, letter or other formal communication from any federal, state or
municipal authority or any other party against Borrower or Guarantor involving
(a) a Hazardous Discharge from, onto or about any real property owned, leased or
operated at any time by Borrower or Guarantor, (b) a Hazardous Discharge caused,
in whole or in part, by Borrower or Guarantor or by any Person acting on behalf
of or at the instruction of Borrower or Guarantor in connection with the
operation thereof, or (c) any violation of any Applicable Environmental Law by
Borrower or Guarantor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any corporation or trade or business under
common control with Borrower or Guarantor as determined under section
4001(a)(14) of ERISA.
"Estoppel Agreement" means that certain Estoppel Certificate and
Agreement substantially in the form of Exhibit H hereto to be executed by
Guarantor and JEDI, for the benefit of Banks, relating to the Subordinated
Credit Agreement.
"Eurodollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in the applicable eurodollar interbank market.
"Eurodollar Lending Office" means, as to each Bank, its office, branch
or affiliate located at its address identified on Schedule 1 hereto as its
Eurodollar Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Eurodollar Lending Office by notice to
Borrower and Agent.
"Eurodollar Rate" applicable to any Interest Period means the rate per
annum (rounded upward, if necessary, to the next higher 1/16th of 1%) reported,
at approximately 10:00 a.m. (Houston, Texas time) on the date that is two (2)
Eurodollar Business Days before the first day of such Interest Period, on
Telerate Access Service Page 3750 (British Bankers Association Settlement Rate)
as the London InterBank Offered Rate for dollar deposits having a term
comparable to such Interest Period and in an amount of $1,000,000 or more (or,
if such page on such service ceases to display such information, such other page
as may replace it on that service for the purpose of displaying such
information); provided that if such rate does not appear on the Telerate, then
such rate shall be equal to the arithmetic mean (rounded upward, if necessary,
to the next higher one-sixteenth percent (1/16%)) of the interest rates that
appear at 10:00 a.m. (Houston, Texas time) on the date that is two (2)
Eurodollar Business Days before the first day of such Interest Period on Reuters
Screen page "LIBO" as offered quotations for dollar deposits for a period equal
to that of such Interest Period (or if such page on such service ceases to
display such information, such other page as may replace it on that service for
the purpose of displaying such information); provided that if such rate does not
appear on Telerate or Reuters,
-6-
<PAGE> 12
then such rate shall be equal to the rate Agent determines to be the arithmetic
mean (rounded upward, if necessary, to the next higher one-sixteenth percent
(1/16%)) of the interest rates at which deposits in dollars in an amount
approximately equal to the principal amount of, and for a length of time
approximately equal to the Interest Period for, the Eurodollar Borrowing sought
by Borrower are offered to Agent in immediately available funds in the London
interbank market at 10:00 a.m. (Houston, Texas time) on the date that is two (2)
Eurodollar Business Days before the first day of such Interest Period.
"Eurodollar Reserve Percentage" means, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in Dallas, Texas in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Eurodollar Tranches is determined or any
category of extensions of credit or other assets which includes loans by a
non-United States office of any Bank to United States residents). The Adjusted
Eurodollar Rate shall be adjusted automatically on and as of the effective date
of any change in the Eurodollar Reserve Percentage, regardless of whether one or
more fixed Eurodollar Tranches are then outstanding.
"Eurodollar Tranche" means, with respect to any Interest Period, any
portion of the principal amount outstanding under the Loan which bears interest
at a rate computed by reference to the Adjusted Eurodollar Rate for such
Interest Period.
"Event of Default" has the meaning set forth in Section 11.1.
"Exhibit" refers to an "exhibit" attached to this Agreement and
incorporated herein by reference, unless specifically provided otherwise.
"Existing Mineral Interests" means the Mineral Interests owned by
Borrower on the date hereof.
"Facility Guaranty" means a Guaranty substantially in the form of
Exhibit B hereto to be executed by Guarantor in favor of a Bank pursuant to
which Guarantor guarantees to such Bank payment and performance in full of the
Obligations owing to such Bank, and "Facility Guarantys" shall mean all of such
Facility Guarantys collectively.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the next higher 1/16 of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
be determined is not a Domestic Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Domestic
Business Day as so published on the next succeeding Domestic Business Day, and
(b) if such rate is not so published on such next
-7-
<PAGE> 13
succeeding Domestic Business Day, the Federal Funds Rate for any day shall be
the average rate charged to Agent on such day on such transactions as determined
by Agent.
"Financial Officer" of any Person means its Chief Financial Officer;
provided, that if no Person serves in such capacity, "Financial Officer" shall
mean the highest ranking executive officer of such Person with responsibility
for accounting, financial reporting, cash management and similar functions.
"Fiscal Quarter" means the three (3) month periods ending on March 31,
June 30, September 30 and December 31 of each Fiscal Year.
"Fiscal Year" means each fiscal year of Borrower or Guarantor, as the
case may be.
"Fixed Charge Coverage Ratio" means the ratio of EBITDA for the four
(4) previous Fiscal Quarters to the sum of (a) interest expense, including
interest which may be required to be capitalized, for the previous four (4)
Fiscal Quarters, (b) the applicable maintenance capital expenditures for the
previous four (4) Fiscal Quarters and (c) income taxes paid during the previous
four (4) Fiscal Quarters. For purposes of this definition, the term "applicable
maintenance capital expenditures" shall mean, with respect to each Fiscal
Quarter, one-fourth (1/4th) of the amount of the annual maintenance capital
expenditures set forth in the then most recent Reserve Report prepared by the
Approved Petroleum Engineer and delivered to Agent with respect to all Proved
Producing Mineral Interests of Borrower.
"GAAP" means generally accepted accounting principles and practices
which are recognized as such by the American Institute of Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board, and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial condition, and the results
of operations and changes in financial position, of Guarantor, Borrower and
their respective consolidated subsidiaries, except that any accounting principle
or practice required to be changed by the said Accounting Principles Board or
Financial Accounting Standards Board in order to continue as a generally
accepted accounting principle or practice may be so changed.
"Gas Balancing Agreement" means any agreement or arrangement whereby
Borrower, or any other party having an interest in any Hydrocarbons to be
produced from Mineral Interests in which Borrower owns an interest, has a right
to take more than its proportionate share of production therefrom.
"Governmental Authority" means any court or governmental department,
commission, board, bureau, agency, or instrumentality of any nation or of any
province, state, commonwealth, nation, territory, possession, county, parish, or
municipality, whether now or hereafter constituted or existing.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the
-8-
<PAGE> 14
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions, by
"comfort letter" or other similar undertaking of support or otherwise) or (b)
entered into for the purpose of assuring in any other manner the obligee of such
Debt of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part), provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" shall not include any guarantee by Guarantor of
any Debt of Borrower permitted hereunder.
"Guarantor" means Mariner Holdings, Inc., a Delaware corporation, which
is the owner and holder of 100% of the issued and outstanding capital stock (of
every class) of Borrower.
"Hazardous Discharge" means any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping of any Hazardous Substance from or onto any real property
owned, leased or operated at any time by Borrower or Guarantor.
"Hazardous Substance" means any pollutant, toxic substance, hazardous
waste, compound, element or chemical that is defined as hazardous, toxic,
noxious, dangerous or infectious pursuant to any Applicable Environmental Law or
which is otherwise regulated by any Applicable Environmental Law.
"Hedge Transaction" means any commodity, interest rate, currency or
other swap, option, collar, futures contract or other contract pursuant to which
a Person hedges risks related to commodity prices, interest rates, currency
exchange rates, securities prices or financial market conditions. The term
"Hedge Transaction" expressly includes Oil and Gas Hedge Transactions.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasolines, natural
gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons
produced or to be produced in conjunction therewith, and all products,
by-products and all other substances derived therefrom or the processing
thereof, and all other minerals and substances, including, but not limited to,
sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon
dioxide, helium, and any and all other minerals, ores, or substances of value,
and the products and proceeds therefrom, including, without limitation, all gas
resulting from the in-situ combustion of coal or lignite.
"Immaterial Title Deficiencies" means, with respect to Borrower's
Proved Mineral Interests, defects or clouds on title, discrepancies in reported
net revenue and working interest ownership percentages and other Liens, defects,
discrepancies and similar matters which do not, individually or in the
aggregate, affect Proved Mineral Interests with a Recognized Value greater than
two percent (2%) of the Recognized Value of all of Borrower's Proved Mineral
Interests.
-9-
<PAGE> 15
"Initial Borrowing" means the initial Borrowing pursuant to Section
2.2(c).
"Initial Borrowing Base" means $50,000,000.
"Initial Reserve Report" means the engineering analysis of the Existing
Mineral Interests prepared by Ryder Scott Company as of March 31, 1996.
"Interest Coverage Ratio" means the ratio of EBITDA during the previous
four (4) Fiscal Quarters to interest expense, including interest which may be
required to be capitalized, for the previous four (4) Fiscal Quarters.
"Interest Option" has the meaning given such term in Section 2.5(c).
"Interest Period" means, with respect to each Borrowing comprised of
Eurodollar Tranches, the period commencing on the date of such Borrowing and
ending one (1), two (2) or three (3) months thereafter, as Borrower may elect in
the applicable Request for Borrowing; provided that:
(i) any Interest Period which would otherwise end on a day
which is not a Eurodollar Business Day shall be extended to
the next succeeding Eurodollar Business Day unless such
Eurodollar Business Day falls in another calendar month, in
which case such Interest Period shall end on the next
preceding Eurodollar Business Day;
(ii) any Interest Period which begins on the last Eurodollar
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall, subject to clause
(iii) below, end on the last Eurodollar Business Day of a
calendar month; and
(iii) if any Interest Period includes a date on which any
payment of principal of the Loan subject to such Eurodollar
Tranche is required to be made hereunder, but does not end on
such date, then (A) the principal amount of each Eurodollar
Tranche required to be repaid on such date shall have an
Interest Period ending on such date, and (B) the remainder of
each such Eurodollar Tranche shall have an Interest Period
determined as set forth above; and
(iv) no Interest Period shall extend past the Maturity Date.
"Investment" means, with respect to any Person, any loan, advance,
extension of credit, capital contribution to, investment in or purchase of the
stock or other securities of, or interests in, any other Person; provided, that
"Investment" shall not include current customer and trade accounts which are
payable in accordance with customary trade terms.
-10-
<PAGE> 16
"JEDI" means Joint Energy Development Investments Limited Partnership,
a Delaware limited partnership which owns, as of the date of this Agreement,
approximately 96% of the issued and outstanding capital stock of Guarantor.
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, township, parish, municipality or Governmental
Authority.
"Lending Office" means as to any Bank its Domestic Lending Office or
its Eurodollar Lending Office, as the context may require.
"Letters of Credit" means letters of credit issued for the account of
Borrower pursuant to Section 2.1(b).
"Letter of Credit Exposure" of any Bank means such Bank's aggregate
participation in the unfunded portion and the funded but unreimbursed portion of
Letters of Credit outstanding at any time.
"Letter of Credit Fee" means, with respect to any Letter of Credit
issued hereunder, a fee in an amount equal to the greater of (a) $500 per annum,
or (b) for any Fiscal Quarter (or shorter period for which such a determination
is made), subject to possible increase pursuant to the provisions of Section
2.5(d), a percentage (calculated on a per annum basis) of the stated amount of
such Letter of Credit, determined by reference to the Average Borrowing Base
Utilization during such period, in accordance with the table below:
<TABLE>
<CAPTION>
==================================================================================
Per Annum
Average Borrowing Letter of Credit
Base Utilization Fee Percentage
- ----------------------------------------------------------------------------------
<S> <C>
less than or equal to .50 to 1 .625%
- ----------------------------------------------------------------------------------
greater than .50 to 1 less than or equal to .75 to 1 .875%
- ----------------------------------------------------------------------------------
greater than .75 to 1 1.125%
==================================================================================
</TABLE>
"Letter of Credit Fronting Fee" means, with respect to any Letter of
Credit issued hereunder, a fee equal to one tenth of one percent (.10%) per
annum of the stated amount of such Letter of Credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which is acquired or held subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
-11-
<PAGE> 17
"Loan" means the revolving credit facility in an amount outstanding at
any time not to exceed the amount of the Total Commitment then in effect to be
made by Banks to Borrower in accordance with Section 2.1.
"Loan Papers" means this Agreement, the Notes, the Facility Guarantys,
the Estoppel Agreement, all Mortgages and all other certificates, documents or
instruments delivered in connection with this Agreement, as the foregoing may be
amended from time to time.
"Margin Regulations" means Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U.
"Material Adverse Effect" means a material adverse effect on (a) the
assets, liabilities, financial condition, results of operations, taken as a
whole, of Borrower and Guarantor, (b) the right or ability of Borrower or
Guarantor to fully, completely and timely perform its obligations under the Loan
Papers, (c) the validity or enforceability of any Loan Papers against Borrower
or Guarantor or (d) the validity, perfection or priority of any material Lien
intended to be created under or pursuant to any Loan Paper to secure the
Obligations; provided however, that any accounting adjustment, not to exceed
$22,000,000, to the book value of Borrower's Mineral Interests arising by reason
of the purchase accounting treatment of the transaction occurring on May 16,
1996, pursuant to which Guarantor purchased all the outstanding stock of
Borrower, shall not be deemed to have a Material Adverse Effect.
"Material Agreement" means any material written or oral agreement,
contract, commitment, or understanding to which a Person is a party, by which
such Person is directly or indirectly bound, or to which any assets of such
Person may be subject, which is not cancelable by such Person upon notice of
thirty (30) days or less without liability for further payment other than
nominal penalty.
"Material Gas Imbalance" means, with respect to all Gas Balancing
Agreements to which Borrower is a party or by which any Mineral Interest owned
by Borrower is bound, a net gas imbalance to Borrower in excess of $2,000,000.
"Maturity Date" means the date that is three (3) years after the date
of this Agreement.
"Maximum Lawful Rate" means, for each Bank, the maximum rate (or, if
the context so permits or requires, an amount calculated at such rate) of
interest which, at the time in question would not cause the interest charged on
the portion of the Loan owed to such Bank at such time to exceed the maximum
amount which such Bank would be allowed to contract for, charge, take, reserve,
or receive under applicable Laws after taking into account, to the extent
required by applicable Laws, any and all relevant payments or charges under the
Loan Papers. To the extent the Laws of the State of Texas are applicable for
purposes of determining the "Maximum Lawful Rate," such term shall mean the
"indicated rate ceiling" from time to time in effect under Article
-12-
<PAGE> 18
1.04, Title 79, Revised Civil Statutes of Texas, 1925, as amended, or, if
permitted by applicable law and effective upon the giving of the notices
required by such Article 1.04 (or effective upon any other date otherwise
specified by applicable law), the "quarterly ceiling" or "annualized ceiling"
from time to time in effect under such Article 1.04, whichever Agent (with the
approval of Required Banks) shall elect to substitute for the "indicated rate
ceiling," and vice versa, each such substitution to have the effect provided in
such Article 1.04, and Agent (with the approval of Required Banks) shall be
entitled to make such election from time to time and one or more times and,
without notice to Borrower, to leave any such substitute rate in effect for
subsequent periods in accordance with subsection (h)(1) of such Article 1.04.
"Mineral Interests" means rights, estates, titles, and interests in and
to oil and gas leases and any oil and gas interests, royalty and overriding
royalty interest, production payment, net profits interests, oil and gas fee
interests, and other rights therein, including, without limitation, any
reversionary or carried interests relating to the foregoing, together with
rights, titles, and interests created by or arising under the terms of any
unitization, communization, and pooling agreements or arrangements, and all
properties, rights and interests covered thereby, whether arising by contract,
by order, or by operation of Laws, which now or hereafter include all or any
part of the foregoing.
"Mortgage" has the meaning given such term in Section 5.1(a).
"Note" means a promissory note of Borrower payable to the order of a
Bank, in substantially the form of Exhibit A hereto, in the amount of such
Bank's Commitment, evidencing the obligation of Borrower to repay to such Bank
its Commitment Percentage of the Loan, together with all modifications,
extensions, renewals, and rearrangements thereof and "Notes" means all of such
Notes collectively.
"Obligations" means all present and future indebtedness, obligations
and liabilities, and all renewals and extensions thereof, or any part thereof,
of Borrower or Guarantor to Agent or to any Bank or any Affiliate of any Bank
arising pursuant to the Loan Papers or pursuant to any Hedge Transaction entered
into with any Bank or any Affiliate of any Bank, and all interest accrued
thereon and costs, expenses, and attorneys' fees incurred in the enforcement or
collection thereof, regardless of whether such indebtedness, obligations and
liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated,
joint, several or joint and several.
"Oil and Gas Hedge Transaction" means a Hedge Transaction pursuant to
which any Person hedges the price to be received by it for future production of
Hydrocarbons.
"Outstanding Credit" means, on any date, the sum of (a) the aggregate
outstanding Letter of Credit Exposure on such date, including the aggregate
Letter of Credit Exposure related to Letters of Credit to be issued on such
date, plus (b) the outstanding principal balance of the Loan on such date,
including the amount of any Borrowing to be made on such date.
"Participant" has the meaning given such term in Section 14.10(b).
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"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Affiliate Transaction" means (a) any transaction permitted
by that certain Stockholders' Agreement dated April 2, 1996, among ECT, Robert
E. Henderson, Richard R. Clark, Michael W. Strickler, D. S. Huber and Guarantor
(then known as Mystery Acquisition, Inc.) as amended by that certain
Stockholders' Agreement Amendment No. 1 dated May 16, 1996 among such parties
and JEDI and by that certain Stockholders' Agreement Amendment No. 2 dated as
of May 31, 1996 among such parties and JEDI (as amended, the
"Stockholders' Agreement"), (b) any payment or other transaction
permitted by the Subordinated Credit Agreement, (c) the grant of options to
purchase or sales of equity securities by Borrower or Guarantor to the
directors, officers, employees, agents or consultants of Borrower or Guarantor
and (d) any assignment or conveyance to individuals (or their nominees)
previously or now or hereafter employed by Borrower or who are or were
consultants to Borrower of overriding royalty interests in individual oil or gas
wells or prospects now or hereafter owned by Borrower or in which Borrower has
or will have an interest pursuant to any employee incentive compensation program
of Borrower, as amended from time to time, entered into by Borrower in such form
and amounts as are not uncommon for corporations of established reputation
engaged in the same or similar business and owning and operating similar
properties, and any payment of any such overriding royalty, provided that (i) no
such assignment or conveyance shall reduce the net revenue interest of Borrower
in any individual oil or gas well or prospect which has not paid out (for
purposes of the relevant employee incentive compensation program) by more than
5%, or in any such well or prospect which has paid out (for purposes of the
relevant employee incentive compensation program) by more than 10%, and (ii) any
such compensation program shall not otherwise be in violation of the terms of
this Agreement.
"Permitted Distributions" means, so long as no Default or Event of
Default has occurred and is continuing, (a) Distributions by Borrower to
Guarantor in an amount not to exceed $200,000.00 during each Fiscal Year of
Borrower, to be utilized by Guarantor for general corporate and overhead
expenses incurred by Guarantor during such Fiscal Year, (b) Distributions from
Borrower to Guarantor in an amount necessary to make any payment (whether
principal or interest) on the Subordinated Bridge Debt (but only to the extent
not limited or prohibited by the Subordinated Credit Agreement), (c) payment to
JEDI by Guarantor of principal of or interest on the Subordinated Bridge Debt,
(d) to the extent the same constitutes a Distribution, payments pursuant to the
Stockholders' Agreement, (e) any Distribution received by Borrower, Guarantor or
any Subsidiary of Borrower or Guarantor and (f) payment by Borrower of any other
Subordinated Debt (but only to the extent not limited or prohibited by the
subordination provisions of the documents evidencing such other Subordinated
Debt).
"Permitted Encumbrances" means with respect to any asset:
(a) Liens (if any) securing the Notes in favor of Agent or
Banks;
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(b) Minor defects in title which do not secure the payment of
money and otherwise have no material adverse effect on the value or the
operation of the subject property, and for the purposes of this Agreement, a
minor defect in title shall include, without limitation, (i) easements,
rights-of-way, servitudes, permits, licenses, surface leases and other similar
rights in respect of surface operations, and easements for pipelines, streets,
alleys, highways, telephone lines, power lines, railways and other easements,
rights-of-way and licenses, on, over or in respect of any of the properties of
Borrower that are customarily granted in the oil and gas industry and (ii)
encroachments, restrictive covenants and zoning and other similar restrictions;
(c) Inchoate statutory or operators' liens securing
obligations for labor, services, materials and supplies furnished to Mineral
Interests which are not delinquent (except to the extent permitted by Section
8.7);
(d) Mechanic's, materialmen's, warehouseman's, landlord's,
journeyman's and carrier's liens and other similar liens arising by operation of
Law in the ordinary course of business which are not delinquent (except to the
extent permitted by Section 8.7);
(e) Liens for Taxes or assessments not yet due or not yet
delinquent, or, if delinquent, that are being contested in good faith in the
normal course of business by appropriate action, as required by Section 8.7;
(f) Lease and other Mineral Interest burdens payable to third
parties which are deducted in the calculation of discounted present value in the
Reserve Report including, without limitation, any royalty, overriding royalty,
net profits interest, production payment, carried interest or reversionary
working interest;
(g) purchase money Liens on assets acquired after the date
hereof to the extent the acquisition of such assets and the financing thereof
are permitted by the other provisions of this Agreement;
(h) with respect to any property from which Hydrocarbons may
be severed or extracted in commercial quantities, Liens for farmout, farming,
joint operating, and area of mutual interest agreements and/or similar
arrangements that Borrower determines in good faith to be necessary for the
economic development of such property and are customary and usual for the area
in which such property is located;
(i) rights reserved to or vested in any municipality or other
Governmental Authority by the terms of any right, power, franchise, grant,
license or permit, or by any provision of law, to terminate such right, power,
franchise, grant, license or permit or to purchase, condemn, expropriate or
recapture, or to designate a purchaser of, any of the property of Borrower;
(j) rights reserved to or vested in any municipality or other
Governmental Authority to control or regulate any property of Borrower, or to
use such property in a manner
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<PAGE> 21
which does not materially impair the use of such property for the purposes for
which it is held by Borrower;
(k) any obligations or duties affecting the property of
Borrower to any municipality or other Governmental Authority with respect to any
franchise, grant, license or permit;
(l) rights of a common owner of any interest in real estate,
right-of-way or easement held by Borrower and such common owner as tenants in
common or through other common ownership;
(m) rights of set-off or banker's liens created by law in
favor of commercial banks;
(n) Liens to secure obligations of Borrower permitted by
Section 9.6;
(o) in addition to those Liens permitted under paragraphs (a)
through (m), Liens, charges and encumbrances upon Borrower's assets which in the
aggregate do not have a value in excess of $1,000,000; and
(p) any extension, renewal or replacement of the foregoing.
"Permitted Investments" means (a) readily marketable direct obligations
of the United States of America, (b) fully insured time deposits and
certificates of deposit with maturities of one year or less of any commercial
bank operating in the United States having capital and surplus in excess of
$50,000,000, (c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest ratings categories of
Standard and Poor's Corporation or Moody's Investors Service, (d) mutual funds
that are restricted to investing in the types of investments described in (a),
(b) and (c) above, (e) loans to officers of Borrower or Guarantor which do not,
at any time, exceed $250,000 in the aggregate, (f) with respect to Guarantor,
its investment in Borrower, including any further capital contributions to
Borrower by Guarantor and (g) other Investments; provided that, the aggregate
amount of all other Investments made pursuant to this clause (g) outstanding at
any time shall not exceed $5,000,000 (measured on a cost basis) in the
aggregate.
"Permitted Subsidiary" means a subsidiary of Borrower not prohibited by
Section 9.4.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a Government
Authority.
"Plan" means an employee benefit plan within the meaning of section
3(3) of ERISA, and any other similar plan, policy or arrangement, including an
employment contract, whether formal or informal and whether legally binding or
not, under which Borrower or Guarantor and/or an ERISA Affiliate has any current
or future obligation or liability or under which any present or
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former employee of Borrower or Guarantor and/or an ERISA Affiliate, or such
present or former employee's dependents or beneficiaries, has any current or
future right to benefits resulting from the present or former employee's
employment relationship with Borrower or Guarantor and/or an ERISA Affiliate.
"Proved Mineral Interests" means, collectively, Proved Producing
Mineral Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped
Mineral Interests.
"Proved Nonproducing Mineral Interests" means all Mineral Interests
which constitute proved developed nonproducing reserves.
"Proved Producing Mineral Interests" means all Mineral Interests which
constitute proved developed producing reserves.
"Proved Undeveloped Mineral Interests" means all Mineral Interests
which constitute proved undeveloped reserves.
"Quarterly Date" means each March 31, June 30, September 30 and
December 31.
"Recognized Value" means, with respect to oil and gas properties, the
pre-tax value of such properties determined in accordance with Financial
Accounting Standards Board Statement 69, generally known as the "standardized
measure of discounted cash flow".
"Redetermination" means any Scheduled Redetermination or Special
Redetermination.
"Redetermination Date" means (a) with respect to any Scheduled
Redetermination, a day designated by Agent which is not more than thirty (30)
days following receipt by Agent of the Reserve Report required to be delivered
by Borrower for use in connection with such Scheduled Redetermination, (b) with
respect to any Special Redetermination requested by Borrower, a day designated
by Agent which is not more than thirty (30) days following the date of a request
for a Special Redetermination and (c) with respect to any Special
Redetermination made by Agent, a day designated by Agent which is not less than
ten (10) days nor more than thirty (30) days following Agent's delivery of
notice to Borrower of Agent's intent to make a Special Redetermination.
"Refunding Borrowing" means a Borrowing made solely for the purpose of
refinancing a Eurodollar Tranche on the expiration of the Interest Period
applicable thereto or for the purpose of converting all or any part of an
Adjusted Base Rate Tranche to a Eurodollar Tranche, in each case in the manner
contemplated by Section 2.5(c) and which does not result in any increase in the
outstanding principal balance of the Loan. Refunding Borrowings may be Adjusted
Base Rate Borrowings or Eurodollar Borrowings.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 221, as in effect from time to time.
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<PAGE> 23
"Request for Borrowing" has the meaning set forth in Section 2.2(a).
"Request for Letter of Credit" has the meaning set forth in Section
2.3(a).
"Required Banks" means Banks holding at least two-thirds (2/3) of the
Total Commitment.
"Required Recognized Value" means Mineral Interests owned by Borrower
having an aggregate Recognized Value of at least 98% of the Recognized Value of
all Mineral Interests owned by Borrower.
"Reserve Report" means an unsuperseded engineering analysis of the
Mineral Interests owned by Borrower, in form and substance acceptable to Agent,
prepared in accordance with customary and prudent practices in the petroleum
engineering industry and Financial Accounting Standards Board Statement 69. Each
Reserve Report required to be delivered by February 28 of each year pursuant to
Section 4.1 shall be prepared by the Approved Petroleum Engineer. Each other
Reserve Report shall be prepared by Borrower's in-house engineering staff.
Notwithstanding the foregoing, in connection with any Special Redetermination
requested by Borrower, the Reserve Report shall be in form and scope mutually
acceptable to Borrower and Agent. The term "Reserve Report" expressly includes
the Initial Reserve Report.
"Restricted Payment" means, with respect to any Person, unless the same
constitutes a Permitted Distribution (a) any Distribution by such Person, or (b)
the retirement, redemption or prepayment prior to scheduled maturity by such
Person of any Debt of such Person owed to an Affiliate of such Person.
"Rollover Notice" has the meaning given such term in Section 2.5(c).
"Schedule" refers to a "schedule" attached to this Agreement and
incorporated herein by reference, unless specifically indicated otherwise.
"Scheduled Redetermination" means any Redetermination of the Borrowing
Base pursuant to Section 4.2.
"Section" refers to a "section" or "subsection" of this Agreement,
unless specifically indicated otherwise.
"Special Redetermination" means any Redetermination of the Borrowing
Base pursuant to Section 4.3.
"Stockholders' Agreement" has the meaning given such term in the
definition of "Permitted Affiliated Transaction".
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<PAGE> 24
"Subordinated Credit Agreement" means the Credit, Subordination and
Further Assurances Agreement dated as of May 16, 1996 between Guarantor and
JEDI, as modified by the Estoppel Agreement.
"Subordinated Bridge Debt" means the indebtedness of Guarantor to JEDI
pursuant to the Subordinated Credit Agreement and the Note of Guarantor issued
thereunder (including additional advances which may be made after the date
hereof in an aggregate amount not to exceed $13,000,000).
"Subordinated Debt" means Subordinated Bridge Debt and, if the
Subordinated Bridge Debt has been paid in full or will be paid in full with the
proceeds of such indebtedness, additional indebtedness of Borrower up to
$100,000,000, so long as the same is subordinated in a manner, and is otherwise,
reasonably satisfactory to Required Banks.
"Subsidiary" means, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, capital transaction
taxes, foreign exchange taxes or other charges, or other charges of any nature
whatsoever, from time to time or at any time imposed by Law or any Governmental
Authority. "Tax" means any one of the foregoing.
"Total Commitment" means the Commitments of all Banks in an initial
aggregate amount of $150,000,000 as such amount may be reduced from time to time
pursuant to Section 2.7.
"Tranche" means an Adjusted Base Rate Tranche or a Eurodollar Tranche
and "Tranches" means Adjusted Base Rate Tranches or Eurodollar Tranches or any
combination thereof.
"Type" means, with reference to a Tranche, the characterization of such
Tranche as an Adjusted Base Rate Tranche or a Eurodollar Tranche, based on the
method by which the accrual of interest on such Tranche is calculated.
"Unrestricted Subsidiary Debt" means any Debt of any Permitted
Subsidiary for which neither Borrower nor Guarantor has any direct or indirect
liability and as to which no properties or assets of Borrower or Guarantor serve
as security.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
of any Person required to be delivered hereunder shall be expressed in U.S.
Dollars and shall be prepared in accordance with GAAP, applied on a basis
consistent with the most recent audited consolidated financial statements of
such Person delivered
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to Banks except for changes concurred in by such Person's independent certified
public accountants and which are disclosed to Agent on the next date on which
financial statements are required to be delivered to Banks hereunder; provided
that, unless Required Banks shall otherwise agree in writing, no such change
shall modify or affect the manner in which compliance with the covenants
contained in Article IX are computed such that all such computations shall be
conducted utilizing financial information presented consistently with prior
periods.
SECTION 1.3. Petroleum Terms. As used herein, the terms "proved
reserves," "proved developed reserves," "proved developed producing reserves,"
"proved developed nonproducing reserves," and "proved undeveloped reserves" have
the meaning given such terms from time to time and at the time in question by
the Society of Petroleum Engineers of the American Institute of Mining
Engineers.
ARTICLE II
THE CREDIT
SECTION 2.1. Commitments. (a) Each Bank severally agrees, subject to
Section 2.1(c) and the other terms and conditions set forth in this Agreement,
to lend to Borrower from time to time prior to the Maturity Date, amounts not to
exceed in the aggregate at any one time outstanding, the amount of such Bank's
Commitment reduced by an amount equal to such Bank's Letter of Credit Exposure.
Each Borrowing shall be in an aggregate principal amount of $1,000,000 or any
larger integral multiple of $100,000 (except that any Adjusted Base Rate
Borrowing may be in an amount equal to the Availability at such time), and (ii)
shall be made from Banks ratably in accordance with their respective Commitment
Percentages. Subject to the foregoing limitations and the other provisions of
this Agreement, prior to the Maturity Date, Borrower may borrow under this
Section 2.1(a), repay amounts borrowed and request new Borrowings hereunder.
(b) Agent will, from time to time prior to the Maturity Date,
upon request by Borrower, issue Letters of Credit for the account of Borrower so
long as (i) the sum of (A) the aggregate Letter of Credit Exposure then
existing, and (B) the amount of the requested Letter of Credit does not exceed
$5,000,000, and (ii) Borrower would be entitled to a Borrowing under Sections
2.1(a) and (c) in the amount of the requested Letter of Credit. Not less than
three (3) Domestic Business Days prior to the requested date of issuance of any
such Letter of Credit, Borrower shall execute and deliver to Agent, Agent's
customary letter of credit application. Each Letter of Credit shall be in the
minimum amount of $10,000 and shall be in form and substance acceptable to
Agent. No Letter of Credit shall have an expiration date later than the Maturity
Date. Upon the date of issuance of a Letter of Credit, Agent shall be deemed to
have sold to each other Bank, and each other Bank shall be deemed to have
unconditionally and irrevocably purchased from Agent, a non-recourse
participation in the related Letter of Credit and Letter of Credit Exposure
equal to such Bank's Commitment Percentage of such Letter of Credit and Letter
of Credit Exposure. Upon request of any Bank, but not more often than quarterly,
Agent shall
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provide notice to each Bank by telephone, teletransmission or telex setting
forth each Letter of Credit issued and outstanding pursuant to the terms hereof
and specifying the beneficiary and expiration date of each such Letter of
Credit, and each Bank's percentage of each such Letter of Credit. If any Letter
of Credit is presented for payment by the beneficiary thereof, Agent shall cause
an Adjusted Base Rate Borrowing to be made to reimburse Agent for the payment
under the Letter of Credit, whether or not Borrower would then be entitled to a
Borrowing pursuant to the terms hereof, and each Bank shall be obligated to lend
its Commitment Percentage of such Adjusted Base Rate Borrowing. On each
Quarterly Date, subject to the provisions of Section 14.7, if applicable,
Borrower shall pay to Agent (a) the Letter of Credit Fee and (b) the Letter of
Credit Fronting Fee with respect to each Letter of Credit which was outstanding
during the Fiscal Quarter ending on such Quarterly Date. Agent shall distribute
each Letter of Credit Fee to Banks in accordance with their respective
Commitment Percentages, and Agent shall retain each Letter of Credit Fronting
Fee for its own account.
Upon the occurrence of an Event of Default, Borrower shall, on the next
succeeding Domestic Business Day, deposit with Agent cash in such amounts as
Agent may request, up to a maximum amount equal to the aggregate existing Letter
of Credit Exposure of all Banks. Any amounts so deposited shall be held by Agent
for the ratable benefit of all Banks as security for the aggregate existing
Letter of Credit Exposure and the other Obligations, and Borrower will, in
connection therewith, execute and deliver such security agreements in form and
substance satisfactory to Agent which it may, in its discretion, require. As
drafts or demands for payment are presented under any Letter of Credit, Agent
shall apply such cash to satisfy such drafts or demands. When all Letters of
Credit have expired and the Obligations have been repaid in full (and no Bank
has any obligation to lend hereunder and Agent has no obligation to issue
Letters of Credit hereunder) or such Event of Default has been cured to the
satisfaction of Required Banks, Agent shall release to Borrower any remaining
cash and securities deposited under this Section 2.1(b). Whenever Borrower is
required to make deposits under this Section 2.1(b) and fails to do so on the
day such deposit is due, Agent or any Bank may, without notice to Borrower, make
such deposit (whether by application of proceeds of any collateral for the
Obligation, by transfers from other accounts maintained with any Bank or
otherwise) using any funds then available to any Bank of Borrower or Guarantor.
(c) No Bank will be obligated to lend to Borrower hereunder or
incur Letter of Credit Exposure, and Borrower shall not be entitled to borrow
hereunder or obtain Letters of Credit hereunder in an amount which would cause
the Outstanding Credit to exceed the Borrowing Base then in effect under Article
IV. No Bank shall be obligated to fund Borrowings hereunder and Borrower shall
not be entitled to Borrowings hereunder during the existence of a Borrowing Base
Deficiency. Nothing in this Section 2.1(c) shall be deemed to limit any Bank's
obligation to fund Adjusted Base Rate Borrowings with respect to its
participation in Letters of Credit in connection with any Borrowing comprised of
Adjusted Base Rate Borrowings made as a result of the drawing under any Letter
of Credit.
SECTION 2.2. Method of Borrowing. (a) In order to request any Borrowing
other than the Initial Borrowing, Borrower shall hand deliver or telecopy to
Agent a duly completed Request
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for Borrowing (herein so called) prior to 12:00 noon (Houston, Texas time), (i)
at least one (1) Domestic Business Day before the Borrowing Date specified for a
proposed Adjusted Base Rate Borrowing, and (ii) at least three (3) Eurodollar
Business Days before the Borrowing Date of a proposed Eurodollar Borrowing. Each
such Request for Borrowing shall be substantially in the form of Exhibit C
hereto, and shall specify:
(i) the Borrowing Date of such Borrowing, which shall
be a Domestic Business Day in the case of an Adjusted
Base Rate Borrowing or a Eurodollar Business Day in
the case of a Eurodollar Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether such Borrowing is to be in Adjusted
Base Rate Borrowing or a Eurodollar Borrowing; and
(iv) in the case of a Eurodollar Borrowing, the
duration of the Interest Period applicable thereto,
subject to the provisions of the definition of
Interest Period.
(b) Upon receipt of a Request for Borrowing, Agent shall
promptly notify each Bank of the contents thereof and the amount of the
Borrowing to be loaned by such Bank pursuant thereto, and such Request for
Borrowing shall not thereafter be revocable by Borrower.
(c) The Initial Borrowing shall be made and funded on the date
hereof in the amount of $50,000,000.
(d) Not later than 12:00 noon (Houston, Texas time) on the
date of each Borrowing, each Bank shall make available its Commitment Percentage
of such Borrowing, in Federal or other funds immediately available in Houston,
Texas to Agent at its address set forth on Schedule 1 hereto. Unless Agent
determines that any applicable condition specified in Section 6.2 (or Section
6.1 in the case of the Initial Borrowing) has not been satisfied, Agent will
make the funds so received from Banks available to Borrower at Agent's aforesaid
address.
SECTION 2.3. Method of Requesting Letters of Credit. (a) In order to
request the issuance of any Letter of Credit hereunder, Borrower shall hand
deliver or telecopy to Agent a duly completed Request for Letter of Credit
(herein so called) prior to 12:00 noon (Houston, Texas time) at least three (3)
Domestic Business Days before the date specified for issuance of such Letter of
Credit. Each Request for Letter of Credit shall be substantially in the form of
Exhibit D hereto, shall be accompanied by Agent's duly completed and executed
letter of credit application and agreement and shall specify:
(i) the requested date for issuance of such Letter of Credit;
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(ii) the terms of such requested Letter of Credit, including
the name and address of the beneficiary, the stated amount,
the expiration date and the conditions under which drafts
under such Letter of Credit are to be available; and
(iii) the purpose of such Letter of Credit.
(b) Upon receipt of a Request for Letter of Credit, Agent
shall promptly notify each Bank of the contents thereof, including the amount of
the requested Letter of Credit, and such Request for Letter of Credit shall not
thereafter be revocable by Borrower.
(c) No later than 12:00 noon (Houston, Texas time) on the date
of issuance of each Letter of Credit as set forth in the applicable Request for
Letter of Credit, unless Agent determines that any applicable condition
precedent set forth in Section 6.2 has not been satisfied, Agent will issue and
deliver such Letter of Credit pursuant to the instructions of Borrower.
SECTION 2.4. Notes. Each Bank's Commitment Percentage of the Loan shall
be evidenced by a single Note payable to the order of such Bank in an amount
equal to such Bank's Commitment.
SECTION 2.5. Interest Rates; Payments. (a) Subject to possible increase
pursuant to the provisions of Section 2.5(d), the principal amount of the Loan
outstanding from day to day which is the subject of an Adjusted Base Rate
Tranche shall bear interest at a rate per annum equal to the lesser of (x) the
sum of the Applicable Margin plus the Adjusted Base Rate in effect from day to
day and (y) the Maximum Lawful Rate. Interest on any portion of the principal of
the Loan subject to an Adjusted Base Rate Tranche shall be payable as it accrues
on each Quarterly Date.
(b) Subject to possible increase pursuant to the provisions of
Section 2.5(d), the principal amount of the Loan outstanding from day to day
which is the subject of a Eurodollar Tranche shall bear interest for the
Interest Period applicable thereto at a rate per annum equal to the lesser of
(x) the sum of the Applicable Margin plus the applicable Adjusted Eurodollar
Rate and (y) the Maximum Lawful Rate. Interest on any portion of the principal
of any Loan subject to a Eurodollar Tranche shall be payable on the last day of
the Interest Period applicable thereto.
(c) So long as no Default or Event of Default shall be
continuing, but subject to the provisions of this Section 2.5, Borrower shall
have the option of having all or any portion of the principal outstanding under
the Loan be the subject of an Adjusted Base Rate Tranche or up to four (4)
Eurodollar Tranches, which shall bear interest at rates based upon the Adjusted
Base Rate and the Adjusted Eurodollar Rate, respectively (each such option is
referred to herein as an "Interest Option"); provided, that each Eurodollar
Tranche shall be in a minimum amount of $1,000,000 and shall be in an amount
which is an integral multiple of $100,000. Each change in an Interest Option
made pursuant to this Section 2.5(c) shall be deemed both a payment in full of
the portion of the principal of the Loan which was the subject of the Adjusted
Base Rate
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Tranche or Eurodollar Tranche from which such change was made and a Borrowing
(notwithstanding that the unpaid principal amount of the applicable Loan is not
changed thereby) of the portion of the principal of the applicable Loan which is
the subject of the Adjusted Base Rate Tranche or Eurodollar Tranche into which
such change was made. Prior to the termination of each Interest Period with
respect to each Eurodollar Tranche, Borrower shall give written notice (a
"Rollover Notice") in the form of Exhibit E attached hereto to Agent of the
Interest Option which shall be applicable to such portion of the principal of
the Loan upon the expiration of such Interest Period. Such Rollover Notice shall
be given to Agent at least one (1) Domestic Business Day, in the case of an
Adjusted Base Rate Tranche selection and three (3) Eurodollar Business Days, in
the case of a Eurodollar Tranche selection, prior to the termination of the
Interest Period then expiring. If Borrower shall specify a Eurodollar Tranche,
such Rollover Notice shall also specify the length of the succeeding Interest
Period (subject to the definition of such term) selected by Borrower. Each
Rollover Notice shall be irrevocable and effective upon notification thereof to
Agent. If the required Rollover Notice shall not have been timely received by
Agent, Borrower shall be deemed to have elected that the principal of the Loan
subject to the Interest Period then expiring be the subject of an Adjusted Base
Rate Tranche upon the expiration of such Interest Period and Borrower will be
deemed to have given Agent notice of such election. Subject to the limitations
set forth in this Section 2.5(c) on the minimum amount of Eurodollar Tranches,
Borrower shall have the right to convert each Adjusted Base Rate Tranche to a
Eurodollar Tranche by giving Agent a Rollover Notice of such election at least
three (3) Eurodollar Business Days prior to the date on which Borrower elects to
make such conversion (a "Conversion Date"). The Conversion Date selected by
Borrower shall be a Eurodollar Business Day. Notwithstanding anything in this
Section 2.5 to the contrary, no portion of the principal of a Loan which is the
subject of an Adjusted Base Rate Tranche may be converted to a Eurodollar
Tranche and no Eurodollar Tranche may be continued as such when any Default or
Event of Default has occurred and is continuing, but each such Tranche shall be
automatically converted to an Adjusted Base Rate Tranche on the last day of each
applicable Interest Period.
(d) If all amounts payable under the Subordinated Bridge Debt
are not paid in full prior to the date that is six (6) months after the date of
this Agreement, or if on the date that is six (6) months after the date of this
Agreement JEDI has any commitment to fund any loans or make any advances to
Borrower or Guarantor, then, effective from and after the date that is six (6)
months after the date of this Agreement, interest payable with respect to each
Adjusted Base Rate Tranche and each Eurodollar Tranche shall increase by
one-fourth percent (1/4%) per annum and the Letter of Credit Fee for each Letter
of Credit issued thereafter shall increase by one-fourth percent (1/4%) per
annum, both subject to the limitations of Section 14.7, if any. Such increase
shall be effective with respect to each Eurodollar Tranche, notwithstanding that
such Eurodollar Tranche would otherwise bear a fixed interest rate during the
Interest Period applicable thereto.
(e) Notwithstanding anything to the contrary set forth in
Section 2.5(a), (b) or (c) above, all overdue principal of and, to the extent
permitted by law, overdue interest, shall bear interest from the date due,
payable on demand, for each day until paid at a rate per annum equal
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to the lesser of (a) the sum of (i) four percent (4%), plus (ii) the Adjusted
Base Rate in effect from day to day, and (b) the Maximum Lawful Rate.
(f) Agent shall determine each interest rate applicable to
each Borrowing in accordance with the terms hereof. Upon the request of Borrower
or any Bank, Agent shall promptly notify such requesting party, by telephone or
telecopy of each rate of interest so determined, and its determination thereof
shall be conclusive in the absence of manifest error.
(g) Notwithstanding the foregoing, if at any time the rate of
interest calculated with reference to the Adjusted Base Rate or the Eurodollar
Rate hereunder (the "contract rate") is limited to the Maximum Lawful Rate, any
subsequent reductions in the contract rate shall not reduce the rate of interest
on the affected Loan below the Maximum Lawful Rate until the total amount of
interest accrued equals the amount of interest which would have accrued if the
contract rate had at all times been in effect. In the event that at maturity
(stated or by acceleration), or at final payment of any Note, the total amount
of interest paid or accrued on such Note is less than the amount of interest
which would have accrued if the contract rate had at all times been in effect
with respect thereto, then at such time, to the extent permitted by law,
Borrower shall pay to the holder of such Note an amount equal to the difference
between (i) the lesser of the amount of interest which would have accrued if the
contract rate had at all times been in effect and the amount of interest which
would have accrued if the Maximum Lawful Rate had at all times been in effect,
and (ii) the amount of interest actually paid on such Note.
(h) Interest payable hereunder shall be computed based on the
number of actual days elapsed and assuming that each calendar year consisted of
four ninety (90) day quarters.
SECTION 2.6. Prepayments. Borrower may, subject to Section 3.3 and the
other provisions of this Agreement, upon three (3) Domestic Business Days
advance notice to Agent, prepay the principal of Loan in whole or in part. Any
partial prepayment shall be in an integral multiple of $500,000. Borrower shall
not be entitled to make more than one (1) prepayment in any calendar week.
SECTION 2.7. Reduction of Commitments. Borrower may, by notice to Agent
five (5) Domestic Business Days prior to the effective date of any such
reduction, reduce the Total Commitment (and thereby reduce the Commitment of
each Bank ratably) in whole or in part. Any reduction shall be in a minimum
amount of $5,000,000 and shall be in an integral multiple of $1,000,000. On the
effective date of any such reduction, Borrower shall, to the extent required as
a result of such reduction, make a principal payment on the Loan in an amount
sufficient to cause the principal balance of the Loan then outstanding to be
equal to or less than the Total Commitment as thereby reduced. Notwithstanding
the foregoing, Borrower shall not be permitted to reduce the Total Commitment to
an amount less than the aggregate Letter of Credit Exposure of all Banks.
SECTION 2.8. Termination of Commitments; Final Maturity. The Total
Commitment (and the Commitment of each Bank) shall terminate, and the entire
outstanding principal balance
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of the Loan, all interest accrued thereon, all accrued but unpaid fees hereunder
and all other outstanding Obligations shall be due and payable in full on the
Maturity Date.
SECTION 2.9. Application of Payments. Each repayment pursuant to
Sections 2.6, 2.7, and 4.4 shall be made together with accrued interest on the
amount repaid to the date of payment, and shall be applied in accordance with
Section 3.2 and the other provisions of this Agreement.
SECTION 2.10. Commitment Fee. On each Quarterly Date and, in the event
the Commitments are terminated in their entirety, on the date of such
termination, Borrower shall pay to Agent, for the ratable benefit of each Bank
based on each Bank's Commitment Percentage, a commitment fee equal to the
Commitment Fee Percentage (applied on a per annum basis and computed on the
number of actual days elapsed and assuming that each calendar year consisted of
four ninety (90) day quarters) of the average daily Availability for the Fiscal
Quarter (or portion thereof) ending on such Quarterly Date or other date.
SECTION 2.11. Closing Fee. Subject to the limitations provided by
Section 14.7, if any, on the Closing Date, Borrower shall pay to Agent for the
ratable benefit of each Bank a closing fee in the amount of $75,000.00.
SECTION 2.12. Agency and other Fees. Subject to the limitations
provided by Section 14.7, if any, Borrower shall pay to Agent and its Affiliates
such other fees and amounts as Borrower shall be required to pay to Agent and
its Affiliates from time to time pursuant to any separate agreement between
Borrower and Agent or such Affiliates. Such fees and other amounts shall be
retained by Agent and its Affiliates, and no Bank (other than Agent) shall have
any interest therein.
ARTICLE III
GENERAL PROVISIONS
SECTION 3.1. Delivery and Endorsement of Notes. Immediately after the
execution of this Agreement, Agent shall deliver to each Bank the Note payable
to such Bank and the Facility Guaranty for the benefit of such Bank. Each Bank
may endorse (and prior to any transfer of its Note shall endorse) on the
schedules attached and forming a part thereof appropriate notations to evidence
the date and amount of its Commitment Percentage of each Borrowing, the Interest
Period applicable thereto, and the date and amount of each payment of principal
made by Borrower with respect thereto; provided that the failure by any Bank to
so endorse its Note shall not affect the liability of Borrower for the repayment
of all amounts outstanding under such Note together with interest thereon. Each
Bank is hereby irrevocably authorized by Borrower to endorse its Note and to
attach to and make a part of any Note a continuation of any such schedule as
required.
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SECTION 3.2. General Provisions as to Payments. (a) Borrower shall make
each payment of principal of, and interest on, the Loan and all fees payable
hereunder not later than 12:00 noon (Houston, Texas time) on the date when due,
in Federal or other funds immediately available in Houston, Texas, to Agent at
its address set forth on Schedule 1 hereto. Agent will promptly distribute to
each Bank its Commitment Percentage of each such payment received by Agent for
the account of Banks. Whenever any payment of principal of, or interest on, any
portion of the Loan subject to an Adjusted Base Rate Tranche or of fees shall be
due on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, any portion of the Loan subject to an
Eurodollar Tranche shall be due on a day which is not a Eurodollar Business Day,
the date for payment thereof shall be extended to the next succeeding Eurodollar
Business Day (subject to the definition of Interest Period). If the date for any
payment of principal is extended by operation of Law or otherwise, interest
thereon shall be payable for such extended time. Borrower hereby authorizes
Agent to charge from time to time against Borrower's accounts with Agent any
amount then due.
(b) So long as no Event of Default has occurred and is then
continuing, all principal payments received by Agent or any Bank with respect to
the Loan shall be applied first to Eurodollar Tranches outstanding with Interest
Periods ending on the date of such payment, then to Adjusted Base Rate Tranches,
and then to Eurodollar Tranches next maturing until such principal payment is
fully applied.
(c) During the continuance of an Event of Default, all amounts
collected or received by Agent or any Bank with respect to the Loan shall be
applied first to the payment of all proper costs incurred by Agent in connection
with the collection thereof (including reasonable expenses and disbursements of
Agent), second to the payment of all proper costs incurred by Banks in
connection with the collection thereof (including reasonable expenses and
disbursements of Banks), third to the reimbursement of any advances made by
Banks to effect performance of any unperformed covenants of Borrower under any
of the Loan Papers, fourth to the payment of any unpaid fees required pursuant
to Section 2.12, fifth to the payment of any unpaid fees required pursuant to
Sections 2.1(b), 2.10 and 2.11, sixth, to payment to each Bank of its Commitment
Percentage of outstanding principal of the Loan and accrued but unpaid interest
thereon, and seventh to establish the deposits required in Section 2.1(b). All
payments received by a Bank after the occurrence of an Event of Default for
application to the principal of the Loan shall be applied by such Bank in the
manner provided in Section 3.2(b).
SECTION 3.3. Funding Losses. If Borrower makes any payment of principal
subject to a Eurodollar Tranche (whether pursuant to Sections 2.6, 2.7, 2.8,
Article XI or Article XIII, and whether as a voluntary or mandatory prepayment
or otherwise) on any day other than the last day of the Interest Period
applicable thereto, or if Borrower fails to borrow any Eurodollar Borrowing
after notice has been given to any Bank in accordance with Section 2.5, Borrower
shall reimburse each Bank on demand for any resulting loss or expense actually
incurred by it, including (without limitation) any loss actually incurred in
obtaining, liquidating or employing deposits from third parties, or any loss
arising from the reemployment of funds at rates lower than the cost to such
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Bank of such funds and related costs, which in the case of the payment or
prepayment prior to the end of the Interest Period for any Eurodollar Tranche
shall include the amount, if any, by which (i) the interest which such Bank
would have received from Borrower, absent such payment or prepayment for the
applicable Interest Period exceeds (ii) the interest which such Bank would
receive if its Commitment Percentage of the amount of such Eurodollar Borrowing
were deposited, loaned, or placed by such Bank in the interbank eurodollar
market on the date of such payment or prepayment for the remainder of the
applicable Interest Period. Such Bank shall promptly deliver to Borrower and
Agent a certificate as to the amount of such loss or expense, which certificate
shall be conclusive in the absence of manifest error.
SECTION 3.4. Foreign Lenders, Participants, and Assignees. Each Bank,
Participant (by accepting a participation interest under this Agreement) and
Assignee (by executing an Assignment and Assumption Agreement) that is not
organized under the laws of the United States of America or one of its states
(a) represents to Agent and Borrower that (i) no Taxes are required to be
withheld by Agent or Borrower with respect to any payments to be made to it in
respect of the Obligations and (ii) it has furnished to Agent and Borrower two
(2) duly completed copies of either U.S. Internal Revenue Service Form 4224,
Form 1001, Form W-8, or other form acceptable to Agent that entitles it to
exemption from U.S. federal withholding Tax on all interest payments under the
Loan Papers, and (b) covenants to (i) provide Agent and Borrower a new Form
4224, Form 1001, Form W-8, or other form acceptable to Agent upon the expiration
or obsolescence of any previously delivered form according to applicable laws
and regulations, duly executed and completed by it, and (ii) comply from time to
time with all applicable laws and regulations with regard to the withholding Tax
exemption. If any of the foregoing is not true or the applicable forms are not
provided, then Borrower and Agent (without duplication) may deduct and withhold
from interest payments under the Loan Papers any United States federal income
Tax at the maximum rate applicable to such Bank, Participant or Assignee under
the Code.
ARTICLE IV
BORROWING BASE
SECTION 4.1. Reserve Report; Proposed Borrowing Base. As soon as
available and in any event by February 28 and August 31 of each year, commencing
February 28, 1997, Borrower shall deliver to Agent a Reserve Report prepared as
of the immediately preceding December 31 and June 30 respectively.
Simultaneously with the delivery to Agent of each Reserve Report, Borrower shall
notify Agent of the amount of the Borrowing Base which Borrower requests become
effective on the next Redetermination Date.
SECTION 4.2. Scheduled Redeterminations of the Borrowing Base;
Procedures and Standards. Based in part on the Reserve Reports made available to
Agent pursuant to Section 4.1, Agent shall make a redetermination of the
Borrowing Base to be effective on the next Redetermination Date (or such date
promptly thereafter as reasonably possible based on the engineering and other
information available to Agent). Any Borrowing Base which becomes
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effective as a result of any Redetermination of the Borrowing Base shall be
subject to the following restrictions: (a) such Borrowing Base shall not exceed
the Borrowing Base requested by Borrower pursuant to Sections 4.1 or 4.3 (as
applicable) and (b) such Borrowing Base shall not exceed the Total Commitment
then in effect. Each Redetermination shall be made by Agent, in its sole
discretion, taking into account, among other matters (i) its standards for
similar credits, including, without limitation, such assumptions regarding
appropriate existing and projected pricing for Hydrocarbons as Agent deems
appropriate in its sole discretion, (ii) such assumptions regarding projected
rates and quantities of future production of Hydrocarbons from the Mineral
Interests owned by Borrower as Agent deems appropriate in its sole discretion,
(iii) the capital structure and projected cash requirements of Borrower and
Guarantor, and (iv) such other assumptions, considerations and exclusions as
Agent deems appropriate in its sole discretion. It is further acknowledged and
agreed that Agent may consider such other credit factors as it deems appropriate
in the exercise of its sole discretion and shall have no obligation in
connection with any Redetermination to approve any increase from the Borrowing
Base in effect prior to such Redetermination. Any change in the Borrowing Base
shall not be effective until the same has been approved by all Banks. Promptly
following any Redetermination of the Borrowing Base, Agent shall notify Borrower
of the amount of the Borrowing Base as redetermined, which Borrowing Base shall
be effective as of the date of such notice, and shall remain in effect for all
purposes of this Agreement until a new Borrowing Base has been approved in
accordance with the requirements hereof.
SECTION 4.3 Special Redeterminations. In addition to Scheduled
Redeterminations, Agent shall be permitted to make a Special Redetermination of
the Borrowing Base once in each Fiscal Year and Borrower shall be permitted to
request a Special Redetermination of the Borrowing Base once in each Fiscal
Year. Any change in the Borrowing Base shall not be effective until the same has
been approved by all Banks. Agent shall provide Banks and Borrower with notice
of its intention to make a Special Redetermination or notice of Borrower's
request for a Special Redetermination. Each request for a Special
Redetermination by Borrower shall be accompanied by a Reserve Report and notice
from Borrower of the amount of the Borrowing Base which Borrower requests become
effective as a result of such Special Redetermination. In addition to Special
Redeterminations, Agent shall be permitted to redetermine the Borrowing Base by
excluding from the calculation thereof any Mineral Interest on which Borrower
would be required to grant a Lien in favor of Agent pursuant to Article V, but
for the application of Section 5.1(d). Any change in the Borrowing Base shall
not be effective until the same has been approved by all Banks. The Borrowing
Base so redetermined will become effective immediately upon written notice from
Agent to Borrower that such redetermined Borrowing Base has been approved by
Banks.
SECTION 4.4. Borrowing Base Deficiency. If a Borrowing Base Deficiency
exists after giving effect to any Redetermination or any redetermination
pursuant to the last sentence of Section 4.3, Borrower shall be obligated to
eliminate such Borrowing Base Deficiency over a period not to exceed six (6)
months from the effective date of such Redetermination or other redetermination
by making two (2) mandatory, equal payments of principal on the Loan, each of
which shall be in the amount of one-half (1/2) of such Borrowing Base
Deficiency, or in the
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event that the remaining principal outstanding under the Loan is less than the
Borrowing Base Deficiency, then the amount of one-half (1/2) of the remaining
principal outstanding under the Loan. The first of such payments shall be due on
the date that is three (3) months following the effective date of such
Redetermination or other redetermination and the second of such payments shall
be due on the date that is six (6) months following the effective date of such
Redetermination or other redetermination (or if there is no corresponding day of
any subsequent month, then on the last day of such month) (each such date is
referred to herein as a "borrowing base deficiency payment date"). If a
Borrowing Base Deficiency cannot be eliminated pursuant to this Section 4.4 by
prepayment of the Loan in full (as a result of outstanding Letter of Credit
Exposure), on each borrowing base deficiency payment date, Borrower shall also
deposit cash with Agent, to be held by Agent to secure outstanding Letter of
Credit Exposure in the manner contemplated by Section 2.1(b), in an amount at
least equal to one-half (1/2) of the balance of such Borrowing Base Deficiency
(i.e., one-half of the difference between the Borrowing Base Deficiency and the
remaining outstanding principal under the Loan on the effective date of such
Redetermination or other redetermination).
SECTION 4.5. Initial Borrowing Base. The Borrowing Base shall be
$50,000,000 for the period commencing on the Closing Date and ending on the
first Redetermination Date after the Closing Date.
ARTICLE V
COLLATERAL AND GUARANTYS
SECTION 5.1. Security. (a) If all amounts payable under the
Subordinated Bridge Debt are not paid prior to the date that is six (6) months
after the date of this Agreement, or if on the date that is six (6) months after
the date of this Agreement JEDI has any commitment to fund any loans or make any
advances to Borrower or Guarantor, then Borrower shall be required to, and shall
promptly undertake to, subject to the provisions of Section 5.1(d), secure
repayment of the Obligations by granting to Agent first and prior Liens (subject
only to Permitted Encumbrances) on, covering and encumbering Mineral Interests
owned by Borrower having, in the aggregate, the Required Recognized Value. If
the provisions of this Section 5.1(a) become applicable, Borrower will promptly
upon the preparation thereof by Agent, deliver to Agent for the ratable benefit
of each Bank, a Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement (or similar instrument with respect to
properties situated in states other than the State of Texas) in form reasonably
satisfactory to Agent (a "Mortgage"), together with such other instruments of
conveyance and agreement, including, without limitation, UCC-1 financing
statements (each duly authorized and executed) as Agent shall reasonably deem
necessary or appropriate to confirm, evidence and perfect the Liens on
Borrower's Mineral Properties having, in the aggregate, subject to the
provisions of Section 5.1(d) the Required Recognized Value.
(b) If the provisions of Section 5.1(a) become applicable,
then on or before each Redetermination Date and at such other times as Agent or
Required Banks shall request
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(including, without limitation, when required pursuant to Section 4.3), Borrower
shall execute and deliver to Agent, for the ratable benefit of each Bank,
Mortgages in form and substance reasonably acceptable to Agent to grant,
evidence and perfect, subject to the provisions of Section 5.1(d) the Liens
required by Section 5.1(a) with respect to Mineral Interests acquired by
Borrower subsequent to the last date on which Borrower was required to execute
and deliver Mortgages pursuant to this Section 5.1(b), or which, for any other
reason are required to be but are not the subject of valid, enforceable,
perfected first priority Liens (subject only to Permitted Encumbrances) in favor
of Agent for the ratable benefit of Banks (or subsequent to the Closing Date in
the case of the first request pursuant to this Section 5.1(b)).
(c) At any time Borrower is required to execute and deliver
Mortgages to Agent pursuant to this Section 5.1, Borrower shall also deliver to
Agent (i) such opinions of counsel (addressed to Agent) and other evidence of
title as Agent shall reasonably deem necessary or appropriate to verify (A)
Borrower's title to the Proved Mineral Interests which are subject to such
Mortgages, and (B) the validity, perfection and priority of the Liens created by
such Mortgages and (ii) a request or report obtained by Borrower setting forth
the results of a Phase I environmental review of such Mineral Interests and
related properties, all of which must be reasonably satisfactory in form and
substance to Agent.
(d) Notwithstanding the other provisions of this Section 5.1,
Borrower shall not be required to grant Agent a Lien on any Mineral Interest
owned by Borrower as to which the consent of any third party is required if
Borrower fails, having made a good faith attempt, to obtain such third-party
consent, so long as the Recognized Value of all Mineral Interests subject to
Mortgages required pursuant to this Section 5.1 (without regard to this Section
5.1(d)) is at all times at least 90% of the Mortgaged Value of all Mineral
Properties of Borrower.
SECTION 5.2 Guarantys. Payment and performance of the Obligations shall
be fully guaranteed by Guarantor pursuant to Facility Guarantys duly executed
and delivered by Guarantor.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Initial Borrowing and Participation in
Letter of Credit Exposure. The obligation of each Bank to loan its Commitment
Percentage of the initial Borrowing, and the obligation of Agent to issue the
initial Letter of Credit issued hereunder, is subject to the satisfaction of
each of the following conditions:
(a) Closing Deliveries. Agent shall have received each of the
following documents, instruments and agreements, each of which shall be in form
and substance and executed in such counterparts as shall be acceptable to Agent
and each Bank and each of which shall, unless otherwise indicated, be dated the
Closing Date:
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(i) a Note payable to the order of each Bank, each in the
amount of such Bank's Commitment, duly executed by Borrower;
(ii) a Facility Guaranty for the benefit of each Bank, duly
executed by Guarantor;
(iii) the Estoppel Agreement duly executed by Guarantor and
JEDI;
(iv) a copy of the Certificate of Incorporation, and all
amendments thereto, of each of Borrower or Guarantor
accompanied by a certificate that such copy is true, correct
and complete, and dated within ten (10) days of the Closing
Date, issued by the appropriate Governmental Authority of the
State of Delaware and accompanied by a certificate of the
Secretary of each of Borrower and Guarantor that such copy is
true, correct and complete on the Closing Date;
(v) a copy of the Bylaws, and all amendments thereto, of each
of Borrower and Guarantor, accompanied by a certificate of the
Secretary of each of Borrower and Guarantor that such copy is
true, correct and complete as of the date hereof;
(vi) certain certificates and other documents issued by the
appropriate Governmental Authorities (A) of the State of
Delaware relating to the existence and good standing with
respect to the payment of franchise and similar Taxes of each
of Borrower and Guarantor and (B) of the jurisdictions listed
on Schedule 4 hereto, to the effect that Borrower is duly
qualified to do business, and is in good standing, in such
jurisdictions;
(vii) a certificate of incumbency of all officers of each of
Borrower and Guarantor who will be authorized to execute or
attest to any Loan Paper, dated the date hereof, executed by
the Secretary of each of Borrower and Guarantor;
(viii) copies of resolutions approving the Loan Papers and
authorizing the transactions contemplated by this Agreement
and the other Loan Papers, duly adopted by the Board of
Directors of each of Borrower and Guarantor, accompanied by
certificates of the Secretary of each of Borrower and
Guarantor that such copies are true and correct copies of
resolutions duly adopted at a meeting of or (if permitted by
applicable Law and, if required by such Law, by its
Certificate of Incorporation or Bylaws) by the unanimous
written consent of the Board of Directors of each of Borrower
and Guarantor, and that such resolutions constitute all the
resolutions adopted with respect to such transactions, have
not been amended, modified, or revoked in any respect, and are
in full force and effect as of the date hereof;
(ix) a Notice of Final Agreement duly executed by Borrower and
Guarantor;
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(x) an opinion of Fulbright & Jaworski L.L.P., counsel for
Borrower and Guarantor dated the date hereof, favorably
opining as to the due authority, execution, and delivery of
the Loan Papers by Borrower and Guarantor, and as to the
enforceability of each of the Loan Papers, and otherwise in
form and substance satisfactory to Agent and Banks;
(xi) an opinion of Gardere Wynne Sewell & Riggs, L.L.P.,
special counsel for Agent, dated the date hereof in form and
substance satisfactory to Agent;
(xii) a copy of resolutions of the Board of Directors of Enron
Capital Corp., approving the Estoppel Agreement and
authorizing the officer executing the same to so execute and
deliver such agreement to Agent, on behalf of JEDI,
accompanied by a certificate of an executive officer of Enron
Capital Corp. stating that such copy is a true and correct
copy of such resolutions and further accompanied by a
certificate of incumbency identifying such signatory of the
Estoppel Agreement and his signature, executed by such
executive officer;
(xiii) a certificate signed by a Financial Officer of Borrower
stating that, to the best of his knowledge without specific
inquiry (a) the representations and warranties contained in
this Agreement and the other Loan Papers are true and correct
in all material respects, and (b) no Default or Event of
Default has occurred and is continuing, and (c) all conditions
set forth in this Section 6.1 have been satisfied or waived;
and
(xiv) Evidences of Property Insurance (on Accord Form 27) from
Borrower's insurance broker setting forth the insurance
maintained by Borrower, stating that such insurance is in full
force and effect, that all premiums due have been paid and
stating that such insurance is adequate and complies with the
requirements of Section 8.6.
(b) Reduction of Subordinated Bridge Debt. Agent shall have
received evidence satisfactory to it that the Initial Borrowing is used to repay
a portion of the outstanding principal balance of, and make a permanent
reduction of, the Subordinated Bridge Debt.
(c) Capital Structure of Borrower and Guarantor. Agent shall
have received evidence satisfactory to it concerning the capital structure of
Borrower and Guarantor as of the date hereof.
(d) No Material Adverse Effect. In the sole discretion of each
Bank, no event has occurred which has a Material Adverse Effect on Borrower or
Guarantor since March 31, 1996.
(e) No Legal Prohibition. The transactions contemplated by
this Agreement shall be permitted by applicable Law and regulation and shall not
subject Agent, any Bank, Borrower
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or Guarantor to any material adverse change in its assets, liabilities,
financial condition, operations or prospects.
(f) No Litigation. No litigation, arbitration or similar
proceeding shall be pending or threatened which calls into question the validity
or enforceability of this Agreement, the other Loan Papers or the transactions
contemplated hereby or thereby.
(g) Closing Fees. Borrower shall have paid to Agent for the
ratable benefit of each Bank, and shall have paid to Agent, the fees to be paid
on the Closing Date pursuant to Section 2.11 and 2.12.
(h) Other Matters. All matters related to this Agreement, the
other Loan Papers and Borrower and Guarantor shall be acceptable to each Bank in
its sole discretion, and Borrower and Guarantor shall have delivered to Agent
and each Bank such evidence as they shall request to substantiate any matters
related to this Agreement or the other Loan Papers.
SECTION 6.2. Conditions to Each Borrowing and each Letter of Credit.
The obligation of each Bank to loan its Commitment Percentage of each Borrowing
(other than the Initial Borrowing), and the obligation of Agent to issue a
Letter of Credit on the date such Letter of Credit is to be issued, is subject
to the further satisfaction of the following conditions:
(a) timely receipt by Agent of a Request for Borrowing or a
Request for Letter of Credit (as applicable);
(b) immediately before and after giving effect to such
Borrowing or issuance of such Letter of Credit, no Default or Event of Default
shall have occurred and be continuing and the making of any Loan in connection
with such Borrowing or the issuance of the requested Letter of Credit (as
applicable) shall not cause a Default or Event of Default;
(c) the amount of the requested Borrowing or the amount of the
requested Letter of Credit (as applicable) shall not exceed the Availability;
(d) no Material Adverse Effect shall have occurred since the
date of the most recent Financial Statements of Borrower and Guarantor delivered
to Agent; and
(e) the making of such Loan or the issuance of such Letter of
Credit (as applicable) shall be permitted by applicable Law.
Each Borrowing and the issuance of each Letter of Credit hereunder shall be
deemed to be a representation and warranty by Borrower on the date of such
Borrowing and the date of issuance of such Letter of Credit as to the facts
specified in Sections 6.2(b) through (e).
SECTION 6.3. Materiality of Conditions. Each condition precedent herein
is material to the transactions contemplated herein, and time is of the essence
in respect of each thereof.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and each Bank that each of
the following statements is true and correct on the date hereof:
SECTION 7.1. Borrower's Corporate Existence and Power. Borrower (a) is
a corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, (b) has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its businesses as now conducted and as proposed to be conducted, and (c) is
duly qualified to transact business as a foreign corporation in each
jurisdiction where a failure to be so qualified could have a Material Adverse
Effect.
SECTION 7.2. Guarantor's Corporate Existence and Power. Guarantor (a)
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, (b) has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its businesses as now conducted and as proposed to be conducted, and (c) is
duly qualified to transact business as a foreign corporation in each
jurisdiction where a failure to be so qualified could have a Material Adverse
Effect.
SECTION 7.3. Corporate Authority and Governmental Authorization;
Contravention. The execution, delivery and performance of this Agreement and the
other Loan Papers by Borrower and Guarantor are within the corporate powers of
Borrower and Guarantor, when executed will be duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
Governmental Authority, do not contravene, or constitute a default under, any
provision of applicable Law (including, without limitation, the Margin
Regulations) or of the Certificate of Incorporation or Bylaws of either Borrower
or Guarantor or of any agreement, judgment, injunction, order, decree or other
instrument binding upon Borrower or Guarantor, and will not result in the
creation or imposition of any Lien on any asset of Borrower or Guarantor other
than as contemplated by Article V.
SECTION 7.4. Binding Effect. This Agreement constitutes the valid and
binding agreement of Borrower and Guarantor and the other Loan Papers, when
executed and delivered in accordance with this Agreement, will constitute valid
and binding obligations of Borrower and Guarantor. Each Loan Paper is, or when
executed and delivered will be, enforceable against Borrower and Guarantor in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors rights
generally, and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
SECTION 7.5. Financial Information. (a) The most recent annual audited
consolidated balance sheet of Borrower and the related consolidated statements
of operations and cash flows
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for the Fiscal Year then ended, copies of which have been delivered to each
Bank, fairly present, in conformity with GAAP, the consolidated financial
position of Borrower as of the end of such Fiscal Year and its consolidated
results of operations and cash flows for such Fiscal Year.
(b) The most recent quarterly unaudited consolidated balance
sheet of Borrower and the related unaudited consolidated statements of
operations and cash flows for Borrower's fiscal quarter then ended, copies of
which have been delivered to each Bank, fairly present, in conformity with GAAP
applied on a basis consistent with the financial statements referred to in
Section 7.5(a), the consolidated financial position of Borrower as of such date
and its consolidated results of operations and cash flows for such quarter.
SECTION 7.6. Litigation. Except for matters disclosed on Schedule 3
attached hereto, there is no action, suit or proceeding pending or, to the best
knowledge of Borrower, threatened against or affecting Borrower or Guarantor
before any Governmental Authority in which could reasonably be expected to have
a Material Adverse Effect or which could in any manner draw into question the
validity of the Loan Papers.
SECTION 7.7. ERISA. Neither Borrower nor Guarantor maintains or has
ever maintained or been obligated to contribute to any Plan covered by Title IV
of ERISA or subject to the funding requirements of Section 412 of the Code or
Section 302 of ERISA. Each Plan maintained by Borrower or Guarantor is in
compliance in all material respects with all applicable Laws. Except in such
instances where an omission or failure would not have a Material Adverse Effect
(a) all returns, reports and notices required to be filed with any regulatory
agency with respect to any Plan have been filed timely, and (b) neither Borrower
or Guarantor has failed to make any contribution or pay any amount due or owing
as required by the terms of any Plan. There are no pending or, to the best of
Borrower's knowledge, threatened claims, lawsuits, investigations or actions
(other than routine claims for benefits in the ordinary course) asserted or
instituted against, and Borrower has no knowledge of any threatened litigation
or claims against, the assets of any Plan or its related trust or against any
fiduciary of a Plan with respect to the operation of such Plan that are likely
to result in liability of Borrower or Guarantor having a Material Adverse
Effect. Except in such instances where an omission or failure would not have a
Material Adverse Effect, each Plan that is intended to be "qualified" within the
meaning of section 401(a) of the Code is, and has been during the period from
its adoption to date, so qualified, both as to form and operation and all
necessary governmental approvals, including a favorable determination as to the
qualification under the Code of such Plan and each amendment thereto, have been
or will be timely obtained. Neither Borrower nor Guarantor has engaged in any
prohibited transactions, within the meaning of section 406 of ERISA or section
4975 of the Code, in connection with any Plan which would result in liability of
Borrower or Guarantor having a Material Adverse Effect. Neither Borrower nor
Guarantor maintains or contributes to Guarantor any Plan that provides a
post-employment health benefit, other than a benefit required under Section 601
of ERISA, or maintains or contributes to a Plan that provides health benefits
that is not fully funded except where the failure to fully fund such Plan would
not have a Material Adverse Effect. Neither Borrower nor Guarantor maintains,
has established or has ever participated in a multiple employer welfare benefit
arrangement within the meaning of section
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3(40)(A) of ERISA. Borrower has no knowledge that any of the foregoing
representations or warranties would be continuing if applied to any ERISA
Affiliate.
SECTION 7.8. Taxes and Filing of Tax Returns. Each of Borrower and
Guarantor has filed all tax returns required to have been filed and has paid all
Taxes shown to be due and payable on such returns, including interest and
penalties, and all other Taxes which are payable by such party, to the extent
the same have become due and payable, other than Taxes with respect to which a
failure to pay would not have a Material Adverse Effect. Borrower has no
knowledge of any proposed material Tax assessment against it or Guarantor and
all Tax liabilities of Borrower and Guarantor are adequately provided for.
Except as disclosed in writing to Banks prior to the date hereof, no income tax
liability of Borrower or Guarantor has been asserted by the Internal Revenue
Service or other Governmental Authority for Taxes in excess of those already
paid. Borrower's federal tax identification number is 86-0460233 and
Guarantor's federal tax identification number is 76-0500915.
SECTION 7.9. Ownership of Properties Generally. Each of Borrower and
Guarantor has good and valid fee simple or leasehold title to all material
properties and assets purported to be owned by it, including, without
limitation, all assets reflected in the balance sheets referred to in Section
7.5 (a) and (b) and all assets which are used by Borrower and Guarantor in the
operation of their respective businesses, and none of such properties or assets
is subject to any Lien other than Permitted Encumbrances.
SECTION 7.10. Mineral Interests. Borrower has good and defensible title
to all Proved Mineral Interests described in the Reserve Report, free and clear
of all Liens except Permitted Encumbrances and Immaterial Title Deficiencies.
With the exception of Immaterial Title Deficiencies, all such Proved Mineral
Interests are valid, subsisting, and in full force and effect, and all rentals,
royalties, and other amounts due and payable in respect thereof have been duly
paid. Without regard to any consent or non-consent provisions of any joint
operating agreement covering any of Borrower's Proved Mineral Interests, and
with the exception of Immaterial Title Deficiencies, Borrower's share of (a) the
costs for each Proved Mineral Interest described in the Reserve Report is not
greater than the decimal fraction set forth in the Reserve Report, before and
after payout, as the case may be, and described therein by the respective
designations "working interests", "WI", "gross working interest", "GWI", or
similar terms, and (b) production from, allocated to, or attributed to each such
Proved Mineral Interest is not less than the decimal fraction set forth in the
Reserve Report, before and after payout, as the case may be, and described
therein by the designations "net revenue interest", "NRI", or similar terms.
Each well drilled in respect of each Proved Producing Mineral Interest described
in the Reserve Report (y) is capable of producing Hydrocarbons in commercially
profitable quantities, and Borrower is currently receiving payments for its
share of production, with no funds in respect of any thereof being presently
held in suspense, other than any such funds being held in suspense pending
delivery of appropriate division orders, and (z) has been drilled, bottomed,
completed and operated or, as to wells not operated by Borrower, has been
drilled, bottomed, completed and operated, to Borrower's knowledge, in
compliance with all applicable Laws and no such well which is currently
producing Hydrocarbons is subject to any penalty in production by reason of
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such well having produced in excess of its allowable production, to the extent
that failure to comply with such laws or the imposition of such penalty could
reasonably be expected to have a Material Adverse Effect. Schedule 2 hereto
describes Proved Producing Mineral Interests owned by Borrower having, in the
aggregate, a Recognized Value of at least 98% of the Recognized Value of all
Proved Producing Mineral Interests owned by Borrower on the date hereof.
SECTION 7.11. Licenses, Permits, Etc. Each of Borrower and Guarantor
possesses such valid franchises, certificates of convenience and necessity,
operating rights, licenses, permits, consents, authorizations, exemptions and
orders of Governmental Authorities, as are necessary to carry on its business as
now conducted and as proposed to be conducted, except to the extent a failure to
obtain any such item would not have a Material Adverse Effect.
SECTION 7.12. Compliance with Law. The business and operations of each
of Borrower and Guarantor have been and are being conducted in accordance with
all applicable Laws other than violations of Laws which do not (either
individually or collectively) have a Material Adverse Effect.
SECTION 7.13. Full Disclosure. All information heretofore furnished to
Agent or any Bank for purposes of or in connection with this Agreement, any Loan
Paper or any transaction contemplated hereby or thereby is, and all such
information hereafter furnished by or on behalf of Borrower or Guarantor to
Agent or any Bank will be, on the date of delivery thereof, true, complete and
accurate in every material respect insofar as the information is purported to be
shown thereby. To the best knowledge of Borrower, there are no facts which have
not been disclosed in writing to Banks which might reasonably be expected to
materially and adversely affect the assets, liabilities, financial condition,
operations of either Borrower or Guarantor, taken as a whole, or the ability of
Borrower or Guarantor to perform its obligations under this Agreement and the
other Loan Papers.
SECTION 7.14. Organizational Structure; Nature of Business. Guarantor's
sole asset consists of one hundred percent (100%) of the issued and outstanding
capital stock of Borrower. Guarantor conducts no business and has no operations
other than (a) the issuance of equity and debt securities not prohibited
pursuant to the provisions of this Agreement, (b) the ownership of the issued
and outstanding capital stock of Borrower, and (c) activities reasonably related
to the foregoing. Guarantor has no Subsidiaries other than Borrower. Borrower
has no Subsidiaries. Borrower is engaged only in the business of acquiring,
exploring, developing and operating Mineral Interests and the production and
marketing of Hydrocarbons therefrom, including the processing and transportation
thereof and, to the extent such activities are not prohibited or limited by this
Agreement, other activities reasonably related or incidental thereto. Schedule 4
hereto accurately reflects (i) each jurisdiction in which Borrower or Guarantor
is qualified to transact business as a foreign corporation, (ii) the authorized,
issued and outstanding stock of each of Borrower and Guarantor and (iii) all
outstanding warrants, options, subscription rights, convertible securities or
other rights to purchase capital stock of each of Borrower and Guarantor.
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SECTION 7.15. Environmental Matters. No operation conducted by Borrower
or Guarantor and no real property now or previously owned or leased by Borrower
or Guarantor (including, without limitation, Borrower's Mineral Interests) and
no operations conducted thereon by Borrower or Guarantor, and to the best of
Borrower's knowledge, no operations of any prior owner, lessee or operator of
any such properties, is or has been in violation of any Applicable Environmental
Law other than violations which neither individually nor in the aggregate will
have a Material Adverse Effect. To the best of Borrower's knowledge, neither
Borrower nor Guarantor, nor any real property owned, leased or operated by
Borrower or Guarantor, nor any operation conducted by Borrower or Guarantor, is
the subject of any existing, pending or, to the best of Borrower's knowledge,
threatened Environmental Complaint which could, individually or in the
aggregate, have a Material Adverse Effect. All notices, permits, licenses, and
similar authorizations required to be obtained or filed in connection with the
ownership of each portion of real property owned by, or the operations of,
Borrower and Guarantor, including, without limitation, notices, licenses,
permits and authorizations required in connection with any past or present
treatment, storage, disposal, or release of Hazardous Substances into the
environment, have been duly obtained or filed except to the extent the failure
to obtain or file such notices, licenses, permits and authorizations would not
have a Material Adverse Effect. After reasonable inquiry, to Borrower's
knowledge, all Hazardous Substances generated at each tract of real property
owned, leased or operated by Borrower or Guarantor have been transported,
treated, and disposed of only by carriers or facilities maintaining valid
permits under all Applicable Environmental Laws for the conduct of such
activities except in such cases where the failure to obtain such permits would
not, individually or in the aggregate, have a Material Adverse Effect. There
have been no Hazardous Discharges for which Borrower or Guarantor could be held
responsible under Applicable Environmental Laws which were not in compliance
with Applicable Environmental Laws other than Hazardous Discharges which would
not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 7.16. Burdensome Obligations. Neither Borrower nor Guarantor,
nor any of the properties of Borrower or Guarantor, is subject to any Law or any
pending or threatened change of Law or subject to any restriction under its
Certificate of Incorporation or Bylaws, or under any agreement or instrument to
which Borrower or Guarantor is a party, or by which Borrower or Guarantor or any
of their properties may be subject or bound, which is so unusual or burdensome
as to be likely in the foreseeable future to have a Material Adverse Effect.
Without limiting the foregoing, neither Borrower nor Guarantor is a party to or
bound by any agreement (other than the Loan Papers) or subject to any order of
any Governmental Authority which prohibits or restricts in any way the right of
Borrower or Guarantor to make Distributions.
SECTION 7.17. Fiscal Year. Borrower's Fiscal Year is January 1 through
December 31.
SECTION 7.18. No Default. Neither a Default nor an Event of Default
will exist after giving effect to the transactions contemplated by this
Agreement or the other Loan Papers.
SECTION 7.19. Government Regulation. Neither Borrower nor Guarantor is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the
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Interstate Commerce Act, the Investment Company Act of 1940 (as any of the
preceding acts have been amended) or any other law which regulates the incurring
by Borrower or Guarantor of Debt, including, but not limited to laws relating to
common contract carriers or the sale of electricity, gas, stream, water or other
public utility services.
SECTION 7.20. Insider. Neither Borrower nor Guarantor is an "executive
officer", "director" or "principal shareholder" (as such terms are defined in 12
U.S.C. Section 375b) of any Bank or any bank holding company of which any Bank
is a Subsidiary or of any Subsidiary of such bank holding company.
SECTION 7.21. Gas Balancing Agreements and Advance Payment Contracts.
There is no Material Gas Imbalance, and the aggregate amount of all Advance
Payments received by Borrower under Advance Payment Contracts which have not
been satisfied by delivery of production does not exceed $2,000,000.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any Bank has any
commitment to lend or participate in Letter of Credit Exposure hereunder or any
amount payable under any Note remains unpaid or any Letter of Credit remains
outstanding:
SECTION 8.1. Information. Borrower will deliver, or cause to be
delivered, to Agent:
(a) as soon as available and in any event within one hundred
twenty (120) days after the end of each Fiscal Year, consolidated balance sheets
of Borrower as of the end of such Fiscal Year and the related consolidated
statements of income and statements of cash flow for such Fiscal Year, setting
forth in each case in comparative form the figures for the previous Fiscal Year,
all reported by Borrower in accordance with GAAP and audited by Deloitte &
Touche LLP or another firm of independent public accountants of nationally
recognized standing acceptable to Agent;
(b) (i) as soon as available and in any event within sixty
(60) days after the end of each Fiscal Quarter, consolidated balance sheets of
Borrower as of the end of such Fiscal Quarter and the related consolidated
statements of income and statements of cash flow for such Fiscal Quarter and for
the portion of Borrower's Fiscal Year ended at the end of such Fiscal Quarter,
setting forth in each case in comparative form the figures for the corresponding
quarter and the corresponding portion of Borrower's previous Fiscal Year, all of
which shall be certified as to fairness of presentation, GAAP and, commencing
with respect to the Fiscal Quarter commencing April 1, 1997, consistency, by
a Financial Officer of Borrower;
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(c) simultaneously with the delivery of each set of financial
statements referred to in Sections 8.1(a) and (b), a certificate of a Financial
Officer of Borrower in the form of Exhibit F attached hereto, (i) setting forth
in reasonable detail the calculations required to establish whether Borrower was
in compliance with the requirements of Article X on the date of such financial
statements, (ii) stating whether, to the best of his knowledge without specific
inquiry, there exists on the date of such certificate any Default or Event of
Default and, if any Default or Event of Default then exists, setting forth the
details thereof and the action which Borrower is taking or proposes to take with
respect thereto, (iii) stating whether or not such financial statements fairly
reflect the results of operations and financial condition of Borrower as of the
date of the delivery of such financial statements and for the period covered
thereby, (iv) setting forth (A) whether as of such date there is a Material Gas
Imbalance and, if so, setting forth the amount of net gas imbalances under Gas
Balancing Agreements to which Borrower is a party or by which any Mineral
Interests owned by Borrower is bound, and (B) the aggregate amount of all
Advance Payments received under Advance Payment Contracts to which Borrower is a
party or by which any Mineral Interests owned by Borrower is bound which have
not been satisfied by delivery of production, if any, and (v) a summary of the
Hedge Transactions to which Borrower is a party on such date;
(d) promptly after the effectiveness thereof, notice of any
amendment to the Certificate of Incorporation or Bylaws of Borrower or
Guarantor;
(e) promptly upon the filing thereof, copies of all final
registration statements, post-effective amendments thereto and annual, quarterly
or special reports which Borrower or Guarantor or any Subsidiary of Borrower or
Guarantor shall have filed with the Securities and Exchange Commission;
(f) promptly upon receipt of same, any notice or other
information received by Borrower or Guarantor indicating (i) any actual or
alleged non-compliance with or violation of the requirements of any Applicable
Environmental Law which could reasonably be expected to result in liability to
Borrower or Guarantor for fines, clean up or any other remediation obligations
or any other liability in excess of $100,000 in the aggregate; (ii) the
occurrence of a Hazardous Discharge which would impose on Borrower or Guarantor
a duty to report to a Governmental Authority or to pay cleanup costs or to take
remedial action under any Applicable Environmental Law and which could
reasonably be expected to result in liability to Borrower or Guarantor for
fines, clean up and other remediation obligations or any other liability in
excess of $100,000 in the aggregate; or (iii) the existence of any Lien arising
under any Applicable Environmental Law securing any obligation to pay fines,
clean up or other remediation costs or any other liability in excess of $100,000
in the aggregate. Without limiting the foregoing, Borrower and Guarantor shall
provide to Banks promptly upon receipt of same by Borrower or Guarantor copies
of all environmental consultants or engineers reports received by Borrower or
Guarantor which would render the representation and warranty contained in
Section 7.15 untrue or inaccurate in any respect;
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(g) In the event any notification is provided to any Bank or
Agent pursuant to Section 8.1(f) or Agent or any Bank otherwise learns of any
event or condition under which any such notice would be required, then, upon
request of Required Banks, Borrower shall, within thirty (30) days of such
request, cause to be furnished to Agent and each Bank, at the sole cost and
expense of Borrower, a report by an environmental consulting firm acceptable to
Agent and Required Banks, stating that a review of such event, condition or
circumstance has been undertaken (the scope of which shall be acceptable to
Agent and Required Banks) and detailing the findings, conclusions and
recommendations of such consultant;
(h) promptly upon any Authorized Officer of Borrower becoming
aware of the occurrence of any Default, a certificate of an Authorized Officer
of Borrower setting forth the details thereof and the action which Borrower is
taking or proposes to take with respect thereto;
(i) no later than February 28, and August 31 of each year,
reports (prepared on an accrual basis and reported on a well by well basis) of
production volumes, revenue, expenses and product prices for each Mineral
Interest owned by Borrower with a Recognized Value of $100,000 or more for the
periods of six (6) months ending the preceding December 31, and June 30,
respectively;
(j) promptly upon the occurrence thereof, notice of any
Material Adverse Effect;
(k) at the times required therein, the items described in
Section 8.11;
(l) promptly, but in any event within thirty (30) days after
receipt of service thereof, notice of any litigation against Borrower or
Guarantor or any Subsidiary of Borrower or Guarantor which could reasonably be
expected to result in liability to Borrower or Guarantor or any Subsidiary of
Borrower or Guarantor in excess of $1,000,000;
(m) once the ongoing equity contribution program of management
of Borrower and Guarantor is complete, a final schedule describing the capital
structure of Borrower and Guarantor;
(n) promptly after the incurrence thereof, notice of each
incurrence of $1,000,000 or more of Unrestricted Subsidiary Debt and, promptly
thereafter if requested by Agent, copies of all documents and instruments
evidencing or securing such Unrestricted Subsidiary Debt; and
(o) from time to time such additional information regarding
the financial position or business of Borrower and Guarantor as Agent may
reasonably request.
SECTION 8.2. Business of Borrower and Guarantor. The sole business of
Guarantor shall continue to be (a) the issuance of equity and debt securities
not prohibited pursuant to the provisions of this Agreement, (b) the ownership
of the issued and outstanding capital stock of Borrower, and (c) activities
reasonably related to the foregoing. The sole business of Borrower shall
continue to be the acquisition, exploration, development and operation of
Mineral Interests
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and the production and marketing of Hydrocarbons therefrom, including the
processing and transportation thereof and, to the extent such activities are not
prohibited or limited by this Agreement, other activities reasonably related or
incidental thereto.
SECTION 8.3. Maintenance of Existence. Borrower and Guarantor shall, at
all times (a) maintain their corporate existence and good standing in the State
of Delaware and (b) maintain their respective good standing and qualification to
transact business in all jurisdictions where the failure to maintain good
standing or qualification to transact business could reasonably be expected to
have a Material Adverse Effect; provided, however, that Guarantor may be merged
into Borrower or into any wholly-owned Subsidiary of Borrower, provided that
simultaneously with such merger (a) such surviving entity executes such
documents or instruments as Agent may reasonably require to evidence the
continuing subordination of all Subordinated Debt owed by Guarantor prior to
such merger and (b) Borrower and such surviving entity (if not Borrower) execute
an amendment to this Agreement and the other Loan Papers as Agent may deem
necessary to effect conforming changes hereto and thereto to reflect such
merger.
SECTION 8.4. Title Data. In addition to the title information required
by Section 5.1, Borrower shall, upon the request of Agent, cause to be delivered
to Agent such title opinions and other information regarding title to Mineral
Interests owned by Borrower as are appropriate to determine the status thereof;
provided, however, that Agent may not require Borrower to furnish title opinions
(except pursuant to Section 5.1) unless (a) an Event of Default shall have
occurred and be continuing or (b) Agent has reason to believe that there is a
defect in or encumbrance upon Borrower's title to such Mineral Interests that is
not a Permitted Encumbrance.
SECTION 8.5. Right of Inspection. Each of Borrower and Guarantor will
permit any officer, employee or agent of Agent or of any Bank to visit and
inspect its assets, examine its books of record and accounts, take copies and
extracts therefrom, and discuss its affairs, finances and accounts with its
officers, accountants and auditors, all at such reasonable times and as often as
Agent or any Bank may desire, provided that Borrower shall not be required to
disclose to Agent, any Bank or any officer, employee or agent thereof any
information that is the subject of attorney-client privilege or attorney's
work-product privilege properly asserted by Borrower to prevent the loss of such
privilege in connection with such information.
SECTION 8.6. Maintenance of Insurance. Each of Borrower and Guarantor
will at all times maintain or cause to be maintained insurance covering such
risks as are customarily carried by businesses similarly situated, including,
without limitation, the following: (a) workmen's compensation insurance; (b)
employer's liability insurance; (c) comprehensive general public liability and
property damage insurance; (d) insurance against losses as a result of damage by
fire, lightning, hail, tornado, explosion and other similar risk; and (e)
comprehensive automobile liability insurance. All loss payable clauses or
provisions in all policies of insurance maintained by either Borrower or
Guarantor pursuant to this Section 8.6 with respect to any assets securing the
Obligations shall be endorsed, within thirty (30) days of the date Agent gives
notice to Borrower of Agent's intention to take collateral pursuant to Article
V, in favor of and made payable to Agent for the ratable benefit of Banks, as
their interests may appear. Agent shall have
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the right, for the ratable benefit of Banks, to collect, and each of Borrower
and Guarantor hereby assigns to Agent for the ratable benefit of Banks any and
all monies that may become payable under any such policies of insurance by
reason of damage, loss or destruction of any of property which stands as
security for the Obligations or any part thereof, and Agent may, at its
election, either apply for the ratable benefit of Banks all or any part of the
sums so collected toward payment of the Obligations, whether or not such
Obligations are then due and payable, in such manner as Agent may elect or
release same to Borrower.
SECTION 8.7. Payment of Taxes and Claims. Each of Borrower and
Guarantor will pay (a) all Taxes imposed upon it or any of its assets or with
respect to any of its franchises, business, income or profits before any
material penalty or interest accrues thereon and (b) all material claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a Lien (other than a Permitted Encumbrance) on any of its assets;
provided, however, no payment of Taxes or claims shall be required if (i) the
amount, applicability or validity thereof is currently being contested in good
faith by appropriate action promptly initiated and diligently conducted in
accordance with good business practices and no part of the property or assets of
Borrower or Guarantor is then subject to any pending levy or execution, (ii)
Borrower and Guarantor, as and to the extent required in accordance with GAAP,
shall have set aside on their books reserves (segregated to the extent required
by GAAP) deemed by them to be adequate with respect thereto, and (iii) Borrower
has notified Agent of such circumstances, if the same could reasonably be
expected to have a Material Adverse Effect, in detail satisfactory to Agent.
SECTION 8.8. Compliance with Laws and Documents. Each of Borrower and
Guarantor will comply with all Laws, their respective Certificate of
Incorporation and Bylaws, and all Material Agreements to which Borrower or
Guarantor is a party, unless such violation, alone or when combined with all
other such violations, could reasonably be expected not to have a Material
Adverse Effect.
SECTION 8.9. Maintenance and Operation of Properties and Equipment. (a)
To the extent the failure to do so could reasonably be expected to have a
Material Adverse Effect, Borrower will maintain, develop and operate its Mineral
Interests in a good and workmanlike manner, and observe and comply with all of
the terms and provisions, express or implied, of all oil and gas leases relating
to such Mineral Interests (including, without limitation, the payment of all
royalty burden associated therewith) so long as such Mineral Interests are
capable of producing Hydrocarbons and accompanying elements in paying
quantities; provided, however, that (i) nothing in this subsection (a) shall be
deemed (x) to require Borrower to perpetuate or renew any oil and gas lease or
other lease by payment of rental or delay rental or by commencement or
continuation of operations nor to prevent Borrower from abandoning or releasing
any oil and gas lease or other lease when in any of such events, in the opinion
of Borrower exercised in good faith, it is uneconomic or otherwise not in the
best interests of Borrower so to perpetuate the same or (y) to prohibit Borrower
from assigning by customary farmout or farmin agreements, oil and gas leases
in the ordinary course of business and (ii) in the event of such a termination
of any such lease described in clause (i)(a)(x) above, upon the request
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and at the expense of Borrower, Agent shall execute and deliver a recordable
instrument releasing the Liens (if any) of Agent therein and (iii) in the event
of an assignment by Borrower of an oil and gas lease subject to a customary
farmout or farmin agreement in the ordinary course of Business as described in
clause(i)(a)(y) above, upon the request and at the expense of Borrower, Agent
shall execute and deliver a recordable instrument partially releasing the Liens
(if any) of Agent in the interest of Borrower so assigned, but expressly not
releasing the Liens of Agent in the interest of Borrower retained therein, if
any.
(b) Borrower will comply in all respects with all contracts
and agreements applicable to or relating to its Mineral Interests or the
production and sale of Hydrocarbons and accompanying elements therefrom, except
to the extent a failure to so comply would not have a Material Adverse Effect.
(c) Borrower will at all times maintain, preserve and keep all
operating equipment used with respect to its Mineral Interests in proper repair,
working order and condition, and make all necessary or appropriate repairs,
renewals, replacements, additions and improvements thereto so that the
efficiency of such operating equipment shall at all times be properly preserved
and maintained, except where such failure to comply would not have a Material
Adverse Effect; provided further that no item of operating equipment need be so
repaired, renewed, replaced, added to or improved if Borrower shall in good
faith determine that such action is not necessary or desirable for the continued
efficient and profitable operation of the business of Borrower.
SECTION 8.10. Environmental Law Compliance. To the extent a failure to
comply could reasonably be expected to have a Material Adverse Effect, each of
Borrower and Guarantor will comply with all Applicable Environmental Laws,
including, without limitation, (a) all licensing, permitting, notification and
similar requirements of Applicable Environmental Laws, and (b) all provisions of
all Applicable Environmental Laws regarding storage, discharge, release,
transportation, treatment and disposal of Hazardous Substances. Each of Borrower
and Guarantor will promptly pay and discharge when due all legal debts, claims,
liabilities and obligations with respect to any clean up or remediation measures
necessary to comply with Applicable Environmental Laws.
SECTION 8.11. ERISA Reporting Requirements. Borrower and Guarantor will
furnish, or cause to be furnished, to Agent:
(a) Promptly and in any event (i) within thirty (30) days
after Borrower or Guarantor receives notice from any regulatory agency of the
commencement of an audit, investigation or similar proceeding with respect to a
Plan, and (ii) within ten (10) days after Borrower or Guarantor contacts the
Internal Revenue Service for the purpose of participation in a closing agreement
or any voluntary resolution program with respect to a Plan which could have a
Material Adverse Effect or knows or has reason to know that any event with
respect to any Plan of Borrower, Guarantor or any ERISA Affiliate (other than
JEDI) has occurred that could have a Material Adverse Effect;
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(b) Promptly and in any event within thirty (30) days after
the receipt by Borrower of a request therefor by a Bank, copies of any annual
and other report (including Schedule B thereto) with respect to a Plan filed by
Borrower, Guarantor or any ERISA Affiliate with the United States Department of
Labor, the Internal Revenue Service or the PBGC;
(c) Notification within thirty (30) days of the effective date
thereof of any material increases in the benefits, or material change in the
funding method, of any existing Plan which is not a multiemployer plan (as
defined in section 4001(a)(3) of ERISA), or the establishment of any material
new Plans, or the commencement of contributions to any Plan to which Borrower or
Guarantor was not previously contributing; and
(d) Promptly after receipt of written notice of commencement
thereof, notice of all (i) claims made by participants or beneficiaries with
respect to any Plan and (ii) actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting Borrower or Guarantor with respect to any Plan,
except those which, in the aggregate, if adversely determined could not have a
Material Adverse Effect.
SECTION 8.12. Additional Documents. Each of Borrower and Guarantor will
cure promptly any defects in the creation and issuance of each Note, and the
execution and delivery of this Agreement and the other Loan Papers and, at their
expense, Borrower and Guarantor shall promptly and duly execute and deliver to
each Bank, upon reasonable request, all such other and further documents,
agreements and instruments in compliance with or accomplishment of the covenants
and agreements of Borrower and Guarantor in this Agreement and the other Loan
Papers as may be reasonably necessary or appropriate in connection therewith.
ARTICLE IX
NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Bank has any
commitment to lend or participate in Letter of Credit Exposure hereunder or any
amount payable under any Note remains unpaid or any Letter of Credit remains
outstanding:
SECTION 9.1. Incurrence of Debt. Neither Borrower nor Guarantor nor any
Subsidiary of Borrower or Guarantor will incur, become or remain liable for any
Debt other than (a) the Obligations, (b) Subordinated Debt, (c) Unrestricted
Subsidiary Debt in an aggregate amount outstanding at any time not to exceed
$50,000,000 and (d) other Debt in an aggregate amount outstanding at any time
not to exceed $1,000,000.
SECTION 9.2. Restricted Payments. Neither Borrower nor Guarantor nor
any Subsidiary of Borrower or Guarantor will, directly or indirectly, declare or
pay, or incur any liability to declare or pay, any Restricted Payment.
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SECTION 9.3. Negative Pledge. Neither Borrower nor Guarantor will
create, assume or suffer to exist any Lien on any of their respective assets,
other than Permitted Encumbrances. No Subsidiary of Borrower or Guarantor will
create, assume or suffer to exist any Lien on any of their respective assets,
other than Permitted Encumbrances or Liens securing permitted Unrestricted
Subsidiary Debt. Neither Borrower nor Guarantor will enter into or become bound
by any agreement (other than this Agreement and any document evidencing any
Subordinated Debt) that prohibits or otherwise restricts the right of Borrower
or Guarantor to create, assume or suffer to exist any Lien on any of their
respective assets.
SECTION 9.4. Consolidations, Mergers and Subsidiaries. Except to the
extent permitted by Section 8.3, neither Borrower nor Guarantor will consolidate
or merge with or into any other Person. Neither Borrower nor Guarantor will
create any Subsidiary after the date of this Agreement unless the same
constitutes a Permitted Investment.
SECTION 9.5. Asset Dispositions. Neither Borrower nor Guarantor will
sell, lease, transfer, abandon or otherwise dispose of any asset other than (a)
sales in the ordinary course of business, (b) assignments and conveyances to
individuals (or their nominees) previously or now or hereafter employed by
Borrower or who are or were consultants to Borrower of overriding royalty
interests in individual oil or gas wells or prospects now or hereafter owned by
Borrower or in which Borrower has or will have an interest pursuant to any
employee incentive compensation program of Borrower, as amended from time to
time, entered into by Borrower in such form and amounts as are not uncommon for
corporations of established reputation engaged in the same or a similar business
and owning and operating similar properties, provided that (i) no such
assignment or conveyance shall reduce the net revenue interest of Borrower in
any individual oil or gas well or prospect which has not paid out (for purposes
of the relevant employee incentive compensation program) by more than 5%, or in
any such well or prospect which has paid out (for purposes of the relevant
employee incentive compensation program) by more than 10%, and (ii) any such
compensation program shall not otherwise be in violation of the terms of this
Agreement, and (c) the sale, lease, transfer, abandonment or other disposition
of other assets (including, without limitation, pursuant to Advance Payment
Contracts), provided that the aggregate value of all assets, sold, leased,
transferred or disposed of pursuant to this clause (c) in any Fiscal Year of
Borrower shall not exceed $5,000,000.
SECTION 9.6. State and Federal Leases. Borrower will not incur or allow
to exist at any time obligations which may be enforced by specific performance
by any Governmental Authority in connection with any Mineral Interest if the
aggregate of all such specific performance obligations exceeds $5,000,000.
SECTION 9.7. Use of Proceeds. The Initial Borrowing shall be
distributed to Guarantor and used to repay a portion of the outstanding
principal of, and make a permanent reduction of, the Subordinated Bridge Debt,
and for no other purpose. The proceeds of all subsequent Borrowings will be used
only for (a) working capital, (b) acquisition of leasehold interests,
undeveloped properties and producing properties, (c) exploration, development
and production of Mineral Interests, (d) making Permitted Distributions, and (e)
general corporate purposes, and
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for no other purpose. None of such proceeds (including, without limitation,
proceeds of Letters of Credit issued hereunder) will be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any Margin Stock, and none of such proceeds will be used
in violation of applicable Law (including, without limitation, the Margin
Regulations). Letters of Credit will be issued hereunder only for the purpose of
securing bids, tenders, bonds, contracts and other obligations entered into in
the ordinary course of Borrower's business.
SECTION 9.8. Investments. Neither Borrower nor Guarantor will, directly
or indirectly, have outstanding any Investment other than Permitted Investments.
SECTION 9.9. Transactions with Affiliates. Neither Borrower nor
Guarantor nor any Subsidiary of Borrower or Guarantor will engage in any
transaction with an Affiliate of Borrower, Guarantor or such Subsidiary, or with
ECT, Enron Corp. or any entity which controls, is controlled by or is under
common control with ECT or Enron Corp., providing for the rendering of services
or sale of property, unless such transaction (i) is a Permitted Affiliate
Transaction or (ii) is as favorable to such party as could be obtained in an
arm's length transaction with an unaffiliated Person in accordance with
prevailing industry customs and practices.
SECTION 9.10. ERISA. Except in such instances where an omission or
failure would not have a Material Adverse Effect, neither Borrower nor Guarantor
will (a) take any action or fail to take any action which would result in a
violation of ERISA, the Code or other laws applicable to the Plans maintained or
contributed to by it or any ERISA Affiliate, or (b) modify the term of, or the
funding obligations or contribution requirements under any existing Plan,
establish a new Plan, or become obligated or incur any liability under a Plan
that is not maintained or contributed to by Borrower, Guarantor or any ERISA
Affiliate as of the Closing Date.
SECTION 9.11. Oil and Gas Hedge Transactions. Neither Borrower nor
Guarantor will enter into any Oil and Gas Hedge Transaction which would cause,
as of any date, the amount of Hydrocarbons which are the subject of Oil and Gas
Hedge Transactions in existence at such time to exceed (i) eighty-five percent
(85%) of Borrower's aggregate anticipated production from Proved Producing
Mineral Interests for the one (1) year period commencing on the date of
determination, (ii) sixty percent (60%) of Borrower's aggregate anticipated
production from Proved Producing Mineral Interests for the one (1) year period
commencing on the date that is one (1) year after the date of determination,
(iii) forty percent (40%) of Borrower's aggregate anticipated production from
Proved Producing Mineral Interests for the one (1) year period commencing on the
date that is two (2) years after the date of determination, (iv) twenty-five
percent (25%) of Borrower's aggregate anticipated production from Proved
Producing Mineral Interest for the one (1) year period commencing on the date
that is three (3) years after the date of determination or (v) twenty-five
percent (25%) of Borrower's aggregate anticipated production from Proved
Producing Mineral Interests for the one (1) year period commencing on the date
that is four (4) years after the date of determination.
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SECTION 9.12. Fiscal Year. Borrower will not change its Fiscal Year.
SECTION 9.13. Change in Business. Neither Borrower nor Guarantor nor
any Subsidiary of Borrower or Guarantor will engage in any business other than
the businesses engaged in by such parties on the date hereof as described in
Section 7.14.
ARTICLE X
FINANCIAL COVENANTS
Borrower covenants and agrees that, so long as any Bank has any
commitment to lend or participate in Letter of Credit Exposure hereunder or any
amount payable under any Note remains unpaid or any Letter of Credit remains
outstanding:
SECTION 10.1. Fixed Charge Coverage Ratio. Borrower will not permit the
consolidated Fixed Charge Coverage Ratio of Borrower and Guarantor as of the end
of any Fiscal Quarter to be less than 1.5 to 1.0.
SECTION 10.2. Interest Coverage Ratio. Borrower will not permit the
consolidated Interest Coverage Ratio of Borrower and Guarantor as of the end of
any Fiscal Quarter to be less than 2.25 to 1.0.
ARTICLE XI
DEFAULTS AND REMEDIES
SECTION 11.1. Events of Default. It shall constitute an "Event of
Default" if one or more of the following events shall have occurred and be
continuing:
(a) Borrower shall fail to pay when due any principal on any
Note and such failure continues for a period of three (3) Domestic Business Days
following the due date;
(b) Borrower shall fail to pay when due accrued interest on
any Note or any fees or any other amount payable hereunder and such failure
continues for a period of three (3) Domestic Business Days following the due
date;
(c) Borrower or Guarantor or any Subsidiary of Borrower or
Guarantor shall fail to observe or perform any covenant or agreement contained
in Article IX or Article X of this Agreement that is applicable to such Person,
and such failure continues for a period of fifteen (15) days after the earlier
of (i) the date any Authorized Officer of Borrower or Guarantor or any
Subsidiary of Borrower or Guarantor acquires knowledge of such failure, or (ii)
written notice of such failure has been given to Borrower or Guarantor by Agent
or any Bank;
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(d) Borrower or Guarantor shall fail to observe or perform any
covenant or agreement contained in this Agreement or the other Loan Papers
(other than those referenced in Sections 11.1(a), (b) and (c)) and such failure
continues for a period of thirty (30) days after the earlier of (i) the date any
Authorized Officer of Borrower or Guarantor acquires knowledge of such failure,
or (ii) written notice of such failure has been given to Borrower or Guarantor
by Agent or any Bank;
(e) any representation, warranty, certification or statement made
or deemed to have been made by or with respect to Borrower or Guarantor in any
certificate, financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect in any material respect when made;
(f) Borrower or Guarantor shall fail to make any payment when due
on any of its Debt in a principal amount equal to or greater than $500,000 or
any other event or condition shall occur which (i) results in the acceleration
of the maturity of any such Debt, or (ii) entitles the holder of such Debt to
accelerate the maturity thereof;
(g) Borrower or Guarantor shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against Borrower or Guarantor seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days; or an
order for relief shall be entered against Borrower or Guarantor under the
federal bankruptcy Laws as now or hereafter in effect;
(i) one (1) or more judgments or orders for the payment of money
aggregating in excess of $100,000 shall be rendered against Borrower or
Guarantor and such judgment or order shall continue unsatisfied and unstayed for
thirty (30) days;
(j) any event occurs with respect to any Plan or Plans pursuant
to which Borrower or Guarantor could reasonably be expected to incur a liability
due and owing at the time of such event, without existing funding therefor, for
benefit payments under such Plan or Plans in excess of $100,000; or (ii)
Borrower or Guarantor and/or any ERISA Affiliate, or any other
"party-in-interest" or "disqualified person", as such terms are defined in
section 3(14) of
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ERISA and section 4975(e)(2) of the Code, shall engage in transactions which in
the aggregate would reasonably result in a direct or indirect liability to
Borrower or Guarantor in excess of $100,000 under section 409 or 502 of ERISA or
section 4975 of the Code;
(k) as of any date, JEDI, Enron Corp., ECT, the California Public
Employees' Retirement System, any Affiliate (without giving effect to the last
sentence of the definition thereof) of any of the foregoing, or any combination
of the foregoing entities, shall cease to own, directly or indirectly,
outstanding capital stock of Borrower (on either an undiluted or a fully diluted
basis) which in the aggregate permits such entities to elect a majority of the
directors of Borrower;
(l) JEDI shall fail to observe or perform any covenant or
agreement contained in the Estoppel Agreement which, in the sole discretion of
Agent, could reasonably be expected to have a Material Adverse Effect, or any
representation or warranty of JEDI made in the Estoppel Agreement shall prove to
have been incorrect in any material respect when made; or
(m) this Agreement or any other Loan Paper shall cease to be in
full force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower or
Guarantor, or Borrower or Guarantor shall deny that it has any further liability
or obligation under any of the Loan Papers, or any Lien created by the Loan
Papers shall for any reason (other than the release thereof in accordance with
the Loan Papers) cease to be a valid, first priority, perfected Lien upon any of
the Proved Mineral Interests purported to be covered thereby.
SECTION 11.2. Remedies. Upon the occurrence and during the continuance
of any Event of Default, without presentment, notice or demand (unless expressly
provided for herein) of any kind (including, without limitation, notice of
intention to accelerate and notice of acceleration), all of which are hereby
waived, Agent shall, if requested by Required Banks, (a) terminate the
Commitments and they shall thereupon terminate, and (b) take such other actions
as may be permitted by the Loan Papers, including declaring the Notes (together
with accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable; provided, however, in the case of any of the Events
of Default specified in Sections 11.1(g) or (h), without any notice to Borrower
or Guarantor or any other act by Agent or Banks, the Commitments shall thereupon
terminate and the Notes (together with accrued interest thereon) shall become
immediately due and payable.
ARTICLE XII
AGENT
SECTION 12.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes Agent to take such action as Agent on its behalf and to
exercise such powers under this Agreement, the Notes and the other Loan Papers
as are delegated to Agent by the terms
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hereof or thereof, together with all such powers as are reasonably incidental
thereto, provided that, as between and among Banks, Agent will not prosecute,
settle or compromise any claim against Borrower or release or institute
enforcement proceedings, except with the consent of Required Banks. Each Bank,
Borrower and Guarantor agree that Agent is not a fiduciary for any Bank,
Borrower or Guarantor but simply is acting in the capacity described herein to
alleviate administrative burdens for Borrower, Guarantor and Banks, and that
Agent has no duties or responsibilities to Banks, Borrower or Guarantor except
those expressly set forth herein.
SECTION 12.2. Agent and Affiliates. NationsBank of Texas, N.A. shall
have the same rights and powers under this Agreement as any other Bank and may
exercise or refrain from exercising the same as though it were not Agent, and
NationsBank of Texas, N.A. and its Affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with Borrower and
Guarantor or any of their Affiliates as if it were not Agent hereunder.
SECTION 12.3. Action by Agent. The obligations of Agent hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, Agent shall not be required to take any action with respect to any
Default or Event of Default, except as expressly provided in Article XI.
Notwithstanding the administrative authority delegated to Agent, Agent shall not
without the prior written approval of all Banks cause or permit any modification
of the Loan Papers which would (a) increase the Commitment of any Bank or
subject any Bank to any additional obligation, (b) forgive any of the principal
or reduce the rate of interest on the Loan or any fees hereunder (c) postpone
the Maturity Date or any other date fixed for payment of principal of or
interest on the Loan or any fees hereunder, (d) change any Bank's percentage of
the Total Commitment (except as otherwise provided for in this Agreement), (e)
change the aggregate unpaid principal amount of the Notes, (f) change the
Borrowing Base, (g) change the definition of "Required Banks", (h) permit
Borrower to assign any of its rights hereunder or under any Loan Paper, (i)
materially amend or waive any of the provisions of Articles IV or V or the
definitions contained in Section 1.1 applicable thereto, or (j) provide for the
release or substitution of any material amount of collateral for the Obligations
other than releases required pursuant to sales of collateral which are expressly
permitted under Section 9.5. Subject to the foregoing, Agent shall make such
requests, take such actions, and grant such waivers and consents in respect of
Borrower as it shall determine or, if required by this Agreement, as Required
Banks shall direct.
SECTION 12.4. Consultation with Experts. Agent may consult with legal
counsel (who may be counsel for Borrower or Guarantor), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 12.5. LIABILITY OF AGENT. NEITHER AGENT NOR ANY OF ITS
DIRECTORS, OFFICERS, AGENTS, OR EMPLOYEES SHALL BE LIABLE FOR ANY ACTION TAKEN
OR NOT TAKEN BY IT IN CONNECTION HEREWITH (A) WITH THE CONSENT OR AT THE REQUEST
OF REQUIRED BANKS OR (B) IN THE ABSENCE OF ITS OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, IT BEING THE
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INTENTION OF BANKS THAT SUCH PARTIES SHALL NOT BE LIABLE FOR THE CONSEQUENCES OF
THEIR OWN ORDINARY NEGLIGENCE. Neither Agent nor any of its directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (a) any statement, warranty or representation made in
connection with this Agreement or any Borrowing hereunder, (b) the performance
or observance of any of the covenants or agreements of Borrower or Guarantor,
(c) the satisfaction of any condition specified in Article VI, except receipt of
items required to be delivered to Agent, or (d) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. Agent shall not incur any liability by acting
in reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it to be
genuine or to be signed by the proper party or parties or upon any oral notice
which Agent believes will be confirmed in writing by the proper party or
parties. If Agent fails to take any action required to be taken by it under the
Loan Papers after a default and within a reasonable time after being requested
to do so by any Bank (after such requesting Bank has obtained the approval of
such other Banks as required), Agent shall not suffer or incur any liability as
a result thereof, but such requesting Bank may request Agent to resign,
whereupon Agent shall so resign pursuant to Section 12.9.
SECTION 12.6. Delegation of Duties. Agent may execute any of its duties
hereunder by or through officers, directors, employees, attorneys, or agents.
SECTION 12.7. Indemnification. EACH BANK SHALL, RATABLY IN ACCORDANCE
WITH ITS COMMITMENT, INDEMNIFY AGENT (TO THE EXTENT NOT REIMBURSED BY BORROWER
AND GUARANTOR) AGAINST ANY COST, EXPENSE (INCLUDING COUNSEL FEES AND
DISBURSEMENTS), CLAIM, DEMAND, ACTION, LOSS OR LIABILITY (EXCEPT SUCH AS RESULT
FROM AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) THAT AGENT MAY SUFFER OR
INCUR IN CONNECTION WITH THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY AGENT
HEREUNDER, INCLUDING, WITHOUT LIMITATION, MATTERS ARISING OUT OF AGENT'S OWN
ORDINARY NEGLIGENCE. IT IS THE EXPRESS INTENTION OF EACH BANK THAT AGENT SHALL
BE INDEMNIFIED HEREUNDER FOR THE CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE.
SECTION 12.8. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon Agent or any other Bank, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance upon Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking any
action under this Agreement.
SECTION 12.9. Successor Agent. Agent may resign at any time by giving
written notice thereof to Banks and Borrower. Upon such resignation, Required
Banks shall have the right to appoint a successor Agent, which shall be one of
Banks and, except during the continuance of
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an Event of Default, shall be approved by Borrower, such approval to not be
unreasonably withheld. If no successor Agent shall have been so appointed by
Required Banks, so approved by Borrower (if necessary), and accepted such
appointment within thirty (30) days after the retiring Agent's giving of notice
of resignation, then the retiring Agent may, on behalf of Banks, appoint a
successor Agent, which shall (i) be a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000 and (ii) unless an Event of Default
is continuing, be approved by Borrower (such approval to not be unreasonably
withheld). Upon the acceptance of its appointment as a successor Agent
hereunder, such successor Agent shall thereupon succeed to and become vested
with all the rights and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations hereunder. After any Agent's
resignation hereunder as Agent, the provisions of this Article XII shall
continue to inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent.
ARTICLE XIII
PROTECTION OF YIELD; CHANGE IN LAWS
SECTION 13.1. Inadequate Basis for Determining Interest Rate Applicable
to Eurodollar Tranches. If on or prior to the first day of any Interest Period
with respect to a Borrowing, (a) Agent is advised by any Bank that deposits in
dollars (in the applicable amounts) are not being offered to such Bank in the
relevant market for such Interest Period, or (b) any Bank advises Agent that the
Adjusted Eurodollar Rate as determined by Agent will not adequately and fairly
reflect the cost to such Bank of funding its share of the requested Borrowing
which will be subject to a Eurodollar Tranche for such Interest Period, then in
any such event Agent shall give notice thereof to Borrower and Banks, whereupon
the obligations of Banks to allow interest to be computed by reference to the
Adjusted Eurodollar Rate shall be suspended until Agent notifies Borrower that
the circumstances giving rise to such suspension no longer exist. Unless
Borrower notifies Agent at least two (2) Domestic Business Days before the date
of any Borrowing for which a Request for Borrowing has previously been given
that it elects not to borrow on such date, such Borrowing shall instead be made
as an Adjusted Base Rate Borrowing.
SECTION 13.2. Illegality of Eurodollar Tranches. (a) If, after the date
of this Agreement, the adoption of any applicable Law, rule or regulation, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Eurodollar Lending Office) with any request or directive (whether or not
having the force of Law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for any Bank (or its Eurodollar
Lending Office) to make, maintain or fund any portion of the Loan subject to a
Eurodollar Tranche and such Bank shall so notify Agent, Agent shall forthwith
give notice thereof to the other Banks and Borrower. Until such Bank notifies
Borrower and Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to maintain or fund any portion of the
Loan subject to a
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Eurodollar Tranche shall be suspended. Before giving any notice to Agent
pursuant to this Section 13.2, such Bank shall designate a different Eurodollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such Bank shall determine that it may not lawfully continue to maintain
and fund any portion of an outstanding Loan subject to a Eurodollar Tranche to
maturity and shall so specify in such notice, Borrower shall immediately convert
the principal amount of the Loan which is subject to a Eurodollar Tranche to an
Adjusted Base Rate Tranche of an equal principal amount from such Bank (on which
interest and principal shall be payable contemporaneously with the unaffected
Eurodollar Tranches of the other Banks).
(b) No Bank shall be required to fund its Commitment Percentage
of any Borrowing hereunder if the funding of such Borrowing would be in
violation of any Law applicable to such Bank.
SECTION 13.3. Increased Cost of Eurodollar Tranche. If after the date
hereof, the adoption of any applicable Law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Lending Office) with any request or directive (whether or not having the force
of Law) of any such authority, central bank or comparable agency:
(a) shall subject any Bank (or its Lending Office) to any tax,
duty or other charge with respect to maintaining or funding any portion of its
Loans subject to a Eurodollar Tranche, its Note or its obligation to allow
interest to be computed by reference to the Adjusted Eurodollar Rate shall
change the basis of taxation of payments to any Bank (or its Lending Office) of
the principal of or interest on the Loan which is subject to any Eurodollar
Tranche or any other amounts due under this Agreement in respect of any
Eurodollar Tranche or its obligation to allow interest to be computed by
reference to the Adjusted Eurodollar Rate (except for changes in the rate of Tax
on the overall net income of such Bank or its Lending Office imposed by the
jurisdiction in which such Bank's principal executive office or Lending Office
is located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System, but
excluding with respect to any Eurodollar Tranche any such requirement included
in an applicable Eurodollar Reserve Percentage) against assets of, deposits with
or for the account of or credit extended by, any Bank's Lending Office or shall
impose on any Bank (or its Lending Office) or the applicable interbank
Eurodollar market any other condition affecting Eurodollar Tranches, its Note or
its obligation to allow interest to be computed by reference to the Adjusted
Eurodollar Rate;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of funding or maintaining any Eurodollar Tranche, or to
reduce the amount of any sum received or receivable by such Bank (or its Lending
Office) under this Agreement or under its Note with
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respect thereto, then, within five (5) days after demand by such Bank (with a
copy to Agent), Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such increased cost or reduction. Each
Bank will promptly notify Borrower and Agent of any event of which it has
knowledge, occurring after the date hereof, which will entitle such Bank to
compensation pursuant to this Section 13.3 and will designate a different
Lending Office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. A certificate of any Bank claiming compensation
under this Section 13.3 and setting forth the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
SECTION 13.4. Adjusted Base Rate Tranche Substituted for Affected
Eurodollar Tranche. If (i) the obligation of any Bank to fund or maintain any
portion of any Loan subject to a Eurodollar Tranche has been suspended pursuant
to Section 13.2 or (ii) any Bank has demanded compensation under Section 13.3
and, in either event, Borrower shall, by at least five (5) Eurodollar Business
Days prior notice to such Bank through Agent, have elected that the provisions
of this Section 13.4 shall apply to such Bank, then, unless and until such Bank
notifies Borrower that the circumstances giving rise to such suspension or
demand for compensation no longer apply:
(a) any Tranche which would otherwise be characterized by such
Bank as Eurodollar Tranche shall instead be deemed an Adjusted Base Rate Tranche
(on which interest and principal shall be payable contemporaneously with the
unaffected Eurodollar Tranches of the other Banks); and
(b) after all of its Eurodollar Tranches have been repaid, all
payments of principal which would otherwise be applied to repay Eurodollar
Tranches shall be applied to repay its Adjusted Base Rate Tranches instead.
SECTION 13.5. Capital Adequacy. If after the date hereof, the adoption
of any applicable Law, rule or regulation, or any change therein, or any change
in the interpretation or administration thereof, by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office) with
any request or directive (whether or not having the force of Law) shall:
(a) impose, modify or deem applicable any reserve, special
deposit, compensatory loan, deposit insurance, capital adequacy, minimum
capital, capital ratio or similar requirement against all or any assets held by,
deposits or accounts with, credit extended by or to, or commitments to extend
credit or any other acquisition of funds by any Bank (or its Lending Office), or
impose on any Bank (or its Lending Office) any other condition, with respect to
the maintenance by such Bank of all or any part of its Commitment; or
(b) subject any Bank (or its Lending Office) to, or cause the
termination or reduction of a previously granted exemption with respect to, any
Tax with respect to the
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maintenance by such Bank of all or any part of its Commitment (other than Taxes
assessed against such Bank's overall net income, gross receipts or capital and
franchise taxes);
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of maintaining its Commitment or to reduce the amount of any
sums received or receivable by such Bank (or its Lending Office) under this
Agreement or any other Loan Paper, or to reduce the rate of return on such
Bank's equity in connection with this Agreement, as the case may be, then, in
any such case, within five (5) days of demand by such Bank (or its Lending
Office) (with a copy to Agent), Borrower shall pay to such Bank (or its Lending
Office) such additional amount or amounts as will compensate such Bank for any
additional cost, reduced benefit, reduced amount received or reduced rate of
return. Each Bank will promptly notify Borrower and Agent of any event of which
it has knowledge, occurring after the date hereof, which will entitle such Bank
to compensation pursuant to this Section 13.5. A certificate of any Bank
claiming compensation under this Section 13.5 and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence
of manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
SECTION 13.6. Taxes. All amounts payable by Borrower under the Loan
Papers (whether principal, interest, fees, expenses, or otherwise) to or for the
account of each Bank shall be paid in full, free of any deductions or
withholdings for or on account of any Taxes. If Borrower is prohibited by Law
from paying any such amount free of any such deductions and withholdings, then
(at the same time and in the same manner that such original amount is otherwise
due under the Loan Papers) Borrower shall pay to or for the account of such Bank
such additional amount as may be necessary in order that the actual amount
received by such Bank after deduction and/or withholding (and after payment of
any additional Taxes due as a consequence of the payment of such additional
amount, and so on) will equal the amount such Bank would have received if such
deduction or withholding were not made. The covenants of Borrower set for this
Section to make payments to or for the account of a Bank shall not apply if
Borrower's requirement to pay such amounts to such Bank is caused by the failure
of such Bank to comply with the provisions of Section 3.4.
SECTION 13.7. Discretion of Banks as to Manner of Funding.
Notwithstanding any provisions of this Agreement to the contrary, each Bank
shall be entitled to fund and maintain its funding of all or any part of its
Commitment in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if such
Bank had actually funded and maintained each Eurodollar Tranche during the
Interest Period for such Eurodollar Tranche through the purchase of deposits
having a maturity corresponding to the last day of such Interest Period and
bearing an interest rate equal to the Adjusted Eurodollar Rate for such Interest
Period.
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SECTION 13.8. Limitations.
(a) No Bank shall demand any compensation, payment or penalty
from Borrower under this Article XIII unless such Bank shall also make the same
demand of all borrowers from such Bank that are similarly situated to Borrower.
(b) Each Bank shall give notice to Borrower of any event
occurring after the date of this Agreement that will entitle such Bank to demand
any compensation, payment or penalty from Borrower under this Article XIII
(which notice shall include the amount of such demand and the reasons therefor)
within six (6) months after the date such Bank obtains knowledge of the
occurrence of such event, and Borrower shall not be liable for any such
compensation, payment or penalty for which such required notice was not timely
given.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telecopy or
similar writing) and shall be given, if to Agent or any Bank, at its address or
telecopier number set forth on Schedule 1 hereto, and if given to Borrower or
Guarantor, at their respective addresses or telecopy numbers set forth on the
signature pages hereof (or in any case, at such other address or telecopy number
as such party may hereafter specify for the purpose by notice to the other
parties hereto). Each such notice, request or other communication shall be
effective (a) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 14.1 and the appropriate answerback is
received or receipt is otherwise confirmed, (b) if given by mail, three (3)
Domestic Business Day after deposit in the mails with first class postage
prepaid, addressed as aforesaid or (c) if given by any other means, when
delivered at the address specified in this Section 14.1; provided that notices
to Agent under Article II or III shall not be effective until received.
SECTION 14.2. No Waivers. No failure or delay by Agent or any Bank in
exercising any right, power or privilege hereunder or under any Note or other
Loan Paper shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by Law
or in any of the other Loan Papers.
SECTION 14.3. Expenses; Documentary Taxes; Indemnification. (a)
Borrower shall pay counsel for Agent the previously agreed sum for fees and
disbursements in connection with the preparation, negotiation and execution of
those Loan Papers being executed simultaneously with this Agreement. In
addition, Borrower shall pay (i) all out-of-pocket expenses of Agent, including
reasonable fees and disbursements of counsel for Agent, in connection with any
waiver or consent hereunder or any amendment hereof or supplement hereto or any
Default or Event of
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Default, or alleged Default or Event of Default, (ii) reasonable fees and
disbursements of counsel for Agent in connection with the granting of any
Mortgages pursuant to Section 5.1 and any title review and environmental review
associated therewith, and (iii) if a Default or Event of Default occurs, all
out-of-pocket expenses incurred by Agent or any Bank, including fees and
disbursements of counsel in connection with such Default or Event of Default and
collection and other enforcement proceedings resulting therefrom, fees of
auditors and consultants incurred in connection therewith and investigation
expenses incurred by Agent or any Bank in connection therewith. Borrower shall
indemnify each Bank against any Taxes imposed by reason of the execution and
delivery of this Agreement or the Notes (other than Taxes imposed on the overall
net income of such Bank or its Lending Office imposed by the jurisdiction in
which such Bank's principal executive office or Lending office is located).
(b) BORROWER AGREES TO INDEMNIFY AGENT AND EACH BANK AND HOLD
AGENT AND EACH BANK HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES,
DAMAGES, COSTS AND EXPENSES OF ANY KIND (INCLUDING, WITHOUT LIMITATION, THE
REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR AGENT AND EACH BANK IN
CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING,
WHETHER OR NOT AGENT OR SUCH BANK SHALL BE DESIGNATED A PARTY THERETO) WHICH MAY
BE INCURRED BY ANY BANK OR BY AGENT RELATING TO OR ARISING OUT OF (I) THE
EXISTENCE OF THIS AGREEMENT OR ANY OF THE LOAN PAPERS, INCLUDING THE PERFORMANCE
BY BORROWER, AGENT OR ANY BANK OF ITS OBLIGATIONS HEREUNDER, (II) ANY
TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OF THE OTHER LOAN PAPERS, (III) THE
EXERCISE OF ANY RIGHTS OR REMEDIES BY AGENT OR ANY BANK UNDER THIS AGREEMENT OR
APPLICABLE LAW FOLLOWING ANY DEFAULT OR EVENT OF DEFAULT HEREUNDER; (IV) ANY
ACTUAL OR PROPOSED USE OF PROCEEDS OF THE LOAN OR LETTERS OF CREDIT HEREUNDER OR
(V) ANY ENVIRONMENTAL COMPLAINT, HAZARDOUS DISCHARGE OR VIOLATION OF ANY
APPLICABLE ENVIRONMENTAL LAW RELATING TO BORROWER, GUARANTOR, ANY SUBSIDIARY OF
BORROWER OR GUARANTOR, OR ANY OF THEIR RESPECTIVE PROPERTIES; PROVIDED THAT
NEITHER AGENT NOR ANY BANK SHALL HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR
(A) ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IT BEING THE EXPRESS
INTENTION OF BORROWER THAT EACH BANK AND AGENT SHALL BE INDEMNIFIED FOR THE
CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE OR (B) ACTIONS TAKEN BY AGENT OR ANY
BANK AFTER SUCH FORECLOSURE WITH RESPECT TO ANY PROPERTIES OF BORROWER ACQUIRED
BY AGENT OR ANY BANK AT FORECLOSURE.
SECTION 14.4. Right and Sharing of Set-Offs. (a) Upon the occurrence
and during the continuance of a Default or Event of Default, each Bank is hereby
authorized at any time and from time to time, to the fullest extent permitted by
Law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Bank to or for the credit or the account of Borrower or
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Guarantor against any and all of the Obligations now or hereafter existing under
this Agreement and the other Loan Papers held by such Bank, irrespective of
whether or not such Bank shall have made any demand under this Agreement or such
Note and although such Obligations may be unmatured. Each Bank agrees promptly
to notify Borrower after any such setoff and application made by such Bank,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Bank under this Section 14.4(a)
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which such Bank may have.
(b) Each Bank agrees that if it shall, by exercising any right of
setoff or counterclaim or otherwise, receive payment of a proportion of the
aggregate amount of principal and interest due with respect to any Note held by
it which is greater than the proportion received by any other Bank in respect of
the aggregate amount of principal and interest due with respect to any Note held
by such other Bank, Bank receiving such proportionately greater payment shall
purchase such participations in the Notes held by the other Banks, and such
other adjustments shall be made, as may be required, so that all such payments
of principal and interest with respect to the Notes held by Banks shall be
shared by Banks ratably; provided that nothing in this Section 14.4 shall impair
the right of any Bank to exercise any right of setoff or counterclaim it may
have and to apply the amount subject to such exercise to the payment of
indebtedness of Borrower or Guarantor other than its indebtedness under the
Notes. Borrower and Guarantor acknowledge their agreement with the foregoing
provisions and further agree, to the fullest extent each may effectively do so
under applicable Law, that any holder of a participation in a Note may exercise
rights of setoff or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of Borrower or Guarantor, as applicable, in the amount of such
participation.
SECTION 14.5. Amendments and Waivers. Any provision of this Agreement,
the Notes or the other Loan Papers may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by Borrower and Required
Banks (and, if the rights or duties of Agent are affected thereby, by Agent);
provided that no such amendment or waiver shall, unless signed by all Banks, (a)
increase the Commitment of any Bank or subject any Bank to any additional
obligation, (b) forgive any of the principal of or reduce the rate of interest
on the Loan or any fees hereunder, (c) postpone the Maturity Date or any other
date fixed for any payment of principal of or interest on any Loan or any fees
hereunder, (d) change any Bank's percentage of the Total Commitment, (e) change
the aggregate unpaid principal amount of the Notes, (f) change the Borrowing
Base, (g) change the definition of "Required Banks", (h) permit Borrower to
assign any of its rights hereunder or under any Loan Paper, (i) materially amend
or waive any of the provisions of Articles IV or V or the definitions contained
in Section 1.1 applicable thereto, or (j) provide for the release or
substitution of any material amount of collateral for the Obligations or any
part thereof other than releases or required pursuant to sales of collateral
which are expressly permitted by Section 9.5.
SECTION 14.6. Survival. All representations, warranties and covenants
made by or with respect to Borrower or any Guarantor herein or in any
certificate or other instrument delivered
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by or on behalf of Borrower or Guarantor under the Loan Papers shall be
considered to have been relied upon by Agent and Banks and shall survive the
delivery to Agent and Banks of such Loan Papers or the extension of the Loan (or
any part thereof), regardless of any investigation made by or on behalf of
Banks. The indemnity provided in Section 14.3(b) herein shall survive the
repayment of all credit advances hereunder and/or the discharge or release of
any Lien granted hereunder or in any other Loan Paper, contract or agreement
between Borrower or Guarantor and Agent or any Bank.
SECTION 14.7. Limitation on Interest. Regardless of any provision
contained in the Loan Papers, no Bank shall ever be entitled to receive,
collect, or apply, as interest on the Loan, any amount in excess of the Maximum
Lawful Rate, and in the event any Bank ever receives, collects or applies as
interest any such excess, such amount which would be deemed excessive interest
shall be deemed a partial prepayment of principal and treated hereunder as such;
and if the Loan is paid in full, any remaining excess shall promptly be paid to
Borrower. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Lawful Rate, Borrower and Banks shall,
to the extent permitted under applicable Law, (a) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof and (c) amortize, prorate,
allocate and spread, in equal parts, the total amount of the interest throughout
the entire contemplated term of the Notes, so that the interest rate is the
Maximum Lawful Rate throughout the entire term of the Notes; provided, however,
that if the unpaid principal balance thereof is paid and performed in full prior
to the end of the full contemplated term thereof, and if the interest received
for the actual period of existence thereof exceeds the Maximum Lawful Rate,
Banks shall refund to Borrower the amount of such excess and, in such event,
Banks shall not be subject to any penalties provided by any laws for contracting
for, charging, taking, reserving or receiving interest in excess of the Maximum
Lawful Rate.
SECTION 14.8. Invalid Provisions. If any provision of the Loan Papers
is held to be illegal, invalid, or unenforceable under present or future Laws
effective during the term thereof, such provision shall be fully severable, the
Loan Papers shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of the Loan Papers a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 14.9. Waiver of Consumer Credit Laws. Pursuant to Article
15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as
amended, Borrower agrees that such Chapter 15 shall not govern or in any manner
apply to the Loan.
SECTION 14.10. Successors and Assigns. (a) Each Loan Paper binds and
inures to the parties to it, any intended beneficiary of it, and each of their
respective successors and permitted assigns. Neither Borrower nor Guarantor
shall assign or transfer any rights or obligations under
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any Loan Paper without first obtaining all Banks' consent, and any purported
assignment or transfer without all Banks' consent is void. No Bank may transfer,
pledge, assign, sell any participation in, or otherwise encumber its portion of
the Obligations except as permitted by clause (b) or (c) below.
(b) Any Bank may at any time (subject to the provisions of this
section) sell to one or more Persons (each a "Participant") participating
interests in its portion of the Obligations. The selling Bank remains a "Bank"
under the Loan Papers, the Participant does not become a "Bank" under the Loan
Papers, and the selling Bank's obligations under the Loan Papers remain
unchanged. The selling Bank remains solely responsible for the performance of
its obligations and remains the holder of its share of the outstanding Loan for
all purposes under the Loan Papers. Borrower and Agent shall continue to deal
solely and directly with the selling Bank in connection with that Bank's rights
and obligations under the Loan Papers, and each Bank must retain the sole right
and responsibility to enforce due obligations of Borrower and Guarantor.
Participants have no rights under the Loan Papers except certain voting rights
as provided below. Subject to the following, each Bank may obtain (on behalf of
its Participants) the benefits of Article XII with respect to all participations
in its part of the Obligations outstanding from time to time so long as Borrower
is not obligated to pay any amount in excess of the amount that would be due to
that Bank under Article XII calculated as though no participations have been
made. No Bank may sell any participating interest under which the Participant
has any rights to approve any amendment, modification, or waiver of any Loan
Paper except as to matters in clauses (b), (c), (e), (f), (g) or (h) of Section
14.5.
(c) Any Bank may at any time pledge and assign all or any portion
of its rights under this Agreement and the other Loan Papers to any Federal
Reserve Bank without notice to or consent of Borrower, Guarantor, Agent or any
other Bank. No such pledge or assignment shall release the transferor Bank from
its obligations hereunder. Each Bank may also assign to one or more assignees
(each an "Assignee") all or any part of its rights and obligations under the
Loan Papers so long as (i) the assignor Bank and Assignee execute and deliver to
Agent and Borrower for their consent and acceptance (which may not be
unreasonably withheld by either) an assignment and assumption agreement in
substantially the form of Exhibit G (an "Assignment and Assumption Agreement"),
(ii) the conditions (including, without limitation, minimum amounts of the Total
Commitment that must be retained) for that assignment set forth in the
applicable Assignment and Assumption Agreement are satisfied and (iii) the
assignor Bank shall pay to Agent a processing fee of $2,500. The "Effective
Date" in each Assignment and Assumption Agreement must (unless a shorter period
is agreeable to Borrower and Agent) be at least five Domestic Business Days
after it is executed and delivered by the assignor Bank and the Assignee to
Agent and Borrower for acceptance. Once that Assignment and Assumption Agreement
is accepted by Agent and Borrower, then, from and after the Effective Date
stated in it (i) the Assignee automatically becomes a party to this agreement
and, to the extent provided in that Assignment and Assumption Agreement, has the
rights and obligations of a Bank under the Loan Papers, (ii) the assignor Bank,
to the extent provided in that Assignment and Assumption Agreement, is released
from its obligations to fund Borrowings under this Agreement and its
reimbursement obligations under this Agreement and, in the case of an Assignment
and
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Assumption Agreement covering all of the remaining portion of the assignor
Bank's rights and obligations under the Loan Papers, that Bank ceases to be a
party to the Loan Papers, (iii) Borrower shall execute and deliver to the
assignor Bank and the Assignee the appropriate Notes in accordance with this
Agreement following the transfer, (iv) upon delivery of the Notes under clause
(iii) preceding, the assignor Bank shall return to Borrower all Notes previously
delivered to that Bank under this agreement, and (v) Schedule 1 shall be
automatically deemed to be amended to reflect the name, address, telecopy
number, and Commitment of the Assignee and the remaining Commitment (if any) of
the assignor Bank, and Agent shall prepare and circulate to Borrower and Banks
an amended Schedule 1 reflecting those changes. In no event may any Bank assign
its rights and obligations under the Loan Papers if so doing would cause such
Bank to retain less than the greater of $5,000,000 or ten percent (10%) of the
Borrowing Base outstanding on the date of such Assignment.
SECTION 14.11. TEXAS LAW. THIS AGREEMENT, EACH NOTE AND THE OTHER LOAN
PAPERS HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND
THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE LAWS OF
ANY STATE IN WHICH ANY PROPERTY INTENDED AS SECURITY FOR THE OBLIGATIONS IS
LOCATED NECESSARILY GOVERN (A) THE PERFECTION AND PRIORITY OF THE LIENS IN FAVOR
OF AGENT AND BANKS WITH RESPECT TO SUCH PROPERTY, AND (B) THE EXERCISE OF ANY
REMEDIES (INCLUDING FORECLOSURE) WITH RESPECT TO SUCH PROPERTY.
SECTION 14.12. Consent to Jurisdiction; Waiver of Immunities. (a)
Borrower and Guarantor each hereby irrevocably submit to the jurisdiction of any
Texas State or Federal court sitting in the Southern District of Texas over any
action or proceeding arising out of or relating to this Agreement or any other
Loan Papers, and Borrower and Guarantor hereby irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in such
Texas State or Federal court. As an alternative, Borrower and Guarantor each
irrevocably consent to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to such Person at its
address specified in Section 14.1. Borrower and Guarantor each agree that a
final judgment on any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) Nothing in this Section 14.12 shall affect any right of Banks
to serve legal process in any other manner permitted by law or affect the right
of any Bank to bring any action or proceeding against Borrower or Guarantor, or
their properties, in the courts of any other jurisdictions.
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(c) To the extent that Borrower or Guarantor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to itself or its
property, such Person hereby irrevocably waives such immunity in respect of its
obligations under this Agreement and the other Loan Papers.
SECTION 14.13. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when Agent shall have received
counterparts hereof signed by all of the parties hereto or, in the case of any
Bank as to which an executed counterpart shall not have been received, Agent
shall have received telegraphic or other written confirmation from such Bank of
execution of a counterpart hereof by such Bank.
SECTION 14.14. No Third Party Beneficiaries. It is expressly intended
that there shall be no third party beneficiaries of the covenants, agreements,
representations or warranties herein contained other than third party
beneficiaries permitted pursuant to Section 14.10(b).
SECTION 14.15. Confidentiality. Agent and Banks agree to hold any
non-public information which they may receive from Borrower or Guarantor in
connection with this Agreement in confidence, except for disclosure (i) to legal
counsel, accountants and other professional advisors, (ii) to regulatory
officials, (iii) required by Law or legal process or in connection with any
legal proceeding and (iv) to any Participant, Assignee, potential Participant or
potential Assignee of the Loan or any part thereof.
SECTION 14.16. COMPLETE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG BANKS, AGENT,
BORROWER AND GUARANTOR AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANKS, AGENT, BORROWER OR
GUARANTOR. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG ANY OF BANKS, AGENT,
BORROWER OR GUARANTOR.
SECTION 14.17. WAIVER OF JURY TRIAL. BORROWER, GUARANTOR, AGENT AND
BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS
AND FOR ANY COUNTERCLAIM THEREIN.
-64-
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers on the day and year first
above written.
BORROWER:
MARINER ENERGY, INC.
By: /s/ ROBERT E. HENDERSON
--------------------------------------------
Name: Robert E. Henderson
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Address for Notice:
580 WestLake Park Blvd., Suite 1300
Houston, Texas 77079
Fax No. (713) 584-5555
BANKS:
NATIONSBANK OF TEXAS, N.A.
By: /s/ PAUL A. SQUIRES
--------------------------------------------
Name: Paul A. Squires
---------------------------------------
Title: Senior Vice President
--------------------------------------
AGENT:
NATIONSBANK OF TEXAS, N.A.
By: /s/ PAUL A. SQUIRES
--------------------------------------------
Name: Paul A. Squires
---------------------------------------
Title: Senior Vice President
--------------------------------------
-65-
<PAGE> 71
GUARANTOR:
The undersigned Guarantor, Mariner Holdings, Inc., executes this
Agreement to evidence its acknowledgment of the terms and provisions hereof and
to evidence its agreements to the matters set forth herein which purport to be
applicable to or binding upon it.
MARINER HOLDINGS, INC.
By: /s/ ROBERT E. HENDERSON
--------------------------------------------
Name: Robert E. Henderson
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Address for notice:
580 WestLake Park Blvd., Suite 1300
Houston, Texas 77079
Fax No. (713) 584-5555
-66-
<PAGE> 72
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is
made and entered into as of the 12th day of August, 1996, by and among MARINER
ENERGY, INC., a Delaware corporation ("Borrower"), NATIONSBANK OF TEXAS, N.A.,
as Agent ("Agent"), TORONTO DOMINION (TEXAS), INC., as Co-Agent ("Co-Agent") and
the financial institutions listed on Schedule 1 hereto (individually a "Bank"
and collectively "Banks").
WHEREAS, Borrower, Agent and NationsBank of Texas, N.A. (in its
individual capacity, "NationsBank") entered into that certain Credit Agreement
dated June 28, 1996 (the "Credit Agreement");
WHEREAS, by various Assignment and Assumption Agreements of even date
herewith, NationsBank has assigned thirty percent (30%) of the Total Commitment
to Toronto Dominion (Texas), Inc., twenty percent (20%) of the Total Commitment
to The Bank of Nova Scotia and twenty percent (20%) of the Total Commitment to
ABN AMRO Bank, N.V., Houston Agency, and pursuant to said Assignment and
Assumption Agreements, such financial institutions have assumed the obligations
of NationsBank with respect to such assigned portions of the Total Commitment;
and
WHEREAS, the parties hereto desire to have Toronto Dominion Bank
appointed as Co-Agent under the Credit Agreement, as amended hereby; and
WHEREAS, Borrower, Agent, Co-Agent and Banks desire to amend certain
other terms and provisions of the Credit Agreement, as set forth herein.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
1. The phrase "10:00 a.m. (Houston, Texas time)", as it appears in
the second and third lines, and the tenth and eleventh lines, of the definition
of "Eurodollar Rate" is deleted, and there is substituted therefor in each place
the phrase "11:00 a.m. (London time)".
2. Section 2.5(h) of the Credit Agreement is deleted in its entirety,
and the following is substituted in its place:
(h) Interest payable hereunder with respect to each Adjusted Base Rate
Tranche shall be based on the number of actual days elapsed and the
number of actual days in the then current calendar year. Interest
payable hereunder with respect to each Eurodollar Tranche shall be
computed based on the number of actual days elapsed and assuming that
each calendar year consisted of four ninety (90) day quarters.
3. The phrase "four ninety (90) day quarters" in the first
parenthetical of Section 2.10 of the Credit Agreement is deleted, and there is
substituted therefor the phrase "three hundred sixty (360) days."
<PAGE> 73
4. Schedule 1 attached to the Credit Agreement is deleted in its
entirety, and Schedule 1 attached to this First Amendment is substituted
therefor.
5. The closing of the transactions contemplated by this First
Amendment is subject to the satisfaction of the following conditions:
(a) All legal matters incident to the transactions herein
contemplated shall be satisfactory to counsel to Agent;
(b) Agent shall have received a fully executed copy of this First
Amendment; and
(c) Each Bank shall have received a fully executed Note and
Guaranty, each in the appropriate amount and each with all blanks
properly completed; and
6. Except as amended hereby, the Credit Agreement shall remain
unchanged, and the terms, conditions and covenants of the Credit Agreement shall
continue and be binding upon the parties hereto.
7. Within thirty (30) days of the next action, whether by consent or
at a meeting, of the Board of Directors of Borrower and Guarantor, Borrower will
deliver an executed copy of resolutions of the Board of Directors of Borrower
and Guarantor in form and substance reasonably satisfactory to Agent ratifying
the execution, delivery and performance of this First Amendment and all
documents, instruments and certificates referred to herein.
8. Each of the terms defined in the Credit Agreement is used in this
First Amendment with the same meaning, except as otherwise indicated in this
First Amendment. Each of the terms defined in this First Amendment is used in
the Credit Agreement with the same meaning, except as otherwise indicated in the
Credit Agreement.
9. This First Amendment may be executed in any number of
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one agreement.
10. THIS FIRST AMENDMENT SHALL BE DEEMED TO BE A CONTRACT UNDER,
SUBJECT TO, AND SHALL BE CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS.
11. THE CREDIT AGREEMENT, AS AMENDED, REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
-2-
<PAGE> 74
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
MARINER ENERGY, INC.
By: /s/ ROBERT E. HENDERSON
------------------------------------------
Name: Robert E. Henderson
-----------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
NATIONSBANK OF TEXAS, N.A., as Agent
By: /s/ JAMES R. ALLRED
------------------------------------------
Name: James R. Allred
-----------------------------------------
Title: Senior Vice President
----------------------------------------
TORONTO DOMINION (TEXAS), INC.,
as Co-Agent
By: /s/ LISA ALLISON
------------------------------------------
Name: Lisa Allison
-----------------------------------------
Title: Vice President
----------------------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ JAMES R. ALLRED
------------------------------------------
Name: James R. Allred
-----------------------------------------
Title: Senior Vice President
----------------------------------------
-3-
<PAGE> 75
TORONTO DOMINION (TEXAS), INC.
By: /s/ LISA ALLISON
------------------------------------------
Name: Lisa Allison
-----------------------------------------
Title: Vice President
----------------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ J.D. SMITH
------------------------------------------
Name: J.D. Smith
-----------------------------------------
Title: Agent Operatons
----------------------------------------
ABN AMRO BANK, N.V., Houston Agency
By: ABN AMRO North America, Inc., as agent
By: /s/ C. W. RANDALL
------------------------------------------
Name: C. W. Randall
-----------------------------------------
Title: Senior Vice President
----------------------------------------
By: /s/ H. GENE SHIELS
------------------------------------------
Name: H. Gene Shiels
-----------------------------------------
Title: Vice President and Director
----------------------------------------
-4-
<PAGE> 1
EXHIBIT 4.4
NOTE
$45,000,000.00 Houston, Texas August 12, 1996
FOR VALUE RECEIVED, the undersigned, Mariner Energy, Inc., a Delaware
corporation ("Maker"), promises to pay to the order of NationsBank of Texas,
N.A. ("Payee"), at the offices of NationsBank of Texas, N.A., as Agent (herein
so called), at 700 Louisiana, 8th Floor, Houston, Texas 77002, for Payee, the
principal sum of Forty-Five Million and No/100 Dollars ($45,000,000.00), or so
much thereof as may be advanced and outstanding, together with interest, as
hereinafter described.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Credit Agreement dated as of June
28, 1996 among Maker, Payee, Agent, and the other Banks named therein, as
amended by that certain First Amendment to Credit Agreement of even date
herewith among Maker, Agent, Co-Agent, Payee and the other Banks named therein
(said Credit Agreement, as amended and as it may be hereafter renewed, extended,
amended, or supplemented, is referred to herein as the "Agreement"), and this
Note is one of the "Notes" referred to therein. Unless otherwise defined herein
or unless the context hereof otherwise requires, each term used herein with its
initial letter capitalized has the meaning given to such term in the Agreement.
Maker also promises to pay interest on the unpaid principal amount
hereof in like money at the offices of Agent above referenced from the date
hereof at the rates applicable to amounts outstanding under the Loan provided in
the Agreement and on the dates specified in the Agreement.
The principal balance of this Note shall be paid at the times and in
the amounts required by the Agreement. The entire outstanding principal balance
hereof and all accrued but unpaid interest thereon shall be due and payable in
full on the Maturity Date.
Upon and subject to the terms and conditions of the Agreement, Maker
shall be entitled to prepay the principal of or interest on this Note from time
to time and at any time, in whole or in part.
Upon the occurrence and continuance of an Event of Default, and upon
the conditions stated in the Agreement, Agent may, at its option, and shall, to
the extent required in accordance with the terms of the Agreement, declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable (provided that, upon the occurrence of certain Events of Default, and
upon the conditions stated in the Agreement, such acceleration shall be
automatic), without notice (except as otherwise required by the Agreement),
demand, or presentment, all of which are hereby waived, and the holder hereof
shall have the right to offset against this Note any sum or sums owed by the
holder hereof to Maker. All past-due principal of and, to the extent permitted
by law, accrued interest on this Note shall, at the option of the holder
hereof,
<PAGE> 2
bear interest at the lesser of (a) the Maximum Lawful Rate or (b) the Adjusted
Base Rate plus 4% per annum until paid from the due date.
Notwithstanding the foregoing, if at any time, any rate of interest
calculated under Section 2.5 of the Agreement (the "Contract Rate") exceeds the
Maximum Lawful Rate, the rate of interest hereunder shall be limited to the
Maximum Lawful Rate, but any subsequent reductions in the Contract Rate shall
not reduce the rate of interest on this Note below the Maximum Lawful Rate until
the total amount of interest accrued equals the amount of interest which would
have accrued (including the amount of interest which would have accrued prior to
the payment or prepayment of any portion of this Note) if the Contract Rate had
at all times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of this Note, the total amount of interest
paid or accrued on this Note is less than the amount of interest which would
have accrued if the Contract Rate had at all times been in effect with respect
thereto, then at such time the Maker shall pay to the holder of this Note an
amount equal to the difference between (a) the lesser of the amount of interest
which would have accrued if the Contract Rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful Rate
had at all times been in effect, and (b) the amount of interest actually paid or
accrued on this Note.
THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS, IS
PAYABLE IN THE STATE OF TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.
MARINER ENERGY, INC.,
a Delaware corporation
By: /s/ ROBERT E. HENDERSON
-------------------------------------------
Its: President and Chief Executive Officer
------------------------------------------
2
<PAGE> 1
EXHIBIT 4.5
NOTE
$45,000,000.00 Houston, Texas August 12, 1996
FOR VALUE RECEIVED, the undersigned, Mariner Energy, Inc., a Delaware
corporation ("Maker"), promises to pay to the order of Toronto Dominion (Texas),
Inc. ("Payee"), at the offices of NationsBank of Texas, N.A., as Agent (herein
so called), at 700 Louisiana, 8th Floor, Houston, Texas 77002, for Payee, the
principal sum of Forty-Five Million and No/100 Dollars ($45,000,000.00), or so
much thereof as may be advanced and outstanding, together with interest, as
hereinafter described.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Credit Agreement dated as of June
28, 1996 among Maker, Agent, and the Banks named therein, as amended by that
certain First Amendment to Credit Agreement of even date herewith among Maker,
Agent, Co-Agent, Payee and the other Banks named therein (said Credit Agreement,
as amended and as it may be hereafter renewed, extended, amended, or
supplemented, is referred to herein as the "Agreement"), and this Note is one of
the "Notes" referred to therein. Unless otherwise defined herein or unless the
context hereof otherwise requires, each term used herein with its initial letter
capitalized has the meaning given to such term in the Agreement.
Maker also promises to pay interest on the unpaid principal amount
hereof in like money at the offices of Agent above referenced from the date
hereof at the rates applicable to amounts outstanding under the Loan provided in
the Agreement and on the dates specified in the Agreement.
The principal balance of this Note shall be paid at the times and in
the amounts required by the Agreement. The entire outstanding principal balance
hereof and all accrued but unpaid interest thereon shall be due and payable in
full on the Maturity Date.
Upon and subject to the terms and conditions of the Agreement, Maker
shall be entitled to prepay the principal of or interest on this Note from time
to time and at any time, in whole or in part.
Upon the occurrence and continuance of an Event of Default, and upon
the conditions stated in the Agreement, Agent may, at its option, and shall, to
the extent required in accordance with the terms of the Agreement, declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable (provided that, upon the occurrence of certain Events of Default, and
upon the conditions stated in the Agreement, such acceleration shall be
automatic), without notice (except as otherwise required by the Agreement),
demand, or presentment, all of which are hereby waived, and the holder hereof
shall have the right to offset against this Note any sum or sums owed by the
holder hereof to Maker. All past-due principal of and, to the extent permitted
by law, accrued interest on this Note shall, at the option of the holder hereof,
<PAGE> 2
bear interest at the lesser of (a) the Maximum Lawful Rate or (b) the Adjusted
Base Rate plus 4% per annum until paid from the due date.
Notwithstanding the foregoing, if at any time, any rate of interest
calculated under Section 2.5 of the Agreement (the "Contract Rate") exceeds the
Maximum Lawful Rate, the rate of interest hereunder shall be limited to the
Maximum Lawful Rate, but any subsequent reductions in the Contract Rate shall
not reduce the rate of interest on this Note below the Maximum Lawful Rate until
the total amount of interest accrued equals the amount of interest which would
have accrued (including the amount of interest which would have accrued prior to
the payment or prepayment of any portion of this Note) if the Contract Rate had
at all times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of this Note, the total amount of interest
paid or accrued on this Note is less than the amount of interest which would
have accrued if the Contract Rate had at all times been in effect with respect
thereto, then at such time the Maker shall pay to the holder of this Note an
amount equal to the difference between (a) the lesser of the amount of interest
which would have accrued if the Contract Rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful Rate
had at all times been in effect, and (b) the amount of interest actually paid or
accrued on this Note.
THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS, IS
PAYABLE IN THE STATE OF TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.
MARINER ENERGY, INC.,
a Delaware corporation
By: /s/ ROBERT E. HENDERSON
-------------------------------------------
Name: Robert E. Henderson
--------------------------------------
Its: President and Chief Executive Officer
---------------------------------------
-2-
<PAGE> 1
EXHIBIT 4.6
NOTE
$30,000,000.00 Houston, Texas August 12, 1996
FOR VALUE RECEIVED, the undersigned, Mariner Energy, Inc., a Delaware
corporation ("Maker"), promises to pay to the order of The Bank of Nova Scotia
("Payee"), at the offices of NationsBank of Texas, N.A., as Agent (herein so
called), at 700 Louisiana, 8th Floor, Houston, Texas 77002, for Payee, the
principal sum of Thirty Million and No/100 Dollars ($30,000,000.00), or so much
thereof as may be advanced and outstanding, together with interest, as
hereinafter described.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Credit Agreement dated as of June
28, 1996 among Maker, Agent, and the Banks named therein, as amended by that
certain First Amendment to Credit Agreement of even date herewith among Maker,
Agent, Co-Agent, Payee and the other Banks named therein (said Credit Agreement,
as amended and as it may be hereafter renewed, extended, amended, or
supplemented, is referred to herein as the "Agreement"), and this Note is one of
the "Notes" referred to therein. Unless otherwise defined herein or unless the
context hereof otherwise requires, each term used herein with its initial letter
capitalized has the meaning given to such term in the Agreement.
Maker also promises to pay interest on the unpaid principal amount
hereof in like money at the offices of Agent above referenced from the date
hereof at the rates applicable to amounts outstanding under the Loan provided in
the Agreement and on the dates specified in the Agreement.
The principal balance of this Note shall be paid at the times and in
the amounts required by the Agreement. The entire outstanding principal balance
hereof and all accrued but unpaid interest thereon shall be due and payable in
full on the Maturity Date.
Upon and subject to the terms and conditions of the Agreement, Maker
shall be entitled to prepay the principal of or interest on this Note from time
to time and at any time, in whole or in part.
Upon the occurrence and continuance of an Event of Default, and upon
the conditions stated in the Agreement, Agent may, at its option, and shall, to
the extent required in accordance with the terms of the Agreement, declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable (provided that, upon the occurrence of certain Events of Default, and
upon the conditions stated in the Agreement, such acceleration shall be
automatic), without notice (except as otherwise required by the Agreement),
demand, or presentment, all of which are hereby waived, and the holder hereof
shall have the right to offset against this Note any sum or sums owed by the
holder hereof to Maker. All past-due principal of and, to the extent permitted
by law, accrued interest on this Note shall, at the option of the holder hereof,
<PAGE> 2
bear interest at the lesser of (a) the Maximum Lawful Rate or (b) the Adjusted
Base Rate plus 4% per annum until paid from the due date.
Notwithstanding the foregoing, if at any time, any rate of interest
calculated under Section 2.5 of the Agreement (the "Contract Rate") exceeds the
Maximum Lawful Rate, the rate of interest hereunder shall be limited to the
Maximum Lawful Rate, but any subsequent reductions in the Contract Rate shall
not reduce the rate of interest on this Note below the Maximum Lawful Rate until
the total amount of interest accrued equals the amount of interest which would
have accrued (including the amount of interest which would have accrued prior to
the payment or prepayment of any portion of this Note) if the Contract Rate had
at all times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of this Note, the total amount of interest
paid or accrued on this Note is less than the amount of interest which would
have accrued if the Contract Rate had at all times been in effect with respect
thereto, then at such time the Maker shall pay to the holder of this Note an
amount equal to the difference between (a) the lesser of the amount of interest
which would have accrued if the Contract Rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful Rate
had at all times been in effect, and (b) the amount of interest actually paid or
accrued on this Note.
THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS, IS
PAYABLE IN THE STATE OF TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.
MARINER ENERGY, INC.,
a Delaware corporation
By: /s/ ROBERT E. HENDERSON
-------------------------------------------
Name: Robert E. Henderson
--------------------------------------
Its: President and Chief Executive Officer
---------------------------------------
-2-
<PAGE> 1
EXHIBIT 4.7
NOTE
$30,000,000.00 Houston, Texas August 12, 1996
FOR VALUE RECEIVED, the undersigned, Mariner Energy, Inc., a Delaware
corporation ("Maker"), promises to pay to the order of ABN AMRO Bank, N.V.,
Houston Agency ("Payee"), at the offices of NationsBank of Texas, N.A., as Agent
(herein so called), at 700 Louisiana, 8th Floor, Houston, Texas 77002, for
Payee, the principal sum of Thirty Million and No/100 Dollars ($30,000,000.00),
or so much thereof as may be advanced and outstanding, together with interest,
as hereinafter described.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Credit Agreement dated as of June
28, 1996 among Maker, Agent, and the Banks named therein, as amended by that
certain First Amendment to Credit Agreement of even date herewith among Maker,
Agent, Co-Agent, Payee and the other Banks named therein (said Credit Agreement,
as amended and as it may be hereafter renewed, extended, amended, or
supplemented, is referred to herein as the "Agreement"), and this Note is one of
the "Notes" referred to therein. Unless otherwise defined herein or unless the
context hereof otherwise requires, each term used herein with its initial letter
capitalized has the meaning given to such term in the Agreement.
Maker also promises to pay interest on the unpaid principal amount
hereof in like money at the offices of Agent above referenced from the date
hereof at the rates applicable to amounts outstanding under the Loan provided in
the Agreement and on the dates specified in the Agreement.
The principal balance of this Note shall be paid at the times and in
the amounts required by the Agreement. The entire outstanding principal balance
hereof and all accrued but unpaid interest thereon shall be due and payable in
full on the Maturity Date.
Upon and subject to the terms and conditions of the Agreement, Maker
shall be entitled to prepay the principal of or interest on this Note from time
to time and at any time, in whole or in part.
Upon the occurrence and continuance of an Event of Default, and upon
the conditions stated in the Agreement, Agent may, at its option, and shall, to
the extent required in accordance with the terms of the Agreement, declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable (provided that, upon the occurrence of certain Events of Default, and
upon the conditions stated in the Agreement, such acceleration shall be
automatic), without notice (except as otherwise required by the Agreement),
demand, or presentment, all of which are hereby waived, and the holder hereof
shall have the right to offset against this Note any sum or sums owed by the
holder hereof to Maker. All past-due principal of and, to the extent permitted
by law, accrued interest on this Note shall, at the option of the holder hereof,
<PAGE> 2
bear interest at the lesser of (a) the Maximum Lawful Rate or (b) the Adjusted
Base Rate plus 4% per annum until paid from the due date.
Notwithstanding the foregoing, if at any time, any rate of interest
calculated under Section 2.5 of the Agreement (the "Contract Rate") exceeds the
Maximum Lawful Rate, the rate of interest hereunder shall be limited to the
Maximum Lawful Rate, but any subsequent reductions in the Contract Rate shall
not reduce the rate of interest on this Note below the Maximum Lawful Rate until
the total amount of interest accrued equals the amount of interest which would
have accrued (including the amount of interest which would have accrued prior to
the payment or prepayment of any portion of this Note) if the Contract Rate had
at all times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of this Note, the total amount of interest
paid or accrued on this Note is less than the amount of interest which would
have accrued if the Contract Rate had at all times been in effect with respect
thereto, then at such time the Maker shall pay to the holder of this Note an
amount equal to the difference between (a) the lesser of the amount of interest
which would have accrued if the Contract Rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful Rate
had at all times been in effect, and (b) the amount of interest actually paid or
accrued on this Note.
THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS, IS
PAYABLE IN THE STATE OF TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.
MARINER ENERGY, INC.,
a Delaware corporation
By: /s/ ROBERT E. HENDERSON
-------------------------------------------
Name: Robert E. Henderson
--------------------------------------
Its: President and Chief Executive Officer
---------------------------------------
-2-
<PAGE> 1
EXHIBIT 4.8
FORM OF 10 1/2% SENIOR SUBORDINATED NOTE DUE 2006, SERIES A
[Legend for Rule 144A Note]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO MARINER ENERGY, INC. OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT
THE TIME OF TRANSFER OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO
MARINER ENERGY, INC. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH
<PAGE> 2
2
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THIS SECURITY WITHIN THE TIME PERIOD REFERRED TO ABOVE,
THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE SIDE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE
TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND MARINER
ENERGY, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER
OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS
A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS
SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
[Legend for Regulation S Note]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES
<PAGE> 3
3
ACT"), AND, PRIOR TO THE EXPIRATION OF A RESTRICTED PERIOD (DEFINED AS 40 DAYS
AFTER THE ISSUANCE DATE WITH RESPECT TO THE NOTES), MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S OR (B) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, AND IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
[Legend for Accredited Investor Note]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO MARINER ENERGY, INC. OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT
THE TIME OF TRANSFER OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO
MARINER ENERGY, INC. THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
<PAGE> 4
4
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THE TIME
PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE SIDE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND MARINER ENERGY, INC. SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES
WITH THE FOREGOING RESTRICTIONS.
<PAGE> 5
5
No. C- $
CUSIP:
ISIN:
10 1/2% Senior Subordinated Note Due 2006
MARINER ENERGY, INC., a Delaware corporation, promises to pay
to , or registered assigns, the principal sum of Dollars
on August 1, 2006.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15.
Additional provisions of this Security are set forth on the other
side of this Security.
Dated:
MARINER ENERGY, INC.
by
-------------------------
President
-------------------------
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES [Seal]
TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
-------------------------
Authorized Signatory
<PAGE> 6
6
10 1/2% Senior Subordinated Note Due 2006
1. Interest
Mariner Energy, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above; provided, however,
that if by February 14, 1997, neither the Registered Exchange Offer is
consummated nor, if required in lieu thereof pursuant to the Registration
Agreement, the Shelf Registration Statement is declared effective by the
Commission, interest will accrue on this Security from and including such date
at a rate of 0.50% per annum in excess of the interest rate per annum shown
above. The Company will pay interest semiannually on February 1 and August 1
of each year. Interest on the Securities will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from August
14, 1996. Interest will be computed on the basis of a 360-day year of twelve
30-day months. The Company shall pay interest on overdue principal at the rate
borne by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 15 or July 15 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. The Company will make all payments
in respect of a certificated Security (including principal, premium and
interest), by mailing a check to the registered address of each Holder thereof;
provided, however, that payments on a certificated Security will be made by
wire
<PAGE> 7
7
transfer to a U.S. dollar account maintained by the payee with a bank in the
United States if such Holder elects payment by wire transfer by giving written
notice to the Trustee or the Paying Agent to such effect designating such
account no later than 30 days immediately preceding the relevant due date for
payment (or such other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, United States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of
August 1, 1996 ("Indenture"), between the Company and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act").
Terms defined in the Indenture and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are general unsecured obligations of the Company
limited to $100,000,000 aggregate principal amount (subject to Section 2.06 of
the Indenture). The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and certain of its Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and
certain of its Subsidiaries, the purchase or redemption of Capital Stock of the
Company and of certain Capital Stock of such Subsidiaries, the sale or transfer
of assets and Subsidiary stock, the creation of Liens, the entering into of
Sale/Leaseback Transactions and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and certain of its Subsidiaries to
restrict distributions and dividends from Subsidiaries. The Indenture also
restricts the ability of the Company and any Subsidiary Guarantor to
consolidate or merge with or into,
<PAGE> 8
8
or to transfer all or substantially all their assets to, another person.
The Indenture also provides that, prior to any Subsidiary
Guarantor Incurring any Indebtedness pursuant to Section 4.03 thereof, the
Company shall cause such Subsidiary to Guarantee the Notes pursuant to a
Subsidiary Guaranty. Any such Subsidiary Guaranty will secure the due and
punctual payment of the principal of and interest, if any, on the Securities
and all other amounts payable by the Company under the Indenture and the
Securities when and as the same shall be due and payable, whether at maturity,
by acceleration or otherwise. Any Subsidiary Guaranty will unconditionally
guarantee the Obligations on a senior subordinated basis pursuant to the terms
of the Indenture.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not
be redeemed prior to August 1, 2001. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the related
interest payment date), if redeemed during the 12-month period beginning on or
after August 1 of the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
- ------ ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . 105.250%
2002 . . . . . . . . . . . . . . . . . . . 102.625
2003 and thereafter . . . . . . . . . . . . 100.000
</TABLE>
In addition, at any time prior to August 1, 1999, the Company may
redeem up to 35% of the aggregate principal amount of Securities with the
proceeds of a Public Equity Offering following which there is a Public Market,
at any time or from time to time, at a redemption price (expressed as a
percentage of principal amount) of 110.5% plus accrued interest (if any) to
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date);
provided, however, that at least $65,000,000 aggregate principal amount of
Securities must remain outstanding after each such redemption; provided
further, however, that any
<PAGE> 9
9
such redemption shall occur within 60 days of the date of the closing of such
Public Equity Offering.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions, to cause the Company to repurchase all or
any part of the Securities of such Holder at a repurchase price equal to 101%
of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record
on the relevant record date to receive interest due on the related interest
payment date) as provided in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give it effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501(a)(1), (2), (3) or
(7)
<PAGE> 10
10
under the Securities Act, minimum denominations of $100,000) and whole
multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of
15 days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain exceptions set forth
in the Indenture,
<PAGE> 11
11
without the consent of any Securityholder, the Company and the Trustee may
amend the Indenture or the Securities to cure any ambiguity, omission, defect
or inconsistency, or to comply with Article 5 of the Indenture, or to provide
for uncertificated Securities in addition to or in place of certificated
Securities, or to add guarantees with respect to the Securities or to secure
the Securities, or to add additional covenants or surrender rights and powers
conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make certain
changes in the subordination provisions, or to make any change that does not
adversely affect the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30
days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 or 6 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase Securities when required; (iii) failure by the
Company to comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of
other Indebtedness of the Company if the amount accelerated (or so unpaid)
exceeds $10,000,000; (v) certain events of bankruptcy or insolvency with
respect to the Company and the Significant Subsidiaries; and (vi) certain
judgments or decrees for the payment of money in excess of $10,000,000. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Securities may declare all the Securities
to be due and payable immediately. Certain events of bankruptcy or insolvency
are Events of Default which will result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest) if it
<PAGE> 12
12
determines that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it
were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to
<PAGE> 13
13
Securityholders. No representation is made as to the accuracy of such numbers
either as printed on the Securities or as contained in any notice of redemption
and reliance may be placed only on the other identification numbers placed
thereon.
20. Holders' Compliance with Registration Agreement
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE> 14
14
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
ATTENTION OF JAMES M. FITZPATRICK, ESQ.
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
-------------------- -------------------------------------
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such
<PAGE> 15
15
Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company or any of its Subsidiaries; or
(2) [ ] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act
of 1933) that purchases for its own account or for the
account of a qualified institutional buyer to whom notice
is given that such transfer is being made in reliance on
Rule 144A, in each case pursuant to and in compliance with
Rule 144A under the Securities Act of 1933; or
(4) [ ] inside the United States to an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D under the Securities Act of 1933) that,
prior to such transfer, furnishes to the Trustee a signed
letter containing certain representations and agreements
(the form of which letter can be obtained from the
Trustee); or
(5) [ ] outside the United States in an offshore transaction
within the meaning of Regulation S under the Securities
Act in compliance with Rule 904 under the Securities Act
of 1933; or
(6) [ ] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however, that
if box (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not
<PAGE> 16
16
subject to, the registration requirements of the Securities Act of 1933,
such as the exemption provided by Rule 144 under such Act.
-------------------------
Signature
Signature Guarantee:
- ------------------------- -------------------------
Signature must be guaranteed Signature
- --------------------------------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
-------------------- -------------------------------------
NOTICE: To be executed by
an executive officer
<PAGE> 17
17
[Schedule applicable only to Rule 144A Notes and Regulation S Notes]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount Signature of
Exchange in Principal in Principal of this Global authorized officer
Amount of this Amount of this Security following of Trustee or
Global Security Global Security such decrease or Securities
increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 18
18
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount in principal amount: $
Date: Your Signature:
--------------- ------------------------------
(Sign exactly as your name appears
on the other side of this Security.)
Signature Guarantee:
----------------------------------------
(Signature must be guaranteed)
<PAGE> 1
EXHIBIT 4.9
FORM OF 10-1/2% SENIOR SUBORDINATED NOTE DUE 2006, SERIES B
[1/]
[2/]
No. $
CUSIP:
ISIN:
10-1/2% Senior Subordinated Note Due 2006
MARINER ENERGY, INC., a Delaware corporation, promises to pay
to , or registered assigns, the principal sum of
Dollars on August 1, 2006.
Interest Payment Dates: February 1 and August 1.
Record Dates: January 15 and July 15.
Additional provisions of this Security are set forth on the other side of this
Security.
Dated:
MARINER ENERGY, INC.,
by
-----------------------------------
President
-----------------------------------
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES [Seal]
TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
--------------------------------
Authorized Signatory
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1/ [If the Security is to be issued in global form add the Global
Securities Legend from Exhibit 1 to Appendix A and the attachment from such
Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF
INCREASES OR DECREASES IN GLOBAL SECURITY".]
2/ [If the Security is a Private Exchange Security issued in a
Private Exchange to an Initial Purchaser holding an unsold portion of its
initial allotment, add the Restricted Securities Legend from Exhibit 1 to
Appendix A and replace the Assignment Form included in this Exhibit A with the
Assignment Form included in such Exhibit 1.]
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10-1/2% Senior Subordinated Note Due 2006
1. Interest
Mariner Energy, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on
the principal amount of this Security at the rate per annum shown above [;
provided, however, that if by February 14, 1997, neither the Registered
Exchange Offer is consummated nor, if required in lieu thereof pursuant to the
Registration Agreement, the Shelf Registration Statement is declared effective
by the Commission, interest will accrue on this Security from and including
such date at a rate of 0.50% per annum in excess of the interest rate per annum
shown above. 3/] The Company will pay interest semiannually on February 1 and
August 1 of each year. Interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 14, 1996. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. The Company shall pay interest on overdue principal
at the rate borne by the Securities plus 1% per annum, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the January 15 or July 15 next preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a
Paying Agent to
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3/ Insert if at the time of issuance of the Exchange Security neither the
Registered Exchange Offer has been consummated nor a Shelf Registration
Statement has been declared effective in accordance with the Registration
Agreement.
<PAGE> 4
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collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of Securities
(including principal, premium and interest) will be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no U.S. dollar account maintained by the payee with a bank in the United
States is designated by any holder to the Trustee or the Paying Agent at least
30 days prior to the relevant due date for payment (or such other date as the
Trustee may accept in its discretion), by mailing a check to the registered
address of such holder.
3. Paying Agent and Registrar
Initially, Unites States Trust Company of New York, a New York
banking corporation ("Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of August 1, 1996 ("Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the
"Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are general unsecured obligations of the
Company limited to $100,000,000 aggregate principal amount (subject to Section
2.06 of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and certain of its Subsidiaries, the
payment of dividends and other distributions on the Capital Stock of the
Company and certain of its Subsidiaries, the purchase or redemption of Capital
Stock of
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the Company and of certain Capital Stock of such Subsidiaries, the sale or
transfer of assets and Subsidiary stock, the creation of Liens, the entering
into of Sale/Leaseback Transactions and transactions with Affiliates. In
addition, the Indenture limits the ability of the Company and certain of its
Subsidiaries to restrict distributions and dividends from Subsidiaries. The
Indenture also restricts the ability of the Company and any Subsidiary
Guarantor to consolidate or merge with or into, or to transfer all or
substantially all their assets to, another person.
The Indenture also provides that, prior to any Subsidiary
Guarantor Incurring any Indebtedness pursuant to Section 4.03 thereof, the
Company shall cause such Subsidiary to Guarantee the Notes pursuant to a
Subsidiary Guaranty. Any such Subsidiary Guaranty will secure the due and
punctual payment of the principal of and interest, if any, on the Securities
and all other amounts payable by the Company under the Indenture and the
Securities when and as the same shall be due and payable, whether at maturity,
by acceleration or otherwise. Any Subsidiary Guaranty will unconditionally
guarantee the Obligations on a senior subordinated basis pursuant to the terms
of the Indenture.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to August 1, 2001. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the related
interest payment date), if redeemed during the 12-month period beginning on or
after August 1 of the years set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . 105.250%
2002 . . . . . . . . . . . . . . . . . . 102.625
2003 and thereafter . . . . . . . . . . . 100.000
</TABLE>
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In addition, at any time prior to August 1, 1999, the Company
may redeem up to 35% of the aggregate principal amount of Securities with the
proceeds of a Public Equity Offering following which there is a Public Market,
at any time or from time to time, at a redemption price (expressed as a
percentage of principal amount) of 110.5% plus accrued interest (if any) to
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date);
provided, however, that at least $65,000,000 aggregate principal amount of
Securities must remain outstanding after each such redemption; provided
further, however, that any such redemption shall occur within 60 days of the
date of the closing of such Public Equity Offering.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to
accrue on such Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions, to cause the Company to repurchase
all or any part of the Securities of such Holder at a repurchase price equal to
101% of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record
on the relevant record date to receive interest due on the related interest
payment date) as provided in, and subject to the terms of, the Indenture.
<PAGE> 7
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8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company
agrees, and each Securityholder by accepting a Security agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give it effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 (or in the case of Definitive Securities sold to
institutional accredited investors as described in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act, minimum denominations of $100,000) and whole
multiples of $1,000. A Holder may transfer or exchange Securities in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities selected
for redemption (except, in the case of a Security to be redeemed in part, the
portion of the Security not to be redeemed) or any Securities for a period of
15 days before a selection of Securities to be redeemed or 15 days before an
interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back
to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must
look only to the Company and not to the Trustee for payment.
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12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain exceptions set forth
in the Indenture, without the consent of any Securityholder, the Company and
the Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to add guarantees with respect to the
Securities or to secure the Securities, or to add additional covenants or
surrender rights and powers conferred on the Company, or to comply with any
request of the SEC in connection with qualifying the Indenture under the Act,
or to make certain changes in the subordination provisions, or to make any
change that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 or 6 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase Securities when required; (iii) failure by the
Company to comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of
other
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Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$10,000,000; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; and (vi) certain judgments or decrees
for the payment of money in excess of $10,000,000. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in
principal amount of the Securities may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Securityholders notice of
any continuing Default (except a Default in payment of principal or interest)
if it determines that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
<PAGE> 10
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17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of
survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A
(=Uniform Gift to Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Agreement
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
21. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS
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OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
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THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
ATTENTION OF JAMES M. FITZPATRICK, ESQ.
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ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
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- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE> 13
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OPTION OF HOLDER TO ELECT PURCHASE
IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED
BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.08 OF THE INDENTURE, CHECK THE
BOX:
[ ]
IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS
SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.08 OF THE
INDENTURE, STATE THE AMOUNT: $
DATE: YOUR SIGNATURE:
------------------ ---------------------------------------
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE
OF THE SECURITY)
SIGNATURE GUARANTEE:
-----------------------------------------------------------
(SIGNATURE MUST BE GUARANTEED BY A MEMBER FIRM OF THE NEW
YORK STOCK EXCHANGE OR A COMMERCIAL BANK OR TRUST COMPANY)
<PAGE> 1
EXHIBIT 10.1
HARDY OIL & GAS PLC
HARDY HOLDINGS INC.
MILLENNIUM OIL & GAS, INC.
AND
ENRON CAPITAL & TRADE RESOURCES CORP.
------------------------------
STOCK PURCHASE AGREEMENT
------------------------------
Effective as of April 1, 1996
----------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Transfer of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.04 Purchase Price Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Post-Closing Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.06 Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II Representations and Warranties of Parent and Seller . . . . . . . . . . . . . . . . . . . . . . . 4
2.01 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02 Corporate Authority; Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.03 Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.04 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.05 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.06 No Default; Compliance with Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.07 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.08 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Contracts, Agreements, Plans and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.11 Title to Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Status and Operation of Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.16 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.17 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.18 Public Utility Holding Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.19 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III Representations and Warranties of Purchaser and ECT . . . . . . . . . . . . . . . . . . . . . . 13
3.01 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.02 Corporate Authority; Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 14
3.03 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.04 Funds Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.05 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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1 The Table of Contents is not part of this instrument.
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV Additional Agreements and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.01 Covenants of Parent and Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.02 Covenants of Purchaser and ECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V Title Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.01 Notice of Asserted Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.02 Counter-Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.03 Liability for Uncured Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.04 Method of Determination of Title Defect Amounts . . . . . . . . . . . . . . . . . . . . . . . . 23
5.05 Arbitration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.06 Calculation of Title Defect Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.07 Payment in Respect of Uncured Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.01 Conditions to the Obligations of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.02 Conditions to the Obligations of Parent and Seller . . . . . . . . . . . . . . . . . . . . . . . 26
6.03 Mutual Conditions to the Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.04 Other Closing Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.01 Section 338(h)(10) Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.02 Preparation and Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.03 Indemnity for Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.04 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.05 Tax Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.06 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.07 Survival of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.08 Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.01 Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX Extent and Survival of Representations and Warranties; Indemnification . . . . . . . . . . . . . 35
9.01 Scope of Representations of Parent and Seller and Purchaser . . . . . . . . . . . . . . . . . . 35
9.02 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE X Notices; Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.02 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.03 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.04 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.05 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
10.06 ECT Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.07 Access to Accounting Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX A Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
EXHIBIT A Participation Agreement
EXHIBIT B Description of Non-Aldwell Spraberry Properties
EXHIBIT C February 29, 1996 Balance Sheet of the Company
Schedule 2.05 - No Violations
Schedule 2.06 - No Default; Compliance with Laws and Regulations
Schedule 2.08 - Absence of Certain Changes
Schedule 2.09 - Taxes
Schedule 2.10 - Contracts, Agreements, Plans and Commitments
Schedule 2.11 - Major Oil and Gas Interests
Schedule 2.12 - Status and Operation of Oil and Gas Properties
Schedule 2.13 - Litigation
Schedule 2.14 - Environmental Matters
Schedule 2.15 - Insurance
Schedule 2.16(a) - Employee Benefit Plans, Etc.
Schedule 2.16(c) - Multiemployer Plans, Etc.
Schedule 2.16(d) - Plan Defaults
Schedule 2.16(e) - Payments on Termination
Schedule 2.16(f) - Sanctionable Payments
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), effective as
of April 1, 1996, by and among Hardy Oil & Gas plc, a company incorporated in
England as a public limited company ("Parent"), Hardy Holdings Inc., a Delaware
corporation ("Seller"), Millennium Oil & Gas, Inc., a Delaware corporation
("Purchaser"), and Enron Capital & Trade Resources Corp., a Delaware
corporation ("ECT");
W I T N E S S E T H:
WHEREAS, Seller, a wholly owned subsidiary of Parent, is the
owner of 1,000 shares (the "Shares") of common stock, par value $1.00 per share
(the "Common Stock"), of Hardy Oil & Gas USA, Inc., a Delaware corporation (the
"Company"), which constitute all the issued and outstanding shares of capital
stock of the Company;
WHEREAS, Purchaser desires to acquire the Shares and Seller
has agreed to sell the Shares to Purchaser, upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the
respective representations, warranties, covenants, agreements and conditions
contained herein, the parties hereto hereby agree as follows. Unless defined
elsewhere in this Agreement, all capitalized terms used herein shall have the
respective meanings given them in Appendix A hereto, which is incorporated
herein by reference and shall be deemed to be a part of this Agreement for all
purposes.
ARTICLE I
Purchase and Sale
1.01 Transfer of Common Stock. Upon the terms and subject
to the conditions of this Agreement, at the Closing, Parent will cause Seller
to sell and assign the Shares and deliver to Purchaser certificates
representing the Shares, free and clear of all Encumbrances, duly registered in
Purchaser's name, against receipt of payment for such Shares as provided in
Section 1.02.
1.02 Purchase Price. Upon the terms and subject to the
conditions of this Agreement, at the Closing, Purchaser will purchase the
Shares for the sum of $178,800,000, as adjusted in accordance with Section 1.04
(the "Purchase Price"). The Purchase Price shall be paid to Seller at the
Closing by wire transfer in federal or other immediately available funds. To
the extent, but only to the extent, provided in Section 1.05, a post-closing
adjustment payment in respect of the Purchase Price shall be made.
1.03 The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Baker & Botts, L.L.P., One Shell Plaza, Houston,
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<PAGE> 6
Texas on the second Business Day following the later to occur of (i) the
expiration or termination of the applicable waiting period (and any extension
thereof) under the HSR Act, if any, and (ii) the approval of this Agreement and
the transactions contemplated hereby by the shareholders of Parent as
contemplated by Section 4.01(h), or at such other time and place as the parties
may mutually agree.
1.04 Purchase Price Adjustments. The Purchase Price shall
be adjusted prior to or as of the Closing Date in the following manner:
(a) The Purchase Price shall be increased or decreased,
as applicable, by the Net Working Capital as of March 31, 1996 as shown on the
Company's internally prepared March 31, 1996 balance sheet (the "Internal
Balance Sheet").
(b) The Purchase Price shall be decreased by the amount
of any cash payments from the Company to any Seller Affiliate and by any cash
payments on Long-Term Debt made by the Company and increased by the amount of
any cash payments made by any Seller Affiliate to the Company, in each case
after March 31, 1996 through the Closing Date.
(c) If the Non-Aldwell Spraberry Properties have been
sold prior to Closing, then the Purchase Price will be adjusted upwards (for
any positive difference) or downwards (for any negative difference), by the
difference, if any, between the net cash proceeds received by the Company from
the sale of the Non-Aldwell Spraberry Properties and the sum of $7,800,000 plus
the net cash flow generated from such properties after March 31, 1996 through
the Closing Date accruing to the Company.
(d) If the Non-Aldwell Spraberry Properties have not been
sold prior to Closing, then Seller shall acquire the Non-Aldwell Spraberry
Properties (which shall be transferred by the Company making a distribution to
the Seller prior to the Closing Date), in which case the Purchase Price will be
decreased by $7,800,000 minus the net cash flow generated from such properties
after March 31, 1996 through the Closing Date accruing to the Company.
(e) The Purchase Price shall be decreased by the amount
of the Intercompany Account Balance as of the Closing Date.
(f) If applicable, the Purchase Price shall be reduced as
provided in Article V.
(g) If applicable, the Purchase Price shall be increased
as provided in Section 6.04.
1.05 Post-Closing Adjustment. By May 15, 1996, Parent,
Purchaser and the Company shall use all reasonable efforts to cause Deloitte &
Touche LLP, the Company's certified public accountants, to audit a balance
sheet of the Company as of March 31, 1996 (the "Audited Balance Sheet"), which
Audited Balance Sheet shall be prepared in accordance with generally
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<PAGE> 7
accepted accounting principles applied on a basis consistent with past practice
and the Internal Balance Sheet and to deliver such Audited Balance Sheet to
Parent and Purchaser as soon as practicable thereafter. If, within 30 days
after delivery of the Audited Balance Sheet, neither Purchaser nor Parent has
given the other notice of its objection to the determination of the current
assets or the current liabilities or any other elements of Net Working Capital
reflected in the Audited Balance Sheet (setting forth the basis of its
objection), then the current assets and current liabilities and any other
elements of Net Working Capital reflected on such Audited Balance Sheet will be
used in computing the adjustments to the Purchase Price in accordance with this
Section 1.05. If either Purchaser or Parent gives such notice of objection,
then the issues in dispute will be submitted to Coopers & Lybrand L.L.P.,
certified public accountants (the "Accountants"), for resolution. If issues in
dispute are submitted to the Accountants for resolution, (i) each of Parent and
Purchaser will furnish to the Accountants such workpapers and other documents
and information relating to the disputed issues as the Accountants may request
and are available to that party or its subsidiaries (or its independent public
accountants) and will be afforded the opportunity to present to the Accountants
any material relating to the determination and to discuss the determination
with the Accountants; (ii) the determination by the Accountants, as set forth
in a notice delivered to both Parent and Purchaser by the Accountants, will be
binding and conclusive on the parties; and (iii) Parent and Purchaser will each
bear 50% of the fees of the Accountants for such determination. For purposes
hereof, the "Determination Date" shall be the date 30 days after delivery of
the Audited Balance Sheet (or such other date agreed to by Parent and
Purchaser) if neither Purchaser nor Parent has given the other notice of
objection by such date or, if such a notice of objection has been given, the
date the determination by the Accountants is delivered to Parent and Purchaser.
To the extent that the Net Working Capital shown on the Audited Balance Sheet
exceeds the Net Working Capital shown on the Internal Balance Sheet, then
Purchaser shall, within five Business Days of the Determination Date, pay to
Parent the amount of the excess plus interest on such amount from March 31,
1996 through the date of payment at LIBOR plus 1%. To the extent that the Net
Working Capital shown on the Internal Balance Sheet exceeds the Net Working
Capital shown on the Audited Balance Sheet, then Parent shall, within five
Business Days of the Determination Date, pay to Purchaser the amount of the
excess plus interest on such amount from March 31, 1996 through the date of
payment at LIBOR plus 1%.
1.06 Certain Liabilities. It is the intent of the parties
that Parent will cause the Company's Long-Term Debt to be eliminated at or
prior to the Closing at no cost to the Company and without otherwise adversely
affecting the Company. At or prior to the Closing, Parent shall cause the
Long-Term Debt of the Company to be repaid or otherwise satisfied or Parent
shall obtain a full release of the Company's liability thereunder without the
use of any of the Company's assets except to the extent that the Company is
kept whole as contemplated by the preceding sentence, and, thereafter, the
Intercompany Account Balance as of the Closing Date shall be determined. On
the Closing Date, in addition to the payment of the Purchase Price as
contemplated by Section 1.04, Purchaser shall purchase the Intercompany Account
Balance from Parent for a cash amount equal to the Intercompany Account
Balance.
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<PAGE> 8
ARTICLE II
Representations and Warranties of Parent and Seller
Except as otherwise disclosed in this Agreement or in the
Schedules attached hereto, and except as known to Purchaser or ECT as of April
1, 1996, Parent and Seller hereby represent and warrant that:
2.01 Organization and Good Standing. Each of Parent and
Seller and the Company is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
and each has all requisite corporate power and authority to own and lease the
properties and assets it currently owns and leases and to carry on its business
as such business is currently conducted. Parent owns all of the outstanding
capital stock of Seller. Parent and Seller have heretofore delivered to
Purchaser true, correct and complete copies of the charter and bylaws, each as
amended to the date hereof, of the Company. The Company is duly licensed or
qualified to do business as a foreign corporation and is in good standing in
all jurisdictions in which the character of the properties and assets now owned
or leased by it or the nature of the business now conducted by it requires it
to be so licensed or qualified except where the failure so to qualify would not
reasonably be expected to have a Material Adverse Effect.
2.02 Corporate Authority; Authorization of Agreement.
Parent and Seller have all requisite corporate power and authority to execute
and deliver this Agreement, to consummate the transactions contemplated hereby
and to perform all the terms and conditions hereof to be performed by them.
The execution and delivery of this Agreement by Parent and Seller, the
performance by Parent and Seller of all the terms and conditions hereof to be
performed by them and the consummation of the transactions contemplated hereby
have been duly authorized and approved by the Boards of Directors of Parent and
Seller. This Agreement has been duly executed and delivered by Parent and
Seller and constitutes the valid and binding obligation of Parent and Seller,
enforceable against them in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other laws relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
2.03 Capitalization of the Company. The authorized
capital stock of the Company consists solely of 10,000 shares of Common Stock,
1,000 of which are issued and outstanding on the date hereof. All of such
outstanding shares are owned beneficially and of record by Seller free and
clear of all Encumbrances. Except as provided by this Agreement, there are no
outstanding subscriptions, options, convertible securities, warrants or calls
of any kind issued or granted by or binding upon Seller or the Company to
purchase or otherwise acquire any security of or equity interest in the
Company. All the outstanding shares of Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable, and none has been
issued in violation of the preemptive rights of any shareholder and, with the
exception of the approval by a majority of votes cast by holders of ordinary
shares of Parent present and voting at a meeting as contemplated by
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<PAGE> 9
Section 4.01(h), no further corporate action is required to authorize and
approve the transactions contemplated hereby on the part of Parent and Seller.
2.04 No Subsidiaries. The Company does not control,
directly or indirectly, or hold rights to acquire, any other Entity.
2.05 No Violations. Except as set forth in Schedule 2.05,
and assuming expiration or termination of the applicable waiting period under
the HSR Act, if applicable, this Agreement and the execution and delivery
hereof by Parent and Seller do not and the fulfillment and compliance with the
terms and conditions hereof and the consummation of the transactions
contemplated hereby will not:
(a) conflict with, or require the consent of any Person
under, any of the terms, conditions or provisions of the memorandum
and articles of association or the charter or bylaws or other
organizational documents, as applicable, of Parent, Seller or the
Company, assuming receipt of the approval of the shareholders of
Parent as contemplated by Section 4.01(h);
(b) violate any provision of, or, except with respect to
the HSR Act, if applicable, require any filing, consent, authorization
or approval under, any Legal Requirement applicable to or binding upon
Parent, Seller or the Company (assuming receipt of all routine
governmental consents typically received after consummation of
transactions of the nature contemplated by this Agreement);
(c) conflict with, result in a breach of, constitute a
default under (without regard to requirements of notice or the lapse
of time or both), accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or
approval under, (i) any mortgage, indenture, loan, credit agreement or
other agreement or instrument evidencing indebtedness for borrowed
money to which Parent, Seller or the Company is a party or by which
Parent, Seller or the Company is bound or to which any of their
respective properties is subject or (ii) any lease, license, contract
or other agreement or instrument to which Parent, Seller or the
Company is a party or by which either of them is bound or to which any
of their respective properties is subject; or
(d) result in the creation or imposition of any lien,
charge or other encumbrance upon the assets of the Company or upon the
Shares;
which, with respect to the matters specified in clauses (b) through (d) of this
Section 2.05, might reasonably be expected to have a Material Adverse Effect.
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<PAGE> 10
2.06 No Default; Compliance with Laws and Regulations.
Except as set forth in Schedule 2.06, to the best of Parent's
knowledge:
(a) the Company is not in default under, and no condition
exists that with notice or lapse of time or both would constitute a
default under, (i) any mortgage, indenture, loan, credit agreement or
other agreement or instrument evidencing indebtedness for borrowed
money to which the Company is a party or by which the Company is bound
or to which any of its properties is subject, (ii) any order, judgment
or decree of any Governmental Authority or (iii) any other agreement,
contract, lease, license or other instrument, which default or
potential default might reasonably be expected to have a Material
Adverse Effect; and
(b) the Company is in compliance with all Legal
Requirements applicable to its business and operations, noncompliance
with which might reasonably be expected to have a Material Adverse
Effect.
2.07 Intentionally Omitted.
2.08 Absence of Certain Changes. Except as provided for
or disclosed in this Agreement, Schedule 2.08 or in the other schedules to this
Agreement, since January 31, 1996, the Company has conducted its business in
the ordinary course and there has not been:
(a) any material adverse change in the business,
financial condition or results of operations of the Company, which
change was not the result of an industry-wide development generally
affecting companies in the oil or gas industry;
(b) any damage, destruction or loss to or of the
properties and assets of the Company, whether or not covered by
insurance, that has had, or might reasonably be expected to have, a
Material Adverse Effect;
(c) any issuance by the Company of any shares of capital
stock or the grant of any stock option or right to purchase shares of
capital stock of the Company; issuance of any security convertible
into such capital stock; grant of any registration rights; purchase,
redemption, retirement, or other acquisition by the Company of any
shares of any such capital stock; or declaration or payment of any
dividend or other distribution or payment in respect of shares of
capital stock;
(d) any sale, lease or other disposition of properties
and assets of the Company other than in the ordinary course of
business;
(e) any merger or consolidation of the Company with any
other Person or any acquisition by the Company of the stock or
business of another Person;
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<PAGE> 11
(f) any borrowing, assumption or guarantee of, or
agreement to borrow, assume or guarantee, funds by the Company;
(g) any mortgage, pledge or grant of a lien or security
interest in any property of the Company, other than in the ordinary
course of business that will not, individually or in the aggregate,
materially detract from the value of the property subject thereto
(except any such encumbrance that will be released at or before the
Closing);
(h) any change in any method of accounting or accounting
practice or accounting policy by the Company, or in any manner of
keeping the books, accounts or records of the Company (except for any
such change required by reason of a concurrent change in generally
accepted accounting principles), or any reclassification of
non-current assets to current assets, or any reclassification of
current liabilities to non-current liabilities;
(i) any increase in compensation, remuneration, bonus or
in any benefits, including under any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any employees of the Company (except
in accordance with past practices as to frequency, timing and amount),
or any grant of or agreement by the Company to pay any severance or
termination pay, to any officer, director or person (including any
independent contractor) employed by the Company, any entering into of
any employment, deferred compensation or other similar agreement by
the Company (or any amendment to any such existing agreement) with any
officer, director or person employed by the Company or any increase in
benefits payable under any existing severance or termination pay
policies or employment agreements covering any officer, director or
person employed by the Company;
(j) any labor dispute or work stoppages or threats
thereof by or with respect to persons employed by the Company in
either case which would have a Material Adverse Effect;
(k) any settlement entered into or any consent made to
any order, decree or judgment relating to or arising out of any
lawsuit or other proceeding relating to the Company;
(l) any payment or transfer of property by the Company to
the Seller or Parent, except as expressly permitted by this Agreement;
(m) entry into, termination of, or receipt of notice of
termination of any agreement involving a total remaining commitment by
or to the Company of more than $500,000;
(n) any cancellation or compromise of debts owed to the
Company or any waiver of claims or rights of the Company; or
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<PAGE> 12
(o) any contract or commitment to do any of the
foregoing.
2.09 Taxes. (a) Except as set forth in Schedule 2.09, (i)
Seller has (or will have by the Closing Date) caused to be timely filed with
the appropriate Governmental Authorities all material Tax Returns, information
returns or statements and reports required to be filed on or before the Closing
Date by or with respect to the Company, (ii) all items of income, gain, loss,
deduction and credit or other items required to be included in each such Tax
Return have been or will be so included and all information provided in each
such Tax Return is or will be true, correct and complete in all material
respects, (iii) all Taxes shown as due on each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements imposed on
or with respect to the Company have been or will be satisfied in all material
respects, (v) Seller has not received and does not have any knowledge of any
notice of deficiency or assessment or proposed deficiency or assessment with
respect to the Company or any of its properties from any Tax authority, (vi)
there are no outstanding agreements or waivers by or with respect to the
Company that extend the statutory period of limitations applicable to any Tax
Returns for any period, (vii) none of the property of the Company is held in an
arrangement that could be classified as a partnership for Tax purposes, and the
Company does not own any interest in any controlled foreign corporation (as
defined in section 957 of the Code), passive foreign investment company (as
defined in section 1296 of the Code) or other Entity the income of which is
required to be included in the income of the Company.
(b) The Company is a member of the "affiliated group"
(within the meaning of section 1504(a) of the Code) of which Seller is the
"common parent" and Company is included in the consolidated federal income tax
return filed by Seller with respect to such affiliated group.
2.10 Contracts, Agreements, Plans and Commitments.
Schedule 2.10 sets forth a list of the following contracts, agreements, plans
and commitments to which the Company is a party or by which the Company or any
of its material properties is bound:
(a) any contract, commitment or agreement that involves
aggregate expenditures by the Company of more than $100,000 per year,
other than (i) contracts, commitments or agreements listed pursuant to
other clauses of this Section 2.10 and (ii) contracts, commitments or
agreements entered into in the ordinary course of business in respect
of a single service or property, which collectively involve
expenditures by the Company aggregating less than $500,000 per year;
(b) any indenture, trust agreement, loan agreement or
note under which the Company has outstanding indebtedness, obligations
or liabilities for borrowed money;
(c) any lease, sublease, installment purchase or similar
arrangement for the use or occupancy of real property (other than the
Leases) that involves aggregate expenditures by the Company of more
than $100,000 per year, together with a list of the location of such
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<PAGE> 13
leased property, the date of termination of such arrangements, the
name of the other party and the annual rental payments required to be
made for such arrangements;
(d) any guaranty, direct or indirect, by Parent, Seller
or any Seller Affiliate of any contract, lease or agreement entered
into by the Company;
(e) any agreement of surety, guarantee or indemnification
by the Company outside of the ordinary course of business; and
(f) any written contract or agreement with Parent, Seller
or any Seller Affiliate relating to the provision of goods or services
or otherwise, that will not be cancelled or terminated prior to the
Closing Date.
2.11 Title to Oil and Gas Properties. The Company has, or
will have at the Closing Date, Defensible Title to the Major Oil and Gas
Interests listed on Schedule 2.11. Purchaser's exclusive remedy for any
breach of the warranty set forth in the immediately preceding sentence shall
be the remedy provided in Article V.
2.12 Status and Operation of Oil and Gas Properties.
Except as set forth on Schedule 2.12 hereto:
(a) To the best knowledge of Parent, the Leases in which
the Company holds Major Oil and Gas Interests are in full force and
effect in accordance with their respective terms.
(b) To the best knowledge of Parent, the Material Oil and
Gas Contracts are in full force and effect in accordance with their
respective terms.
(c) The Company has not (i) received any material
advance, "take-or-pay" or other similar payments under production
sales contracts that entitle the purchasers to "make up" or otherwise
receive deliveries of Hydrocarbons at any time after the Closing Date
without paying at such time the contract price therefor or (ii) taken
or received any material amount of Hydrocarbons under any gas
balancing agreements or any similar arrangements that permit any
Person to thereafter receive any portion of the interest of the
Company to "balance" any disproportionate allocation of Hydrocarbons.
(d) All Taxes based on or measured by the ownership of
the Oil and Gas Interests or the production of Hydrocarbons or the
receipt of proceeds therefrom that have become due and payable with
respect to the Oil and Gas Interests have been timely paid, except
such taxes as are being contested in good faith.
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<PAGE> 14
2.13 Litigation. Except as set forth in Schedule 2.13:
(a) There is no action, suit or proceeding pending or, to
the knowledge of Parent or Seller, threatened against the Company or
any of its properties claiming an amount in excess of $50,000 or any
other relief which, if granted, would have a Material Adverse Effect
or that would prevent the consummation of the transactions
contemplated by this Agreement.
(b) The Company is not charged with a violation of, or,
to the knowledge of Parent or Seller, threatened with a charge of a
violation of, any Legal Requirement relating to any aspect of its
business, which violation might reasonably be expected to have a
Material Adverse Effect.
2.14 Environmental Matters. Except as specified in
Schedule 2.14, there is no Environmental Claim or Environmental Condition with
respect to the Oil and Gas Interests or resulting from operations at the Oil
and Gas Interests, nor with respect to any property (of any type or character)
formerly owned or operated by the Company (but only to the extent that any such
Environmental Claim or Environmental Condition associated with a formerly owned
or operated property could result in the imposition of any material liability
on the Company).
2.15 Insurance. Schedule 2.15 hereto sets forth a list of
all material insurance policies and programs of self-insurance maintained by
Parent, Seller or any Seller Affiliate, by which the Company or any of its
properties or assets are covered against present losses, all of which are now
in full force and effect. To the extent that any such policy is owned or held
by Parent, Seller or any Seller Affiliate, it may be terminated at any time
after the Closing; provided, however, that Parent and Seller agree to maintain
such policies (or policies of substantially the same nature) in full force and
effect at all times until the Closing.
2.16 Employee Benefit Matters. (a) Schedule 2.16(a) lists
each of the following, which is sponsored, maintained or contributed to by the
Company for the benefit of the employees of the Company, or has been so
sponsored, maintained or contributed to within six years prior to the Closing
Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, (including, but not limited
to, employee benefit plans, such as foreign plans, which are
not subject to the provisions of ERISA) ("Plan");
(ii) each personnel policy, stock option plan,
collective bargaining agreement, 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
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<PAGE> 15
benefit plan, agreement, arrangement, program, practice or
understanding which is not described in Section 2.16(a)(i)
("Benefit Program or Agreement").
(b) True, correct and complete copies of each of the
Plans, and related trusts, if applicable, including all amendments
thereto, have been made available for Purchaser's review. With
respect to each Plan required to file such report and description, the
most recent report on Form 5500 and the summary plan description have
been made available for Purchaser's review. True and correct and
complete copies or descriptions of all Benefit Programs and Agreements
have been made available for Purchaser's review.
(c) Except as otherwise set forth on Schedule 2.16(c),
(i) The Company does not contribute to or have an
obligation to contribute to, and has not 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; and
(ii) The Company does not maintain and has not at
any time within six years prior to the Closing Date maintained
any Plan which is or was subject to Title IV of ERISA.
(d) Except to the extent any of the following would not
reasonably be expected to have a Material Adverse Effect or except as
otherwise set forth on Schedule 2.16(d),
(i) The Company has substantially performed all
obligations, whether arising by operation of law or by
contract, required to be performed by it in connection with
the Plans and the Benefit Programs and Agreements, and to the
knowledge of Parent or Seller there have been no material
defaults or violations by any other party to the Plans or
Benefit Programs and Agreements;
(ii) All reports and disclosures relating to the
Plans required to be filed with or furnished to governmental
agencies, Plan participants or Plan beneficiaries have been
filed or furnished in accordance with applicable law in a
timely manner, and each Plan and Benefit Program or Agreement
has been administered in substantial compliance with its
governing documents;
(iii) Each of the Plans intended to be qualified
under section 401 of the Code satisfies the requirements of
such section and has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or, to the knowledge of
Seller, operated in a way which would adversely affect such
qualified status;
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(iv) There are no actions, suits or claims pending
(other than routine claims for benefits) or, to the knowledge
of Parent or Seller, threatened against, or with respect to,
any of the Plans or Benefit Programs and Agreements or their
assets;
(v) All contributions required to be made to the
Plans pursuant to their terms and provisions have been made
timely;
(vi) As to any Plan intended to be qualified under
section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of section
411(d)(3) of the Code;
(vii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (1) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(viii) To the knowledge of Parent or Seller, there
is no matter pending (other than routine qualification
determination filings) with respect to any of the Plans before
the Internal Revenue Service, the Department of Labor or the
Pension Benefit Guaranty Corporation;
(ix) Any trust funding a Plan which is intended
to be exempt from federal income taxation pursuant to section
501(c)(9) of the Code, satisfies the requirements of such
section and has received a favorable determination letter from
the Internal Revenue Service regarding such exempt status and
has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such exempt status; and
(x) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan, Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program.
(e) Except as otherwise set forth in Schedule 2.16(e),
the Company is not a party to any agreement, nor has it 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 the Company upon termination of such services which would
not be payable or provided in the absence of the consummation of the
transactions contemplated by this Agreement.
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<PAGE> 17
(f) In connection with the consummation of the
transaction contemplated by this Agreement and except as disclosed on
Schedule 2.16(f), no payments have or will be made under the Plans or
Benefit Programs and Agreements which, in the aggregate, would result
in imposition of the sanctions imposed under sections 280G and 4999 of
the Code.
(g) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(l) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(h) None of the Company's employees are subject to union
or collective bargaining agreements with the Company.
2.17 SEC Reports. The Company is not under any present
obligation to file any reports with the Commission, under Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended.
2.18 Public Utility Holding Company. The Company is not a
"holding company" or a "subsidiary company" of a "holding company", or an
affiliate of a "holding company" or a "subsidiary company" of a "holding
company", in each case within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
2.19 Books and Records. To the best knowledge of Parent,
all original existing lease files, land files, well files, abstracts, title
opinions, maps, electric logs, geological data, and all corporate and other
records of every type and description that relate solely to the business of the
Company and that are in the possession of Parent, Seller or any Seller
Affiliate (other than consolidated tax returns and other similar documents
reflecting the combination of the Company with other interests of Parent or
Seller and its other subsidiaries) are, or shall prior to the Closing Date be,
located in the offices of the Company.
2.20 Entire Business. No portion of the business of the
Company as currently conducted is conducted by Parent or Seller (other than
through the Company) and all the business of the Company as currently conducted
is conducted by the Company. To the best knowledge of Parent, the assets of
the Company constitute all of the assets and properties necessary for the
conduct of the Company's business in the ordinary course in the same manner as
has been conducted in the past.
ARTICLE III
Representations and Warranties of Purchaser and ECT
Except as otherwise disclosed in this Agreement or in the
Schedules attached hereto, Purchaser and ECT hereby represent and warrant that:
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3.01 Organization and Good Standing. Each of Purchaser
and ECT is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation.
3.02 Corporate Authority; Authorization of Agreement.
Purchaser and ECT have all requisite corporate power and authority to execute
and deliver this Agreement, to consummate the transactions contemplated hereby
and to perform all the terms and conditions hereof to be performed by them. The
execution and delivery of this Agreement by Purchaser and ECT, the performance
by Purchaser and ECT of all the terms and conditions hereof to be performed by
them and the consummation of the transactions contemplated hereby have been duly
authorized and approved by the Boards of Directors of Purchaser and ECT. This
Agreement has been duly executed and delivered by Purchaser and ECT and
constitutes the valid and binding obligation of Purchaser and ECT, enforceable
against them in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or other laws relating to or affecting the
enforcement of creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.03 No Violations. Assuming the expiration or
termination of the applicable waiting period under the HSR Act, if applicable,
this Agreement and the execution and delivery hereof by Purchaser and ECT do
not, and the fulfillment and compliance with the terms and conditions hereof and
the consummation of the transactions contemplated hereby will not:
(a) conflict with, or require the consent of any Person
under, any of the terms, conditions or provisions of the charter or
bylaws of Purchaser or ECT;
(b) violate any provision of, or, except with respect to
the HSR Act, if applicable, require any filing, consent, authorization
or approval under, any Legal Requirement applicable to or binding upon
Purchaser or ECT (assuming receipt of all routine governmental
consents typically received after consummation of transactions of the
nature contemplated by this Agreement);
(c) conflict with, result in a breach of, constitute a
default under (without regard to requirements of notice or the lapse
of time or both), accelerate or permit the acceleration of the
performance required by, or require any consent, authorization or
approval under, (i) any mortgage, indenture, loan, credit agreement or
other agreement or instrument evidencing indebtedness for borrowed
money to which Purchaser or ECT is a party or by which Purchaser or
ECT is bound or to which any of their respective properties is subject
or (ii) any lease, license, contract or other agreement or instrument
to which Purchaser or ECT is a party or by which either of them is
bound or to which any of its properties is subject; or
(d) result in the creation or imposition of any lien,
charge or other encumbrance upon the assets of Purchaser or ECT;
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<PAGE> 19
which, with respect to the matters specified in clauses (b) through (d) of this
Section 3.03, might reasonably be expected to have a material adverse effect on
the ability of Purchaser or ECT to consummate the transactions contemplated
hereby.
3.04 Funds Available. Purchaser has, or will have prior
to the Closing Date, sufficient cash, available lines of credit or other
sources of immediately available funds to enable it to make payment of the
Purchase Price at the Closing.
3.05 Litigation. There is no action, suit, proceeding or
governmental investigation or inquiry pending or, to the knowledge of Purchaser
or ECT, threatened against Purchaser or ECT or its subsidiaries or any of their
respective properties that might delay, prevent or hinder the consummation of
the transactions contemplated hereby.
ARTICLE IV
Additional Agreements and Covenants
4.01 Covenants of Parent and Seller. Parent and Seller
covenant and agree with Purchaser as follows:
(a) Certain Changes. Except as may be expressly
permitted by this Agreement or set forth in any Schedule hereto, from
the date hereof until the Closing, without first obtaining the written
consent of Purchaser (which consent shall not be unreasonably
withheld), Parent and Seller will cause the Company to conduct its
business in the ordinary course consistent with past practice and will
use their Best Efforts to cause the Company to preserve substantially
intact its business and relationships with officers, employees and
customers, and Parent and Seller will not cause the Company to and
will use their Best Efforts to not allow the Company to:
(i) declare or pay any dividend or other
distribution on its outstanding capital stock or repurchase,
redeem or acquire any of such capital stock;
(ii) make any material change in the conduct of its
business or operations;
(iii) except in the ordinary course of business and
consistent with past practices, enter into, assign, terminate
or amend, in any material respect, any contract or agreement
required to be disclosed pursuant to Section 2.10;
(iv) issue any equity securities or securities
convertible into or exercisable for equity securities, or
repurchase, redeem or otherwise acquire any such securities or
make or propose to make any other change in its
capitalization;
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<PAGE> 20
(v) merge into or with or consolidate with any
other Entity or acquire all or substantially all of the
business or assets of any Person;
(vi) make any change in its articles of
incorporation or bylaws;
(vii) purchase any securities of any Person, except
for short-term investments made in the ordinary course of
business consistent with past practices;
(viii) sell, lease or otherwise dispose of any of
its assets or properties other than the Non-Aldwell Spraberry
Properties and pursuant to existing contracts or commitments,
except sales, leases or dispositions in the ordinary course of
business of properties having an aggregate value of $250,000
or less;
(ix) purchase, lease or otherwise acquire any
property of any kind whatsoever other than in the ordinary
course of business;
(x) (A) create, incur, assume or permit
additional material indebtedness (including obligations in
respect of capital leases), (B) assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of
any other person in an aggregate amount in excess of $250,000,
(C) encumber or grant a security interest in any material
assets of the Company, or (D) make any loans or advances to
any person other than Parent or Seller, enter into any
agreement or instrument relating to the borrowing of money or
the extension of credit or enter into any other material
transaction, other than in each case in the ordinary course of
business consistent with past practice and in an aggregate
amount not in excess of $250,000;
(xi) adopt, enter into, terminate or amend any
bonus, profit sharing, compensation, severance, termination,
stock option, pension, retirement, deferred compensation,
employment or other Plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any current or
former director, officer or employee, or increase in any
manner the compensation or fringe benefits of any directors,
executive officers or employees other than normal salary
increases to employees in the ordinary course of business that
are consistent with past practice that, in the aggregate, do
not result in a material increase in compensation expense to
the Company relative to the level in effect prior to such
increase, or pay any benefit not provided under any existing
plan or arrangement or grant any awards under any other bonus,
incentive, performance or other compensation plan or
arrangement or Plan;
(xii) make any change in its accounting policies or
procedures, except as required under generally accepted
accounting principles;
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<PAGE> 21
(xiii) take any action that would, or reasonably
might be expected to, result in any of the representations and
warranties of Parent and Seller set forth in this Agreement
being or becoming untrue in any material respect as of the
Closing Date, or in any of the conditions to the Closing set
forth in Article VI not being satisfied;
(xiv) fail to maintain in full force and effect all
of its policies of insurance in existence as of the date
hereof or insurance comparable to the coverage afforded by
such policies;
(xv) enter into any natural gas or other future or
options trading or be a party to any price swaps, hedges,
futures or similar instruments; or
(xvi) commit itself to do any of the foregoing.
(b) Operation of Oil and Gas Properties. Except as may
be expressly permitted hereunder or as set forth in any Schedule
hereto, from the date hereof until the Closing, without first
obtaining the written consent of Purchaser (which consent shall not be
unreasonably withheld), Parent and Seller will not cause the Company
to and will use their Best Efforts to not allow the Company to:
(i) waive any right of material value relating to
any of the Oil and Gas Interests;
(ii) release or abandon any material part of any
of the Oil and Gas Interests (except the abandonment of Leases
upon the expiration of their respective primary terms);
(iii) sell, transfer, convey, farm out, encumber,
mortgage, pledge or dispose of Oil and Gas Interests, with the
exception of the Non-Aldwell Spraberry Properties, with a fair
market value exceeding either $100,000 on an individual basis
or $250,000 in the aggregate;
(iv) commence or consent to any material
operations on any Oil and Gas Interest that the Company has
not previously committed to and that may be expected to cost
the Company in excess of $250,000 (except for emergency
operations, in which case the Company shall promptly notify
Purchaser and from the date of Purchaser's response to such
notice shall once again be subject to the limitations
contained in this clause (iv));
(v) enter into, modify or terminate any Oil and
Gas Contracts unless such modification or termination would be
effected by a reasonable and prudent operator; or
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<PAGE> 22
(vi) commit itself to do any of the foregoing;
provided, however, that nothing contained in this Section 4.01(b) or
elsewhere in this Agreement shall limit the rights of the Company to
produce, consume and sell Hydrocarbons from the Oil and Gas Interests
in the ordinary course of business.
(c) Certain Covenants With Respect to Major Oil and Gas
Interests. Except as may otherwise be expressly provided herein,
Parent and Seller will, from the date hereof to the Closing, unless
otherwise consented to in writing by Purchaser:
(i) cause the Company to promptly notify
Purchaser of the receipt of any written notice or written
claim or written threat of notice or claim of which Seller
becomes aware relating to any default or breach by the Company
under, or of any termination or cancellation or written threat
of termination or cancellation of, any of the Major Oil and
Gas Interests or Material Oil and Gas Contracts;
(ii) cause the Company promptly to notify
Purchaser of any loss of or damage to any portion of the Major
Oil and Gas Interests known to Seller or the Company and
exceeding $100,000 in amount;
(iii) as to Major Oil and Gas Interests operated by
the Company, cause to be paid all rentals, shut-in royalties,
minimum royalties and other payments that are necessary to
maintain in force their rights in and to such Major Oil and
Gas Interests, and pay timely all costs and expenses incurred
by them in connection with such Major Oil and Gas Interests,
except such costs and expenses as are being contested in good
faith; and
(iv) as to Major Oil and Gas Interests operated by
the Company, use its Best Efforts to maintain and operate such
Major Oil and Gas Interests in accordance with all applicable
Legal Requirements (to the extent consistent with customary
practices in the oil and gas industry) and in accordance with
the Material Oil and Gas Contracts relating thereto, in
substantially the same manner that Seller or the Company
heretofore has operated such properties.
(d) Access. Parent and Seller will cause the Company to
afford to Purchaser and its authorized representatives, at Purchaser's
sole expense, risk and cost and upon reasonable notice, reasonable
access from the date hereof until the Closing Date, during normal
business hours, to the Company's personnel, properties, books and
records or the personnel, properties, books and records of Parent,
Seller or any Seller Affiliate which are related solely to the Company
to the extent that such access and disclosure would not unreasonably
interfere with the normal operation of the business of the Company or
Parent, Seller or such Seller Affiliate or violate the terms of any
agreement by which Seller, the Company or Parent, Seller or such
Seller Affiliate is bound or any applicable law or regulation;
provided,
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<PAGE> 23
however, that the confidentiality of any data or information so
acquired shall be maintained by Purchaser and its representatives in
accordance with Section 4.02(d).
(e) Antitrust Notification. If required by applicable
Legal Requirements, as promptly as practicable and in any event not
more than ten days following the date on which the parties hereto shall
have executed and delivered this Agreement, Parent and Seller will file
with the Federal Trade Commission and the Department of Justice the
notification and report form required for the transactions contemplated
hereby and will as promptly as practicable furnish any supplemental
information which may be reasonably requested in connection therewith
pursuant to the HSR Act.
(f) Intentionally Omitted.
(g) Satisfaction or Release of Certain Indebtedness.
Prior to the Closing, Parent and Seller will take whatever actions
shall be necessary or appropriate to ensure that, as of the Closing,
the Long-Term Debt shall be repaid or otherwise satisfied or Parent
shall obtain a full release of the Company's liability thereunder
without the use of any of the Company's assets except to the extent
that the Company is kept whole as contemplated by Section 1.06(a).
(h) Meeting of Parent Shareholders. Parent shall, as
promptly as reasonably practicable after the date of this Agreement,
take all actions necessary in accordance with applicable English Legal
Requirements (including any requirements of any stock exchange or
other trading market on which Parent's equity securities are traded)
and its memorandum and articles of association, to convene an
extraordinary general meeting of Parent's shareholders, which shall in
any event be held no later than May 14, 1996, for the purpose of
passing an ordinary resolution approving this Agreement and the
transactions contemplated hereby (the "Shareholders Meeting"), and
Parent shall consult with Purchaser and its counsel in connection
therewith. Parent's directors (with the exception of Mr. R. Henderson
and subject only to the proviso at the end of this paragraph (h))
shall recommend that Parent's shareholders approve this Agreement and
the transactions contemplated hereby at the Shareholders Meeting, and
Parent shall use its Best Efforts to secure the vote of such number of
stockholders as is required by applicable English Legal Requirements
and its memorandum and articles of association to approve this
Agreement; provided, that nothing in this Section 4.01(h) shall
require the Board of Directors of Parent to take any actions or omit
to take any actions that would contravene any fiduciary duties owed by
the Parent's Board of Directors.
(i) Best Efforts. Parent and Seller will use their Best
Efforts to obtain the satisfaction of the conditions to Closing set
forth in Sections 6.01 and 6.03.
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<PAGE> 24
(j) No Solicitation. Parent and Seller shall cease
immediately all efforts to sell all or any part of the equity,
business or assets of the Company (other than sales of assets in the
ordinary course of business and except as expressly provided in this
Agreement), and:
(i) From and after the date of this Agreement and
until this Agreement and the transactions contemplated hereby
shall have been duly approved by the stockholders of Parent in
accordance with Section 4.01 (h), Parent shall not, nor shall
it permit any of its subsidiaries to, nor shall it authorize or
permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or
other representative retained by it or any of its subsidiaries
to, directly or indirectly, initiate, solicit, negotiate or
encourage (including by way of furnishing information), or take
any other action to facilitate or entertain, any inquiries or
the making of any proposal that constitutes, or may reasonably
be expected to lead to, any proposal or offer (a "Parent
Acquisition Proposal") to acquire all or substantially all of
the business of Parent and its subsidiaries, or all or
substantially all of the capital stock of the Parent, whether
by merger, share exchange, purchase of assets, tender offer,
exchange offer or otherwise, whether for cash, securities or
any other consideration or combination thereof (any such
transaction being referred to herein as a "Parent Acquisition
Transaction") or agree to endorse or recommend any such Parent
Acquisition Transaction or enter into an agreement relating to
a Parent Acquisition Transaction; provided, that nothing in
this Section 4.01(j)(i) shall require the Board of Directors of
Parent to take any actions or omit to take any actions that
would contravene any fiduciary duties owed by the Parent's
Board of Directors.
(ii) From and after the date of this Agreement and
until the earlier of the Closing Date and the termination of
this Agreement pursuant to Article VIII, Parent shall not, nor
shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees
or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly, initiate, solicit,
negotiate or encourage (including by way of furnishing
information), or take any other action to facilitate or
entertain, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any
proposal or offer (a "Company Acquisition Proposal") to acquire
all or substantially all of the business of the Company, or all
or substantially all of the capital stock of the Company,
whether by merger, share exchange, purchase of assets, tender
offer, exchange offer or otherwise, whether for cash,
securities or any other consideration or combination thereof
(any such transaction being referred to herein as a "Company
Acquisition Transaction") or agree to endorse or recommend any
such Company Acquisition Transaction or enter into an agreement
relating to a Company Acquisition Transaction.
(iii) Parent shall promptly advise Purchaser in
writing of any request, whether received before or after April
1, 1996, for nonpublic written information or
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<PAGE> 25
of any proposal relating to a Company Acquisition Transaction,
or any inquiry that could reasonably be expected to lead to any
such proposal, the terms of such request, proposal or inquiry,
and the identity of the person making any such request,
proposal or inquiry.
(k) Public Announcements. Subject to applicable securities laws
or stock exchange requirements, at all times until the Closing Date, Seller
shall obtain the approval of Purchaser before issuing, or permitting any of the
directors, officers, employees or agents or Seller, the Company or any Seller
Affiliate to issue, any press release with respect to this Agreement or the
transactions contemplated hereby.
4.02 Covenants of Purchaser and ECT. Purchaser and ECT
covenant and agree with Parent and Seller as follows:
(a) Antitrust Notification. If required by applicable
Legal Requirements, as promptly as practicable and in any event not
more than ten days following the date on which each of the parties
hereto shall have executed and delivered this Agreement, Purchaser (or
the applicable ultimate parent entity of Purchaser) will file with the
Federal Trade Commission and the Department of Justice the
notification and report form required for the transactions
contemplated hereby and will as promptly as practicable furnish any
supplemental information which may be reasonably requested in
connection therewith pursuant to the HSR Act.
(b) Best Efforts. Purchaser and ECT will use their Best
Efforts to obtain the satisfaction of the conditions to Closing set
forth in Sections 6.02 and 6.03.
(c) Public Announcements. Subject to applicable
securities laws or stock exchange requirements, at all times until the
Closing Date, Purchaser shall obtain the approval of Parent before
issuing, or permitting any of Purchaser's directors, officers,
employees, agents or affiliates to issue, any press release with
respect to this Agreement or the transactions contemplated hereby.
(d) Confidential Information. In the event that this
Agreement is terminated or, if not terminated, until the Closing Date,
the confidentiality of any data or information received by Purchaser
regarding the business and assets of the Company shall be maintained
by Purchaser and its representatives in accordance with the
Confidentiality Agreement dated March 13, 1996 executed by ECT and
Parent.
(e) Use of the Company Name. Promptly after the Closing,
Purchaser shall file an amendment to the Company's Articles of
Incorporation, and shall take or cause to be taken all other action
necessary to eliminate the word "Hardy" or any other expression or
words similar thereto from the corporate name of the Company. Within
60 days after the Closing Date, Purchaser shall cause the Company to
eliminate the word "Hardy" or any
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<PAGE> 26
word or expression similar thereto from the name under which it does
business, and as promptly as practicable after the Closing Date, but in
any event within 60 days after the Closing Date, the foregoing name
shall be removed from the Company's property, stationery and
literature, and thereafter neither Purchaser nor the Company shall use
any logos, trademarks or trade names belonging to Seller or any Seller
Affiliate.
(f) Assumption of Severance Plan. As of April 1, 1996,
Purchaser and ECT shall cause the Company to become liable for all
payments under and to assume all liabilities under the 1996
Severance-Stay On Bonus Plan instituted in February 1996 for the
benefit of the Company's employees.
ARTICLE V
Title Matters
5.01 Notice of Asserted Title Defects. To assert a claim
with respect to Title Defects, Purchaser must, within 30 days after the date of
this Agreement, furnish Parent with written notice specifying in detail each
Title Defect asserted by Purchaser to exist, the Major Oil and Gas Interest
that each such Title Defect affects and the Title Defect Amount estimated by
Purchaser for such Title Defect. At or before the end of such 30-day period,
Purchaser shall deliver to Parent an aggregate list of all asserted Title
Defects, and any Title Defects not noted on such list shall conclusively be
deemed to be Permitted Encumbrances.
5.02 Counter-Notice. Upon being notified by Purchaser
pursuant to Section 5.01 of any asserted Title Defect, Parent shall give
written counter-notice within 10 days to Purchaser that either (a) it intends
to cure such Title Defect or (b) that it disagrees that there is a Title
Defect. If Parent gives counter-notice of intent to cure an asserted Title
Defect, it shall then have the Cure Period to cure such Title Defect at its own
expense. If Parent gives counter-notice that it disagrees there is a Title
Defect, then the Title Defect Amount, if any, shall be determined by
arbitration pursuant to Section 5.05. The failure of Parent to deliver written
counter-notice shall be deemed to be an admission of the existence of such
Title Defect and a waiver of its right to cure such Title Defect.
5.03 Liability for Uncured Title Defects. Seller shall be
liable to Purchaser as determined pursuant to Section 5.04 for Title Defects
asserted against Parent not cured during the Cure Period; provided, however,
that if Parent or Seller attempts to cure such asserted Title Defect within the
Cure Period and the parties disagree as to whether such cure is successful,
then the matter shall be submitted to arbitration as set forth in Section 5.05.
The amount of Seller's liability shall be limited, however, to the amount by
which the Net Defect Amount determined pursuant to Section 5.04 exceeds
$2,000,000. If the Net Defect Amount determined pursuant to Section 5.04 is
known at Closing and exceeds $2,000,000 at such time, the Purchase Price shall
be reduced by the amount of such excess; provided, however, that if the Net
Defect Amount exceeds $10,000,000, Parent and Seller shall have the right to
terminate this Agreement in its entirety unless Purchaser waives its
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right hereunder to recover any amount in excess of $10,000,000. If the Net
Defect Amount exceeds $25,000,000, Purchaser shall have the right to terminate
this Agreement in its entirety. Net Defect Amounts in excess of $2,000,000 that
are not satisfied through reductions in the Purchase Price shall be paid to
Purchaser as set forth in Section 5.07, and any such payment shall be treated as
a decrease in the Purchase Price.
5.04 Method of Determination of Title Defect Amounts.
Title Defect Amounts for each asserted Title Defect, respectively, shall be
determined as follows:
(a) Parent may at any time by written notice accept
Purchaser's estimate of a Title Defect Amount furnished under Section
5.01;
(b) If Parent does not accept Purchaser's estimate of a
Title Defect Amount and the asserted Title Defect is not cured during
the Cure Period, either because Parent's attempt to cure was
unsuccessful, because the parties disagreed as to whether a cure was
successful or because Parent did not give notice of intent to cure
under Section 5.02, the Closing shall nevertheless take place and the
Title Defect Amount shall be determined by arbitration after the end
of the Cure Period.
5.05 Arbitration Procedures. If any matter is required by
Section 5.02, 5.03 or 5.04(b) to be arbitrated, such arbitration shall be
conducted as set forth in this Section 5.05.
(a) The parties shall jointly select a mutually
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 Parent or Purchaser may in writing request the
judge of the United States District Court for the Southern District of
Texas senior in term of service to appoint a qualified arbitrator.
(b) Any arbitration hearing shall be held at a place in
Houston, Texas acceptable to the arbitrator.
(c) The arbitrator shall settle disputes over Title
Defects or Title Defect Amounts and as to Parent's attempt to cure any
Title Defects in accordance with the Texas General Arbitration Act and
the Commercial Rules of the American Arbitration Association, to the
extent such rules do not conflict with the terms of such Act and the
terms hereof. Such arbitrator shall hear all arbitration matters
arising under this Article V. The decision of the arbitrator shall be
binding upon the parties, and may be enforced in any court of
competent jurisdiction. Parent 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 Parent and Purchaser.
(d) The arbitration shall commence within ten days after
the arbitrator is selected as set forth in Section 5.05(a) above. In
fulfilling his duties with respect to determining each
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Title Defect Amount, the arbitrator shall be bound by the rules set
forth in Section 5.06 below. 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 (whether
selected by Parent and Purchaser or the senior judge) should die,
resign or be unable to perform his duties hereunder, the parties or
senior judge (or such judge's successor) selecting such arbitrator
shall select a replacement arbitrator. The aforesaid procedure shall
be followed from time to time as necessary.
5.06 Calculation of Title Defect Amounts. When
calculating a Title Defect Amount, Parent, Purchaser and the arbitrator shall
consider, among other matters, the present value of the Major Oil and Gas
Interest affected by the Title Defect, the legal effect of the Title Defect
and, in relation to the affected Major Oil and Gas Interest's value, the
probable economic effect of the Title Defect over the life of the Major Oil and
Gas Interest.
5.07 Payment in Respect of Uncured Title Defects. Within
10 business days after the later of the end of the Cure Period or, if any
asserted Title Defect is submitted to arbitration, the completion of
arbitration with respect to all disputed Title Defect Amounts, Parent shall
cause Seller to pay to Purchaser, in immediately available funds, the amount,
if any, owing to Purchaser under Section 5.03, and any such payment shall be
treated as a decrease in the Purchase Price. Interest shall accrue at the rate
of LIBOR plus 1% from the due date with respect to any such amount which is not
paid when due.
ARTICLE VI
Conditions to Closing
6.01 Conditions to the Obligations of Purchaser. The
obligations of Purchaser to proceed with the Closing contemplated hereby are
subject to the satisfaction on or prior to the Closing Date of all of the
following conditions, any one or more of which may be waived, in whole or in
part, in writing by Purchaser:
(a) Compliance. Except as otherwise contemplated or
permitted by Article V hereof and except for such breaches of
representations or warranties by and covenants of Parent or Seller
made herein which would not, in the aggregate, have a Material Adverse
Effect (it being the intent of the parties not to apply a double
materiality threshold), the representations and warranties made herein
by Parent and Seller shall be correct on and as of the Closing Date as
though such representations and warranties were made on and as of
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the Closing Date, and Parent and Seller shall have complied with all
the covenants hereof required by this Agreement to be performed by
them at or prior to the Closing Date.
(b) Officer's Certificate. Purchaser shall have received
certificates, dated the Closing Date, of executive officers of Parent
and Seller certifying as to the matters specified in Section 6.01(a)
hereof.
(c) Legal Opinion. Purchaser shall have received from
Freshfields, counsel to Parent, an opinion relating solely to Parent,
and Fulbright & Jaworski, L.L.P., counsel to Seller, an opinion
relating to Seller and the Company, in each case dated the Closing
Date, to the effect that:
(i) Each of Parent, Seller and the Company is a
corporation duly organized, validly existing and, in the case
of Seller and the Company, in good standing under the laws of
its respective jurisdiction of incorporation; and Seller and
the Company have all requisite corporate power and authority
to own and lease the properties and assets it currently owns
and leases and to carry on its business as such business is
currently conducted; and the Company is duly licensed or
qualified to do business as a foreign corporation and is in
good standing in all jurisdictions in which the character of
the properties and assets now owned or leased by it or the
nature of the business now conducted by it requires it to be
so licensed or qualified except where the failure so to
qualify would not reasonably be expected to have a material
adverse effect on the business, financial condition or results
of operation of the Company, taken as a whole.
(ii) Parent and Seller have all requisite
corporate power and authority to execute and deliver the
Agreement; Parent has the corporate capacity to perform its
obligations under the Agreement; and Seller has all requisite
corporate power and authority to consummate the transactions
contemplated thereby and to perform all the terms and
conditions hereof to be performed by it; the execution and
delivery of the Agreement by Parent and Seller, the
performance by Parent and Seller of all the terms and
conditions thereof to be performed by them and the
consummation of the transactions contemplated thereby have
been duly authorized and approved by the Board of Directors of
Seller and by the shareholders of Parent at the Shareholders
Meeting; and this Agreement has been duly executed and
delivered by Parent and Seller.
(iii) The authorized capital stock of the Company
consists solely of shares of Common Stock, 1,000 of which are
validly issued and outstanding, fully paid and nonassessable,
none of which was issued in violation of the preemptive rights
of any stockholder and all of which are owned of record and
beneficially by Seller, free and clear of any liens, pledges,
security interests, charges or encumbrances, and, to the
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best of such counsel's knowledge, there are no outstanding
options, warrants or calls of any kind relating to any
capital stock of the Company.
(iv) The execution and delivery by Parent and
Seller of this Agreement do not, and, in the case of Seller,
the consummation of the transactions contemplated hereby will
not, violate any provision of, or constitute a default
(without regard to any requirement of notice or lapse of time
or both) under, the memorandum and articles of association or
the charter or bylaws, as applicable, of Parent, Seller or the
Company.
(d) Resignations. There shall have been delivered to
Purchaser the resignation, effective no later than the Closing Date,
of each director of the Company who is not a member of management of
the Company.
6.02 Conditions to the Obligations of Parent and Seller.
The obligations of Parent and Seller to proceed with the Closing contemplated
hereby are subject to the satisfaction on or prior to the Closing Date of all
of the following conditions, any one or more of which may be waived, in whole
or in part, in writing by Parent and Seller:
(a) Compliance. Except as otherwise contemplated or
permitted by Article V hereof and except for such breaches of
representations or warranties by and covenants of Purchaser or ECT
made herein which would not, in the aggregate, have a material adverse
effect on the ability of Purchaser or ECT to consummate the
transactions contemplated hereby (it being the intent of the Parties
not to apply a double materiality threshold), the representations and
warranties made herein by Purchaser and ECT shall be correct on and as
of the Closing Date as though such representations and warranties were
made on and as of the Closing Date, and Purchaser and ECT shall have
complied with all the covenants hereof required by this Agreement to
be performed by them at or prior to the Closing Date.
(b) Officer's Certificate. Seller shall have received
certificates dated the Closing Date of executive officers of Purchaser
and ECT, certifying as to the matters specified in Section 6.02(a)
hereof.
(c) Legal Opinion. Seller shall have received from
Vinson & Elkins L.L.P., counsel to Purchaser and ECT, an opinion dated
the Closing Date to the effect that:
(i) Each of Purchaser and ECT is a corporation
duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation.
(ii) Purchaser and ECT have all requisite
corporate power and authority to execute and deliver the
Agreement, to consummate the transactions contemplated thereby
and to perform all the terms and conditions thereof to be
performed by them; the execution and delivery of the Agreement
by Purchaser, the performance by
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Purchaser of all of the terms and conditions thereof to be
performed by them and the consummation of the transactions
contemplated thereby have been duly authorized and approved
by the Boards of Directors of Purchaser and ECT; and this
Agreement has been duly executed and delivered by Purchaser.
(iii) The execution and delivery by Purchaser and
ECT of the Agreement do not, and the consummation of the
transactions contemplated thereby will not, violate any
provision of, or constitute a default (without regard to any
requirement of notice or lapse of time or both) under, the
charter or bylaws of Purchaser or ECT.
6.03 Mutual Conditions to the Obligations. The
obligations of Purchaser and of Parent and Seller to proceed with the Closing
contemplated hereby are subject to the satisfaction on or prior to the Closing
Date of all of the following conditions, any one or more of which may be waived,
in whole or in part, in writing by each of Purchaser, Parent and Seller.
(a) HSR Act. If applicable, the waiting period (and any
extension thereof) under the HSR Act relating to the transactions
contemplated hereby shall have expired or been terminated.
(b) No Orders. The Closing hereunder shall not violate
any order or decree of any Governmental Authority having competent
jurisdiction over the transactions contemplated by this Agreement;
provided, however, that if such order or decree is a temporary
restraining order or other ex parte order or decree and all other
conditions precedent to Closing have been satisfied or waived, the
Closing Date shall be extended to a date five business days subsequent
to the date on which the temporary restraining order or such other ex
parte order or decree ceases to be in effect.
(c) Shareholder Approval. This Agreement and the
transactions contemplated hereby shall have been duly approved by a
majority of the votes cast by holders of ordinary shares of Parent
present and voting at the Shareholders Meeting contemplated by Section
4.01(h);
(d) Participation Agreement. Parent and the Company
shall have executed and delivered to each other a Participation
Agreement, in substantially the form attached hereto as Exhibit A.
6.04 Other Closing Matters. In the event Purchaser or ECT
becomes aware that any representation or warranty of Parent or Seller contained
in this Agreement is not true and correct in any material respect and if
Purchaser or ECT does not notify Parent within one Business Day after becoming
aware of such inaccuracy, then in the event that the Closing is delayed as a
result of Purchaser not so notifying Parent, the Purchase Price shall be
increased by LIBOR plus 1% for the period of such delay; provided, however,
that such period shall not exceed the number of days between the day following
Purchaser or ECT becoming aware of such inaccuracy and the earlier of
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(i) the date Parent becomes aware of such inaccuracy or (ii) the date Purchaser
or ECT notifies Parent of such inaccuracy.
VII
Taxes
7.01 Section 338(h)(10) Elections. (a) Purchaser and
Seller (as the common parent of the affiliated group of corporations filing a
consolidated federal income Tax Return which includes the Company (the "Seller
Group")) shall within the time period prescribed by law for the filing thereof,
join in making a timely, irrevocable and effective election under section
338(h)(10) of the Code and a similar election under any applicable state income
tax law (collectively, the "Section 338(h)(10) Elections") with respect to
Purchaser's purchase of the Shares. At the Closing Seller shall deliver to
Purchaser an Internal Revenue Service Form 8023A with respect to Purchaser's
purchase of the Shares, which form shall have been duly executed by an
authorized person for Seller. Within 120 days following the Closing, Purchaser
shall deliver to Seller and Seller shall duly execute and deliver to Purchaser
the state Tax forms necessary for effectuating the Section 338(h)(10) Elections
(the "State Forms"). Purchaser shall cause the Form 8023A and the State Forms
(collectively, the "Forms") to be duly executed by an authorized person for
Purchaser, shall complete the schedules required to be attached thereto, shall
provide a copy of the executed Form and schedules to Seller, and shall duly and
timely file the Forms as prescribed by Treasury Regulation 1.338(h)(10)-1 or the
corresponding provisions of applicable state income Tax law.
(b) Purchaser and Seller shall jointly prepare all
schedules required to be attached to the Forms within 120 days following the
Closing Date (the "Tax Schedules"). Purchaser and Seller shall prepare all
relevant Tax Returns in a manner consistent with the Tax Schedules. With
respect to any items to be included in the Tax Schedules as to which Purchaser
and Seller are unable to agree, the allocation proposed by Purchaser shall be
reflected on the Tax Schedules provided that the Accountants determine that
such allocation is reasonable. Purchaser and Seller shall jointly bear the
cost of any review by the Accountants and shall provide the Accountants with
all relevant information requested in connection with their resolution of the
disputed items.
7.02 Preparation and Filing of Tax Returns.
(a) With respect to each Tax Return covering a taxable
period ending on or before March 31, 1996, that is required to be filed after
the Closing Date for, by or with respect to the Company (other than the
consolidated Tax Returns described in paragraph (c)), Parent and Seller shall
cause such Tax Return to be prepared, shall cause to be included in such Tax
Return all items of income, gain, loss, deduction and credit or other items
(collectively "Tax Items") required to be included therein, and shall deliver
the original of such Tax Return to Purchaser at least 15 days prior to the due
date (including extensions) of such Tax Return. If the amount of the Tax shown
to be due on such Tax Return (after giving effect to any credits for the amount
of Tax, if any, paid on or prior
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to March 31, 1996, as shown on such Tax Return) exceeds the amount reflected as
a current liability for such Tax on the Audited Balance Sheet, Parent or Seller
shall pay to Purchaser the amount of such excess not less than 5 days prior to
the due date of such Tax Return. If the amount of Tax shown to be due on such
Tax Return (after giving effect to any credits for the amount of Tax, if any,
paid on or prior to March 31, 1996, as shown on such Tax Return) is less than
the amount reflected as a current liability for such Tax on the Audited Balance
Sheet, Purchaser shall pay to Seller the amount of such excess reserve not less
than 5 days prior to the due date of such Tax Return. Purchaser shall cause the
Company to file timely such Tax Return with the appropriate taxing authority and
to pay the amount of Taxes shown to be due on such Tax Return.
(b) With respect to each Tax Return covering a taxable
period beginning on or before March 31, 1996, and ending after March 31, 1996,
that is required to be filed after the Closing Date for, by or with respect to
the Company (other than the consolidated Tax Returns described in paragraph
(c)), Purchaser shall cause such Tax Return to be prepared and shall cause to
be included in such Tax Return all Tax Items required to be included therein.
Purchaser shall determine (by an interim closing of the books as of March 31,
1996, except for ad valorem Taxes and franchise Taxes based on capital which
shall be prorated on a daily basis) the portion, if any, of the Tax due with
respect to the period covered by such Tax Return which is attributable to the
Company for a Pre-Closing Taxable Period after giving effect to any credits for
the amount of such Tax, if any, paid on or prior to March 31, 1996. At least
30 days prior to the due date (including extensions) of such Tax Return,
Purchaser shall deliver to Seller a copy of such Tax Return with copies of work
papers which will permit the Seller to review and substantiate the accuracy of
such return. If the amount of Tax so determined to be attributable to the
Pre-Closing Taxable Period exceeds the amount reflected as a current liability
for such Tax on the Audited Balance Sheet, Parent or Seller shall pay to
Purchaser the amount of such excess Tax not less than 5 days prior to the due
date of such Tax Return. If the amount of Tax so determined to be attributable
to the Pre-Closing Taxable Period is less than the amount reflected as a
current liability for such Tax on the Audited Balance Sheet, Purchaser shall
pay to Seller the amount of such excess reserve not less than 5 days prior to
the due date of such Tax Return. Purchaser shall cause the Company to file
timely such Tax Return with the appropriate taxing authority and to pay timely
the amount of Taxes shown to be due on such Tax Return.
(c) Seller shall cause to be included in the consolidated
federal income Tax Returns (and the state income Tax Returns of any state that
permits consolidated, combined or unitary income Tax Returns, if any) of the
Seller Group for all periods ending on or before or which include the Closing
Date, all Tax Items of the Company which are required to be included therein,
shall file timely all such Tax Returns with the appropriate taxing authorities
and shall pay timely all Taxes due with respect to the periods covered by such
Tax Returns.
(d) Any Tax Return to be prepared pursuant to the
provisions of this Article VII shall be prepared in a manner consistent with
practices followed in prior years with respect to similar Tax Returns, except
for changes required by changes in law.
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7.03 Indemnity for Taxes.
(a) Except to the extent that any such Taxes are accrued
as a current liability on the Audited Balance Sheet, Parent and Seller
shall protect, defend, indemnify and hold harmless Purchaser and the
Company from and against, and agrees to pay, all Taxes imposed and all
costs and expenses (including, without limitation, litigation costs
and reasonable attorneys' and accountants' fees and disbursements)
incurred (all herein referred to as "Tax Losses") as a result of a
claim, notice of deficiency, or assessment by, or any obligation owing
to, any Tax authority for: (i) any Taxes of the Company attributable
to any Pre-Closing Taxable Period; (ii) any Taxes of any corporation
(other than the Company) that is or was a member of the Seller Group;
(iii) any withholding Tax with respect to the payment by the Company
to Parent of the net Intercompany Account Balance pursuant to Section
1.06; and (iv) any Taxes resulting from the Section 338(h)(10)
Elections; in each case, after giving effect to any credits for the
amount of Tax, if any, paid on or prior to March 31, 1996, and after
giving effect to the amount reflected as a current liability for any
such Tax on the Audited Balance Sheet.
(b) Purchaser shall protect, defend, indemnify and hold
harmless Seller and Parent from and against, and agrees to pay, all
Tax Losses incurred as a result of a claim, notice of deficiency, or
assessment by, or any obligation owing to, any taxing authority for
any Taxes of the Company attributable to any Post- Closing Taxable
Period. For purposes of determining the Tax Loss to Seller arising
from the inclusion of Tax Items of the Company attributable to any
Post-Closing Taxable Period in the Tax Return of Seller pursuant to
Section 7.02(c), the Purchaser and the Seller agree that the effective
federal income tax rate with respect to such Tax Items shall be 35%.
Purchaser shall be liable for, and Purchaser agrees to indemnify
Parent and Seller against, any and all liability for Taxes arising,
directly or indirectly, from a liquidation, merger, sale or other
disposition of assets of the Company (other than in the ordinary
course of business), or from any income otherwise recognized by the
Company, on or subsequent to the Closing, other than Taxes resulting
from the Section 338(h)(10) Elections.
(c) Purchaser and Seller shall to the extent permitted by
law treat any payments made pursuant to this Section 7.03 as
adjustments to the purchase price of the Shares. To the extent that
any such payment is not permitted to be treated as a purchase price
adjustment, (i) the amount of such payment shall be increased to
indemnify the recipient against any additional Tax liability incurred
as a result of its receipt of such payment; and (ii) the amount of
such payment shall be reduced by any net Tax benefit actually received
by the recipient as a result of its payment of the Tax to which such
indemnity payment relates.
(d) If Purchaser or any affiliate of Purchaser receives a
refund of any Taxes described in Section 7.03(a), or if Seller
receives a refund of any Taxes described in Section 7.03(b), the party
receiving such refund shall, within 30 days after receipt of such
refund,
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remit it to the party liable for the Tax with respect to which
the refund was received. Purchaser and Seller shall cooperate in
taking all necessary steps to claim any refund.
(e) Any tax allocation agreement or arrangement that may
have been entered into by Seller or any of its affiliates on the one
hand and the Company on the other hand shall be terminated as of the
Closing Date with respect to the Company, and no payments which are
owed by or to the Company pursuant thereto shall be made thereunder.
7.04 Access to Information.
(a) Parent and Seller and each member of the Seller Group
shall grant to Purchaser (or its designees) access at all reasonable times to
all of the information, books and records relating to the Company within the
possession of Seller or any member of the Seller Group (including workpapers
and correspondence with taxing authorities), and shall afford Purchaser (or its
designees) the right (at Purchaser's expense) to take extracts therefrom and to
make copies thereof, to the extent reasonably necessary to permit Purchaser (or
its designees) to prepare Tax Returns, to conduct negotiations with Tax
authorities, and to implement the provisions of, or to investigate or defend
any claims between the parties arising under, this Agreement.
(b) Purchaser shall grant or cause the Company to grant
to Seller (or its designees) access at all reasonable times to all of the
information, books and records relating to the Company within the possession of
Purchaser or the Company (including workpapers and correspondence with taxing
authorities), and shall afford Seller (or its designees) the right (at Seller's
expense) to take extracts therefrom and to make copies thereof, to the extent
reasonably necessary to permit Seller (or its designees) to prepare Tax
Returns, to conduct negotiations with Tax authorities, and to implement the
provisions of, or to investigate or defend any claims between the parties
arising under, this Agreement.
(c) Each of the parties hereto will preserve and retain
all schedules, workpapers and other documents relating to any Tax Returns of or
with respect to the Company or to any claims, audits or other proceedings
affecting the Company until the expiration of the statute of limitations
(including extensions) applicable to the taxable period to which such documents
relate or until the final determination of any controversy with respect to such
taxable period, and until the final determination of any payments that may be
required with respect to such taxable period under this Agreement.
7.05 Tax Indemnification Procedures.
(a) If a claim shall be made by any Tax authority that,
if successful, would result in the indemnification of a party under this
Article VII (referred to herein as the "Tax Indemnified Party"), the Tax
Indemnified Party shall promptly notify the party obligated under this
Agreement to so indemnify (referred to herein as the "Tax Indemnifying Party")
in writing of such fact.
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(b) The Tax Indemnified Party shall take such action in
connection with contesting such claim as the Tax Indemnifying Party shall
reasonably request in writing from time to time, including the selection of
counsel and experts and the execution of powers of attorney; provided that (i)
within 30 days after the notice described in Section 7.05(a) has been delivered
(or such earlier date that any payment of Taxes is due by the Tax Indemnified
Party but in no event sooner than 5 days after the Tax Indemnifying Party's
receipt of such notice), the Tax Indemnifying Party requests that such claim be
contested, (ii) the Tax Indemnifying Party shall have agreed to pay to the Tax
Indemnified Party all costs and expenses that the Tax Indemnified Party incurs
in connection with contesting such claim, including, without limitation,
reasonable attorneys' and accountants' fees and disbursements, and (iii) if the
Tax Indemnified Party is requested by the Tax Indemnifying Party to pay the Tax
claimed and sue for a refund, the Tax Indemnifying Party shall have advanced to
the Tax Indemnified Party, on an interest-free basis, the amount of such claim.
The Tax Indemnified Party shall not make any payment of such claim for at least
30 days (or such shorter period as may be required by applicable law) after the
giving of the notice required by Section 7.05(a), shall give to the Tax
Indemnifying Party any information reasonably requested relating to such claim,
and otherwise shall cooperate with the Tax Indemnifying Party in good faith in
order to contest effectively any such claim.
(c) Subject to the provisions of Section 7.05(b), the Tax
Indemnified Party shall enter into a settlement of such contest with the
applicable Tax authority or prosecute such contest to a determination in a
court or other tribunal of initial or appellate jurisdiction, all as the Tax
Indemnifying Party may request.
(d) If, after actual receipt by the Tax Indemnified Party
of an amount advanced by the Tax Indemnifying Party pursuant to Section
7.05(b)(iii), the extent of the liability of the Tax Indemnified Party with
respect to the claim shall be established by the final judgment or decree of a
court or other tribunal or a final and binding settlement with an
administrative agency having jurisdiction thereof, the Tax Indemnified Party
shall promptly repay to the Tax Indemnifying Party the amount advanced to the
extent of any refund received by the Tax Indemnified Party with respect to the
claim together with any interest received thereon from the applicable Tax
authority and any recovery of legal fees from such Tax authority, net of any
Taxes as are required to be paid by the Tax Indemnified Party with respect to
such refund, interest or legal fees (calculated at the maximum applicable
statutory rate of Tax without regard to any other Tax Items). Notwithstanding
the foregoing, the Tax Indemnified Party shall not be required to make any
payment hereunder before such time as the Tax Indemnifying Party shall have
made all payments or indemnities then due with respect to the Tax Indemnified
Party pursuant to this Agreement.
(e) Promptly after a final determination, the Tax
Indemnifying Party shall pay to the Tax Indemnified Party the amount of any Tax
Losses to which the Tax Indemnified Party may become entitled by reason of the
provisions of this Article 7.
7.06 Transfer Taxes. Purchaser shall pay, and shall
indemnify and hold harmless, Parent, Seller and the Company from and against,
all sales, use, transfer, stamp, value added, duty,
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excise, stock transfer, real property transfer, gains and other similar Taxes
and fees arising out of or in connection with the transactions contemplated by
this Agreement; provided, however, that Purchaser shall not be responsible for
any such Tax or fee due to any jurisdiction located outside of the United
States.
7.07 Survival of Obligations. The obligations of the
parties set forth in this Article VII shall be unconditional and absolute and
shall remain in effect without limitation as to time.
7.08 Conflict. In the event of a conflict between the
provisions of this Article VII and any other provisions of this Agreement, the
provisions of this Article VII shall control.
ARTICLE VIII
Termination
8.01 Grounds for Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by the mutual written agreement of Seller and
Purchaser;
(b) by either Seller or Purchaser if the consummation of
the transactions contemplated hereby would violate any nonappealable
final order, decree or judgment of any Governmental Authority having
competent jurisdiction enjoining, restraining or otherwise preventing,
or awarding substantial damages in connection with, the consummation
of this Agreement or the transactions contemplated hereby; provided,
however, that a party shall not be allowed to exercise any right of
termination pursuant to this Section 8.01 if the event giving rise to
such right shall be due to the negligent or willful failure of such
party to perform or observe in any material respect any of the
covenants or agreements set forth herein to be performed or observed
by such party;
(c) by either Purchaser or Parent if the Closing shall
not have occurred on or before July 15, 1996, provided that the
failure of the Closing to have occurred shall not be as a result of a
breach of this Agreement by the party exercising the right to
terminate this Agreement pursuant to this provision;
(d) by either Purchaser or Parent if the stockholders of
Parent shall not have approved this Agreement and the transactions
contemplated thereby at the Stockholders Meeting in the manner set
forth in Section 4.01(h);
(e) by Purchaser, if any representation or warranty of
Parent or Seller shall have become untrue such that the condition set
forth in Section 6.01(a) would be incapable of being satisfied by July
15, 1996, or by Parent if any representation or warranty of Purchaser
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shall have become untrue such that the condition set forth in Section
6.02(a) would be incapable of being satisfied by July 15, 1996;
(f) by either Parent or Purchaser in accordance with
Section 5.03; or
(g) by either Purchaser or Parent (and, if by Parent,
upon payment of the amount referenced in Section 8.02(d)) if Parent
enters into an agreement providing for a Parent Acquisition
Transaction which would prevent the transactions contemplated by this
Agreement from being completed or a Company Acquisition Transaction
and Parent has not violated the provisions of Section 4.01(j).
8.02 Effect of Termination. The following provisions
shall apply in the event of a termination of this Agreement:
(a) If this Agreement is terminated under Section 8.01
and other than as the result of the negligent or willful failure of
any party to perform its obligations hereunder, such termination shall
be without liability of any party to this Agreement or any affiliate,
shareholder, director, officer, employee, agent or representative of
such party, except as provided in Sections 8.02(d), below.
(b) If this Agreement is terminated as a result of the
negligent or willful failure of Purchaser to perform its obligations
hereunder, Purchaser shall be fully liable for any and all damages,
costs and expenses (including, but not limited to, reasonable
attorneys' fees) thereby sustained or incurred by Seller.
(c) If this Agreement shall be terminated as a result of
the negligent or willful failure of Parent or Seller to perform their
obligations hereunder, Parent and Seller shall be fully liable for any
and all damages, costs and expenses (including, but not limited to,
reasonable attorneys' fees) thereby sustained or incurred by
Purchaser.
(d) If this Agreement is terminated by Purchaser or
Parent pursuant to Sections 8.01(d) or (g) then Parent shall as
promptly as practicable after receiving notice of such termination,
pay to Purchaser the sum of $1,000,000.
(e) The parties hereto hereby agree that the provisions
of Section 4.02(d) and this Article VIII hereof shall survive any
termination of this Agreement.
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ARTICLE IX
Extent and Survival of Representations
and Warranties; Indemnification
9.01 Scope of Representations of Parent and Seller and
Purchaser. Except as and to the extent expressly set forth in Article II and
Article X hereof, Parent and Seller make no representations or warranties
whatsoever, and disclaims all liability and responsibility for any
representation, warranty, statement or information made or communicated (orally
or in writing) to Purchaser or ECT (including, but not limited to, any opinion,
information or advice which may have been provided to Purchaser by any
affiliate, officer, stockholder, director, employee, agent, consultant or
representative of Parent or Seller or the Company or by Goldman, Sachs & Co.,
Toronto Dominion Bank, Ryder Scott Company Petroleum Engineers, any other
petroleum engineer or engineering firm, Parent's or Seller's or the Company's
counsel or any other agent, consultant or representative). Without limiting the
generality of the foregoing, except as and to the extent expressly set forth in
Article II hereof, neither Parent nor Seller makes any representations or
warranties as to (a) the title to any of the properties of the Company, (b) the
amounts of Hydrocarbon reserves attributable to such properties or (c) any
geological or other interpretations or economic evaluations. Purchaser
acknowledges and affirms that it has had full access to the Data Rooms and the
information contained in, or made available or provided with respect to
materials contained in, the Data Rooms, and that Purchaser has made its own
independent investigation, analysis and evaluation of the Company and its
properties, assets (including its own estimate and appraisal of the extent and
value of the Company's Hydrocarbon reserves), business, financial condition,
operations and prospects.
9.02 Survival. The representations and warranties set
forth in this Agreement (other than those set forth in Sections 2.01, 2.02 and
2.03, which shall survive the Closing indefinitely and other than those set
forth in Sections 2.09 and 2.11, which shall survive the Closing as set forth
below) and in any certificate or instrument delivered in connection herewith
(except to the extent such certificate relates to the representations and
warranties in the previous parenthetical) shall terminate upon the Closing
Date, following which date none of the parties may bring any action or present
any claim for a breach of such representations and warranties. The
representations and warranties set forth in Section 2.09 shall terminate in
accordance with the terms of Article VII. The representations and warranties
set forth in Section 2.11 shall terminate in accordance with the terms of
Article V.
ARTICLE X
Notices; Miscellaneous
10.01 Notices. All notices and other communications given
hereunder shall be in writing and shall be deemed given if delivered
personally, or by a recognized overnight courier
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service that can confirm receipt, or mailed by registered or certified mail,
return receipt requested, to the parties at the following addresses:
(A) If to Purchaser or ECT to:
1400 Smith Street
Houston, Texas 77002
Attention: Brenda McGee, Specialist
with copies to:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Frank Stabler
Lance Schuler
Vinson & Elkins L.L.P.
1001 Fannin
Houston, Texas 77002
Attention: Scott N. Wulfe
(B) If to Seller or Parent to:
Hardy Oil & Gas plc
Commonwealth House
2 Chalkhill Road
London W6 8DW
Attention: David Hobbs
With copies to:
Baker & Botts, L.L.P.
One Shell Plaza
Houston, Texas 77002
Attention: Frank Hubert, Jr.
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Chansoo Joung
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Toronto Dominion Bank
31 West 52nd Street
New York, New York 10019-6101
Attention: Richard F. Allen
10.02 Brokers. Parent and Seller has retained Goldman,
Sachs & Co. and Toronto Dominion Bank to assist and advise it in connection
with the transactions contemplated by this Agreement. Each of Parent and
Seller represents to Purchaser that, except as set forth in the preceding
sentence, it has not, directly or indirectly, employed any broker, finder or
intermediary in connection with such transactions that might be entitled to a
fee or commission upon the execution of this Agreement or the consummation of
such transactions.
10.03 Expenses. The parties agree that Parent and Seller
shall pay the costs and expenses of the engagement of Goldman, Sachs & Co. and
Toronto Dominion Bank to advise it in connection with the transactions
contemplated by this Agreement. Except as specifically provided herein, all
legal and other costs and expenses in connection with this Agreement and the
transactions contemplated hereby shall be paid by Seller (and not the Company)
or Purchaser, as the case may be, depending upon which party incurred such
costs and expenses.
10.04 Books and Records. Seller agrees that it will
deliver or cause to be delivered to Purchaser on the Closing Date all corporate
minute books and stock transfer records of the Company, to the extent that such
books and records are not then in the possession of the Company.
10.05 Miscellaneous.
(a) Exclusive Agreement. This Agreement supersedes all
prior written or oral agreements between the parties with respect to
the transactions contemplated herein, other than the Confidentiality
Agreement between Parent and ECT dated March 13, 1996, and, except for
such Confidentiality Agreement, is intended as a complete and
exclusive statement of the terms of the agreement between the parties
with respect to the transactions contemplated herein.
(b) Choice of Law; Choice of Forum; Amendments; Headings.
This Agreement shall be governed by the internal laws of the State of
Delaware, without giving effect to principles of conflicts of laws.
All claims, disputes or causes of action relating to or arising out of
this Agreement shall be brought, heard and resolved solely and
exclusively by and in a federal or state court situated in Delaware.
This Agreement may not be changed or terminated orally. The headings
contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Terms such as "herein", "hereby", "hereto" and "hereof" refer to this
Agreement as a whole. The term "include" and derivatives thereof are
used in an illustrative sense and not a limitative sense.
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(c) Assignments and Third Parties. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. No such assignment shall release Purchaser or ECT of any of
its obligations under this Agreement. Nothing in this Agreement shall
entitle any person other than the parties hereto or their respective
permitted successors and assigns to any claim, cause of action, remedy
or right of any kind.
(d) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, 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 any manner adverse to any
party. Upon any binding determination that any term or other
provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely as
possible in an acceptable and legally enforceable manner, to the end
that the transactions contemplated hereby may be completed to the
extent possible.
(e) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original and all of which together shall constitute but one and the
same agreement.
(f) Further Assurances. The parties hereto each agree to
deliver or cause to be delivered to the others on the Closing Date,
and at such other times thereafter as shall be reasonably requested,
any additional instrument that the other may reasonably request for
the purpose of carrying out this Agreement.
10.06 ECT Guarantee. ECT hereby unconditionally and
irrevocably guarantees to each of Parent and Seller all the obligations and
liabilities of Purchaser under this Agreement and the agreements and
instruments contemplated hereby. Without limitation of the foregoing, (i) if
Purchaser shall fail to perform any obligation or satisfy any liability
contemplated hereby, ECT shall perform such obligation or satisfy such
liability, (ii) the guarantee by ECT is not conditioned upon any prior attempt
by Parent or Seller to enforce any obligation against or collect any liability
from Purchaser, and (iii) the guarantee by ECT is an absolute and continuing
guarantee of full and punctual payment and performance by Purchaser and not a
guarantee of collectibility only. ECT waives any notice required by law for
this Section 10.06 to be enforceable.
10.07 Access to Accounting Information. Following the
Closing Date, Purchaser shall provide Parent and Seller and its duly authorized
agents such access, including the making of copies of the books, accounts and
records of the Company, and such other assistance as Parent and Seller
reasonably require to enable them to discharge their accounting and reporting
obligations for the periods ending March 31, 1996 and December 31, 1996. Such
information shall be kept confidential to the extent practicable. Purchaser
acknowledges the statutory reporting requirements
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of Parent and Seller and that time is of the essence in providing the assistance
contemplated in this Section 10.07.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.
HARDY OIL & GAS PLC
By: /s/ DAVID HOBBS
--------------------------------
David Hobbs
General Manager
HARDY HOLDINGS INC.
By: /s/ DAVID HOBBS
---------------------------------
David Hobbs
MILLENNIUM OIL & GAS, INC.
By: /s/ JERE C. OVERDYKE
---------------------------------
Jere C. Overdyke
Vice President
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ JERE C. OVERDYKE
---------------------------------
Jere C. Overdyke
Managing Director
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APPENDIX A
Definitions
Capitalized terms used in this Agreement shall have the
meanings ascribed to them in this Appendix A unless such terms are defined
elsewhere in this Agreement:
Best Efforts shall mean a party's best efforts in accordance
with reasonable commercial practices and without the incurrence of unreasonable
expense.
Business Day shall mean any day that is not a Saturday, Sunday
or a day that banks in Houston, New York or London are authorized or required
by law or executive order to be closed.
Closing Date shall mean the date of the Closing.
Closing shall mean the closing of the transactions
contemplated by this Agreement.
Code shall mean the Internal Revenue Code of 1986, as amended.
Commission shall mean the Securities and Exchange Commission.
Cure Period shall mean the period Seller shall have to cure
asserted Title Defects pursuant to Section 5.03, which shall be the period from
the date of delivery of Seller's counter-notice that it intends to cure such
asserted Title Defects through the 60th day after the date of this Agreement.
Data Rooms shall mean the data rooms prepared by Seller and
the Company to provide information to Persons considering the acquisition of
the Company.
Defensible Title shall mean such title to each Major Oil and
Gas Interest, free and clear of all Encumbrances other than Permitted
Encumbrances, as entitles the Company to (i) a Net Revenue Interest in each
well or unit no less than, and (ii) a Working Interest in each well or unit no
greater than, the percentage set forth in Schedule 2.11.
Dollar or $ shall refer to lawful currency of the United States
of America.
Encumbrance shall mean any mortgage, lien, security interest,
pledge, charge, encumbrance, claim, limitation, irregularity, burden or defect.
English Legal Requirements shall mean all requirements under
any laws, rules or regulations of the United Kingdom, or otherwise, applicable
to Parent, including, without limitation,
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all rules and regulations of any stock exchange or other trading market on
which Parent's equity securities are traded, if any.
Entity shall mean corporation, partnership, joint venture,
trust or unincorporated organization or association or other entity.
Environmental Claim shall mean any action, suit,
investigation, proceeding or written notice by any Person alleging or inquiring
as to potential liability arising out of, based on or resulting from any
actual, or alleged violation, of or any remedial obligation under any Legal
Requirements pertaining to the protection of human health or the environment.
Environmental Condition shall mean any existing condition with
respect to the soil, subsurface, surface waters, groundwaters, atmosphere
and/or any environmental medium, whether or not yet discovered, which could
result in any damage, loss, cost, expense, claim, demand, order, lien or
liability to or against the Leases or against the Company under any Legal
Requirements pertaining to the protection of human health or the environment.
ERISA shall mean the Employee Retirement Income Security Act
of 1974.
Governmental Authority shall mean the United States of
America, any state, commonwealth, territory or possession thereof, any foreign
country, state or commonwealth and any political subdivision of any of the
foregoing, including but not limited to legislatures, courts, departments,
commissions, boards, bureaus, agencies or other instrumentalities.
HSR Act shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
Hydrocarbons shall mean oil, gas, minerals and other gaseous
and liquid hydrocarbons or any combination thereof.
Intercompany Account Balance shall mean the net of any and all
amounts owed or due between each Seller Affiliate and the Company which would
be correctly reflected in the financial records of each Seller Affiliate and
the Company in accordance with generally acceptable accounting principles,
consistently applied and consolidated into one note payable from the Company to
Parent. Under no circumstances shall the Intercompany Account Balance exceed
the Purchase Price.
Leases shall mean oil, gas and/or mineral leases, mineral
interests, royalty interests, net profits interests, licenses, concessions,
permits and other interests in Hydrocarbons in which the Company holds an
interest.
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Legal Requirements shall mean any law, statute, ordinance,
writ, injunction, decree, requirement, order, judgment, rule or regulation of,
including the terms of any license or permit issued by, any Governmental
Authority.
LIBOR shall mean the applicable London Interbank Offered Rate.
Long-Term Debt shall mean all long-term indebtedness of the
Company including current maturities of such long-term indebtedness and all
interest accrued thereon.
Major Oil and Gas Interests shall mean the Oil and Gas
Interests which relate to the wells or the units identified on Schedule 2.11.
Material Adverse Effect shall mean any material adverse effect
on the business, financial condition or results of operations of the Company.
Material Oil and Gas Contracts shall mean all Oil and Gas
Contracts that relate to the Major Oil and Gas Interests.
Net Defect Amount shall mean the sum of the Title Defect
Amounts for all asserted Title Defects not cured during the Cure Period as
determined subject to Section 5.06.
Net Revenue Interest shall mean the interest (expressed as a
percentage) of the Company in and to Hydrocarbons produced from or allocated to
such Major Oil and Gas Interest after deducting all applicable Production
Burdens.
Net Working Capital shall mean "Current Assets", plus "Net
Non-Oil and Gas Property" (excluding any write-offs in March 1996 with respect
to "Net Non-Oil and Gas Property"), plus $115,000, minus "Current Liabilities",
minus "Prepaid Insurance" (the capitalized terms in quotations in this
definition indicating the line item of the same name customarily included on a
balance sheet of the Company); provided, however, that (i) all intercompany
payables and receivables (including accrued interest thereon), current
maturities of Long-Term Debt (including accrued interest thereon) and
receivables, if any, representing sales proceeds from the sale of the
Non-Aldwell Spraberry Properties shall be eliminated from the foregoing items
in such computation and (ii) all contingent assets and contingent liabilities
recorded by the Company subsequent to the Company's internal balance sheet
dated as of February 29, 1996 attached hereto as Exhibit C shall be excluded
from the foregoing items in such computation (it being acknowledged that, by
way of illustration, contingent liabilities do not include items such as the
Company's share of gas balancing liabilities, accrued capital cost, accrued
interest, accrued lease operating expenses and accrued general and
administrative expenses (such as workers' compensation, group insurance, legal
fees, audit and tax fees, reserve engineering fees, ad valorem and state taxes,
and profit sharing). It being further understood that such accruals refer only
to work conducted prior to April 1, 1996).
Non-Aldwell Spraberry Properties shall mean the properties
described on Exhibit B.
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Oil and Gas Interests shall mean the Company's interest in
Leases.
Oil and Gas Contracts shall mean any lease, license,
assignment, farmout, farmin, operating agreement, unit agreement, declaration
or order, joint venture or acquisition agreement, division order, production
sales contract or other contract affecting the ownership or operation of the
properties constituting the Oil and Gas Interests or the disposition of the
Hydrocarbons produced therefrom.
Permitted Encumbrances shall mean any or all of the following:
(i) Encumbrances that arise under operating
agreements to secure payment of amounts not yet delinquent and that
are of a type and nature customary in the oil and gas industry;
(ii) Encumbrances that arise as a result of
pooling and unitization agreements, declarations, orders or laws to
secure payment of amounts not yet delinquent and are of a type and
nature customary in the oil and gas industry;
(iii) Encumbrances securing payments to mechanics
and materialmen and Encumbrances securing payment of Taxes or
assessments that are, in either case, not yet delinquent or, if
delinquent, are being contested in good faith in the normal course of
business;
(iv) consents to assignment by governmental
authorities (a) that are obtained on or prior to the Closing Date or
(b) that are customarily obtained after the consummation of
transactions of the nature contemplated by this Agreement and that
Seller reasonably expects may be obtained without material expense or
delay;
(v) conventional rights of reassignment
obligating the Company to reassign its interest in any portion of the
Major Oil and Gas Interests to a third party in the event it intends
to release or abandon such interest prior to the expiration of the
primary term or other termination of such interest;
(vi) easements, rights-of-way, servitudes,
permits, surface leases, surface use restrictions and other surface
uses and impediments on, over or in respect of any of the Major Oil
and Gas Interests that are not such as to interfere materially with
the operation, value or use of any such Major Oil and Gas Interests;
(vii) calls on or preferential rights to purchase
Oil and Gas Interests or production held by parties other than Seller
and Seller Affiliates;
(viii) such title defects as Purchaser has expressly
waived in writing;
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(ix) rights reserved to or vested in any
municipality or governmental, tribal, statutory or public authority to
control or regulate any of the Major Oil and Gas Interests in any
manner, and all applicable laws, rules and orders of any municipality
or governmental or tribal authority;
(x) all other Encumbrances affecting any Major
Oil and Gas Interest that individually or in the aggregate do not
materially and adversely affect the operation, value or use of any of
such Major Oil and Gas Interest; and
(xi) all other Encumbrances of which Purchaser has
knowledge as of April 1, 1996.
Person shall mean any individual or Entity.
Post-Closing Taxable Period shall mean all or a portion of (i)
any taxable period after March 31, 1996 or (ii) any taxable period with respect
to which the Tax is computed by reference to Tax Items, assets, capital or
operations of the Company arising after, or existing subsequent to, March 31,
1996.
Pre-Closing Taxable Period shall mean all or a portion of (i)
any taxable period up to and including March 31, 1996 or (ii) any taxable
period with respect to which the Tax is computed by reference to Tax Items,
assets, capital or operations of the Company arising on or before, or existing
as of, March 31, 1996.
Production Burdens shall mean all royalty interests,
overriding royalty interests, production payments, net profits interests or
other similar interests that constitute a burden on, are measured by or are
payable out of the production of Hydrocarbons or the proceeds realized from the
sale or other disposition thereon.
Seller Affiliate shall mean Parent, Seller and any person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with Parent or Seller; provided,
however, that the term "Seller Affiliate" shall not refer to the Company.
Taxes shall mean any or all of the following:
(i) All federal, foreign, state or local net or
gross income, gross receipts, petroleum revenue, sales, use, ad
valorem, value added, franchise, withholding, payroll, employment,
excise, property, windfall profits or similar taxes, assessments,
duties, fees, levies or other governmental charges, together with any
interest thereon, any penalties, additions to tax or additional
amounts with respect thereto and any interest in respect of such
penalties, additions or additional amounts.
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(ii) All liability for the payment of any
consolidated or combined item of the type described in clause (i) of
this definition (including, without limitation, any United States
federal consolidated income tax liability) that is payable as a result
of being a member of, and which may be imposed upon, the Seller Group
or any other affiliated group (as defined in Section 1504(a) of the
Code or other applicable law) of which the Company is a member.
Tax Return shall mean any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Title Defect Amount shall mean the amount, as determined under
Section 5.06, by which a Title Defect reduces the value of a Major Oil and Gas
Interest.
Title Defect shall mean any Encumbrance, other than a
Permitted Encumbrance, that would cause the Company not to have Defensible
Title to a Major Oil and Gas Interest.
Working Interest shall mean the interest (expressed as a
percentage) of the Company in any Major Oil and Gas Interest before giving
effect to any applicable Production Burdens and the percentage of all costs and
expenses associated with the exploration, development and operation of such
Major Oil and Gas Interest required to be borne by the Company.
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EXHIBIT 10.2
PARTICIPATION AGREEMENT
This Participation Agreement (this "Agreement"), dated as of
May 16, 1996, is by and between Hardy Oil & Gas plc, a company incorporated in
England as a public limited company ("Participant"), and Mariner Holdings,
Inc., a Delaware corporation ("Newco").
RECITALS
1. Pursuant to that certain Stock Purchase Agreement
effective as of April 1, 1996, Newco has acquired all of the issued and
outstanding shares of capital stock of Hardy Oil & Gas USA, Inc., a Delaware
corporation ("Hardy"), which theretofore was an indirect wholly owned
subsidiary of Participant.
2. Hardy has been engaged, inter alia, in the business
of exploiting, developing and producing hydrocarbons in the Gulf of Mexico, and
in particular, has engaged in and developed expertise in connection with the
exploitation of prospects utilizing floating production facilities and/or
subsea tieback systems.
3. Certain former key managers and executives of Hardy
are now managers and executives of Operator.
4. Notwithstanding its sale of the stock of Hardy,
Participant desires to continue to have the opportunity to participate in
certain exploitation prospects which are generated by Newco and Newco desires
for Participant to continue to have such opportunity, subject to the terms and
conditions of this Agreement.
Now, therefore, in consideration of the premises and the
mutual covenants and agreements herein contained, Participant and Newco hereby
agree as follows:
I. Definitions
"Affiliate" means, as to any Party, any Person or entity
controlling, controlled by or under common control with such Party, with the
concept of control in such context meaning the possession, directly or
indirectly, of the power to direct the management and policies of another,
whether through the ownership of voting securities, by contract or otherwise.
"Assignment" has the meaning assigned to such term in Section
3.01.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized or
required by law to close.
"Exercise Notice" has the meaning assigned to such term in
Section 2.02.
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"Existing Operating Agreement" means, as to an Exploitation
Prospect, an operating agreement governing the Exploitation Prospect or any
Lease therein at the time of the execution of this Agreement or at the time
Operator acquires a Leasehold Interest in such Exploitation Prospect.
"Exploitation Prospect" means a Hydrocarbon reservoir within a
specific area covered by a Lease or Leases, or portions thereof or undivided
interests therein, in the United States federal waters offshore of any of the
States of Texas, Louisiana, Mississippi, Alabama or Florida (Gulf of Mexico
coast) which (i) exhibits a sufficient likelihood of such Hydrocarbon reservoir
being economic, based on commercially producible shows of Hydrocarbons in a
well drilled within such reservoir, together with other geological and
geophysical data and interpretations, such that Operator in its reasonable
judgment plans to develop such reservoir, (ii) is reasonably expected by
Operator to be exploited and/or developed by utilizing a floating production
facility and/or a subsea tieback system (where the estimated gross capital
expenditures in respect of a subsea tieback system over the initial development
period exceeds $150 million (including capitalized amounts relating to
equipment leases)), and (iii) is generated by Operator and intended to be
operated by Operator. As used in this definition, "generated by Operator"
means that the decision to acquire Leasehold Interests is based primarily upon
interpretations, ideas and concepts initially generated by Operator's employees
and/or consultants; and if any officer, employee or consultant of Newco
receives a generator's overriding royalty interest in respect of a prospect,
such prospect shall conclusively be deemed to have been generated by Newco.
"Hydrocarbons" means all oil, gas and other liquid and gaseous
hydrocarbons and all substances produced therewith and/or any combination of
one or more of such substances.
"Lease" means a leasehold or other expense-bearing interest
covering Hydrocarbons (including a farmout agreement or a contractual right to
acquire such an interest) or an undivided interest therein or portion thereof.
"Leasehold Interests" means, as to the Lease or Leases in an
Exploitation Prospect, 100% of the interest in such Leases in which Operator
acquires an interest (less the interest therein retained or held by the
previous owner or owners thereof).
"Operating Agreement" means, as to an Exploitation Prospect,
an Existing Operating Agreement or, if there is no Existing Operating
Agreement, an operating agreement entered into pursuant to Section 3.03.
"Operator" means Newco and shall include any Affiliate of
Newco, except Affiliates engaged in the oil and gas business as at the date
hereof, and Affiliates who do not utilize, directly or indirectly, the services
of David S. Huber, Robert E. Henderson, Richard R. Clark, Michael W. Strickler,
James M. Fitzpatrick, and/or Gary M. Pedlar.
"Option" has the meaning assigned to such term in Section 2.02.
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<PAGE> 3
"Option Notice" has the meaning assigned to such term in
Section 2.01.
"Party" or "Parties" means any party or parties to this
Agreement.
"Person" means an individual, corporation, partnership,
association, tract or other entity.
"Sunk Costs" means, as to an Exploitation Prospect, the direct
costs and expenses (including but not limited to Lease acquisition costs, delay
rentals, seismic and other geophysical costs and operating costs) incurred by
Operator in connection with the Leasehold Interests in such Exploitation
Prospect prior to the Trigger Date for such Exploitation Prospect, including a
prospect fee of $250,000 on an 8/8ths basis in lieu of any and all overhead
charges incurred prior to the Trigger Date.
"Title Materials" means, as to an Exploitation Prospect,
copies of all materials in Operator's possession relating to Operator's title
to the Leasehold Interests in such Exploitation Prospect, including but not
limited to title opinions, the Leases, assignments, overriding royalty
assignments, Existing Operating Agreements, production sales contracts and any
other documents or instruments which encumber or burden such Leasehold
Interests or the production of Hydrocarbons therefrom.
"Trigger Date" means, as to an Exploitation Prospect, the date
on which Operator acquires Leasehold Interests or a contractual right to
acquire Leasehold Interests in such Exploitation Prospect.
II. Exploitation Prospects
2.01 Option Notice. Within ten (10) days after the Trigger Date in
respect of an Exploitation Prospect, Operator shall deliver to Participant a
written notice ("an Option Notice") of such Trigger Date, which Option Notice
will be accompanied by the following data and information with respect to the
Exploitation Prospect to which such Trigger Date relates:
(a) the location of all pertinent geological and
geophysical data, which will be made available to Participant;
(b) a map identifying the location of the Exploitation
Prospect and the location of the Leasehold Interests therein;
(c) a legal description of such Leasehold Interests;
(d) the Sunk Costs for such Exploitation Prospect;
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<PAGE> 4
(e) an estimate and breakdown of the estimated capital
expenditures for such Exploitation Prospect; and
(f) the Title Materials relating to such Exploitation
Prospect.
In acquiring Leasehold Interests in an Exploitation Prospect, Operator will use
its best efforts to accomplish such acquisition so that any approvals, consents
to assignment or preferential purchase rights which apply to such acquisition
by virtue of any Existing Operating Agreement or otherwise will not again apply
separately to the exercise of and assignment pursuant to an Option.
2.02 Exercise of Option. Upon receipt of an Option Notice,
Participant shall have the exclusive and irrevocable option, subject to the
terms of this Section 2.02 (an "Option") to elect to acquire up to an undivided
twenty-five percent (25%) of the Leasehold Interests in the Exploitation
Prospect to which such Option Notice relates, which option shall be exercised
by giving Operator written notice thereof (an "Exercise Notice") within ten
(10) Business Days after Participant's receipt of the Option Notice, which
Exercise Notice shall be irrevocable and shall specify the percentage interest
of the Leasehold Interest which Participant elects to acquire. If the Option
Notice specifies that speedy response is appropriate, Participant will use its
best efforts to respond as quickly as possible. In the event Participant does
not give Operator an Exercise Notice within said ten (10) Business Day period,
Participant shall conclusively be deemed to have elected not to exercise such
Option.
2.03 Confidentiality. All information provided by Operator to
Participant in connection with an Option Notice shall be held by Participant in
strict confidence and shall not be disclosed to any third party (provided that
Participant may disclose such information to its Affiliates, agents and
representatives to the extent necessary to evaluate such information and
Participant shall cause all of its Affiliates, officers, directors, agents and
representatives with access to such information to hold such information in
strict confidence) except as required by laws, regulations or stock exchange
rules. With respect to any Exploitation Prospect to which Participant does not
elect to participate (or is deemed not to have elected to participate), all
information regarding such Exploitation Prospect provided to Participant by
Operator shall be promptly returned to Operator and any information regarding
such Exploitation Prospect generated by Participant shall be destroyed. Any
oral information regarding such Exploitation Prospect shall continue to be held
by Participant in strict confidence.
III. Assignment
3.01 Assignment. After (i) receipt of an Exercise Notice, (ii)
upon ratification or execution of an Operating Agreement pursuant to Section
3.03, and (iii) upon Operator's acquisition of the Leasehold Interests,
Operator shall deliver to an Affiliate of Participant designated by Participant
and qualified to hold Leasehold Interests an assignment (an "Assignment"),
assigning to such Affiliate the percentage Leasehold Interest specified in such
Exercise Notice, which Assignment will contain a special warranty of title by
Operator, subject to all royalties, overriding
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<PAGE> 5
royalties and other burdens or encumbrances (including joint operating
agreements, farmout agreements and similar agreements) borne by Operator as of
the Trigger Date (including without limitation any overriding royalty interests
owed by Operator as of the Trigger Date to any of Operator's employees and/or
their consultants) with respect to such Leasehold Interests or otherwise
burdening such Leasehold Interests.
3.02 Payment. Contemporaneously with the receipt of an Assignment,
or, in the case of a farmout agreement or other contractual right to acquire a
Leasehold Interest, at the time of ratification or execution of the Operating
Agreement, Participant shall pay to Operator, in immediately available funds
and in U.S. Dollars, an amount equal to the product of (a) the Sunk Costs
specified in Section 2.01(d) in respect of the relevant Exploitation Prospect,
times (b) the percentage interest specified in the Exercise Notice in respect
of the relevant Exploitation Prospect. Participant shall have the right to
audit, during Operator's normal business hours, at its sole cost and expense,
said Sunk Costs within 6 months after an Option Notice. Any such audit shall
not unreasonably interfere with Operator's conduct of its business.
3.03 Operating Agreement. Participant shall ratify the Existing
Operating Agreement, if any, applicable to the Exploitation Prospect, and
assume its proportionate obligations thereunder. If there is no Existing
Operating Agreement as to an Exploitation Prospect, the Parties will execute a
mutually agreeable joint operating agreement governing operations on such
Exploitation Prospect, which joint operating agreement will contain terms and
provisions which would generally be acceptable to a reasonable, prudent
operator of a similarly situated prospect; provided, however, that in any event
such joint operating agreement will provide that non-consent to the drilling of
the first well on an Exploitation Prospect after the Trigger Date will result
in forfeiture of the non-consenting party's interest. In the event the Parties
are unable to mutually agree on a joint operating agreement within 30 days
after the Exercise Option, those issues which have not been agreed may be
submitted by any Party to arbitration pursuant to the procedures set forth in
Exhibit A attached hereto and hereby made a part hereof.
IV. Term
4.01 Term. This Agreement shall become effective on the
date first above set forth and shall terminate on the third anniversary date
thereof; provided, that the provisions of Section 2.03 shall survive any
termination of this Agreement.
V. Geological and Geophysical Data
5.01 Data. Participant will have a beneficial ownership
interest in all pertinent geological data and geophysical data (in the form of
reproducible copies of processed geophysical data only) owned (but not
licensed) by Operator pertaining to any Exploitation Prospect after Participant
has given an Exercise Notice as to such Exploitation Prospect. Subject to the
following provisions of this Section 5.01, Participant shall be entitled to
copies of such geological data and geophysical data at any time during the term
of this Agreement. If Participant desires a copy of any
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tape that pertains in part to such Exploitation Prospect, Participant will bear
the cost of reproduction thereof. However, where Operator acquired geological
data or seismic data as a result of Operator's participation in a group seismic
acquisition program, or by trade or other arrangement where Operator's use and
release of such data is restricted by contract, Participant shall not have an
ownership interest therein but shall be allowed to examine such data to the
extent authorized by such contract; if any such restriction is terminated and
Participant owns an interest in such Exploitation Prospect, Participant shall
then be entitled to an ownership interest in such data.
VI. Subsequent Acquisitions
6.01 Subsequent Acquisitions. If Operator shall acquire
any interest in a Lease covering areas within an Exploitation Prospect in which
Participant has elected to participate, which interest was not covered by the
Option Notice relating to such Exploitation Prospect, Operator shall notify
Participant in writing of such acquisition, all the costs thereof, and shall
furnish to Participant any title information available to Operator.
Participant shall have a period of ten (10) days after receipt of such notice
within which to elect, by notice in writing, to participate in such acquisition
insofar as it relates to areas within such Exploitation Prospect. Failure to
make an election within such 10-day period shall be deemed an election not to
participate. If Participant elects not to participate, Operator shall own the
acquired interest free of this Agreement. If Participant elects to
participate, Operator shall deliver to Participant an Assignment conveying an
undivided twenty-five percent (25%) interest in the acquired interest upon
receipt by Operator of reimbursement to Operator for twenty-five percent (25%)
of the cost of the acquisition. In like manner, if Participant or any
Affiliate of Participant independently purchases or otherwise acquires an
interest in a Lease covering areas in an Exploitation Prospect, Participant or
such Affiliate shall offer Operator the right to acquire in the same manner as
described above an undivided seventy-five percent (75%) interest in such
acquired interest insofar as it relates to areas within such Exploitation
Prospect.
VII. Assignment, Successors and Assigns
7.01 Assignment. Neither Party shall assign any of its
rights or obligations hereunder (excluding its rights or interests in any
Leasehold Interests, assignment of which shall be governed by the applicable
Operating Agreement) without the consent of the other Party, except that such
consent shall not be required for an assignment to an Affiliate; subject to the
foregoing, this Agreement shall inure to the benefit of and shall be binding on
the Parties hereto and their respective successors and assigns. All of the
provisions of this Agreement shall be deemed covenants running with the
Leasehold Interests which become subject to this Agreement; however, it is not
contemplated that this Agreement shall be placed of record in any jurisdiction.
VIII. Miscellaneous
8.01 Notices. All notices, requests and other
communications to either Party hereunder shall be in writing (including
facsimile transmission) and shall be given,
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If to Operator to:
Mariner Holdings, Inc.
1400 Smith Street
Houston, Texas 77002
Attn: Brenda McGee, Specialist
If to Participant to:
Hardy Oil & Gas plc
Commonwealth House
2 Chalkhill Road
London, England W68DW
Tel: 0181-741-7373
Fax: 0181-741-7172
Attn: David Hobbs
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a Business Day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding Business Day in the place of
receipt. Any new address added pursuant to the provisions of this Section 8.01
shall be binding on the parties.
8.02 Amendments and Waivers. (a) Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed, in the case of an amendment, by each Party to this
Agreement, or in the case of a waiver, by the Party against whom the waiver is
to be effective.
(b) No failure or delay by any Party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
8.03 Governing Law. This Agreement and all disputes in
respect of this Agreement shall be governed by and construed in accordance with
the laws of Texas, without giving effect to principles of conflicts of laws.
8.04 Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
8.05 Entire Agreement; Third Party Beneficiaries. This
Agreement constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
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subject matter of this Agreement. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
8.06 Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
MARINER HOLDINGS, INC.
By: /s/ JERE C. OVERDYKE
----------------------------
Jere C. Overdyke
Vice President
HARDY OIL & GAS PLC
By: /s/ DAVID HOBBS
----------------------------
David Hobbs
General Manager
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<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter called
this "Agreement") is entered into effective as of June 27, 1996 (the "Effective
Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy Oil & Gas
USA Inc.) (hereinafter called "Company") and Robert E. Henderson (hereinafter
called "Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated September 4, 1987, which was thereafter amended on a number of
occasions (such Employment Agreement, as heretofore amended, being referred to
herein as the "Employment Agreement"); and
WHEREAS, Enron Capital & Trade Resources Corp., a Delaware
corporation, Mystery Acquisition, Inc., a Delaware corporation ("Parent"),
Robert E. Henderson, Richard R. Clark, Michael W. Strickler, and D. S. Huber,
have entered into that certain Stockholders' Agreement dated April 2, 1996 (the
"Stockholders Agreement"); and
WHEREAS, Section C.1(a) of the Stockholders Agreement provides that
the Employment Agreement will be amended and restated as set forth herein and
Company and Employee desire to so amend and restate the Employment Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as President and
Chief Executive Officer of Company and Chairman of the Board
of Company. The permanent place of Employee's employment
shall be at a location within a 50-mile radius of the central
business district of the City of Houston, Texas; provided,
however, Employee shall be required to undertake such ordinary
and usual travel as is necessary to properly discharge his
duties and responsibilities hereunder. Employee hereby
accepts such employment, and agrees to serve Company
faithfully, diligently and in a good and workmanlike manner.
2. Term.
The term of employment shall be for a term of five (5) years
beginning on the Effective Date, subject, however, to the
provisions of paragraph 3.
Employment Agreement--Robert E. Henderson
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3. Extension and Termination.
3.1 If either Employee or Company elects to terminate
this Agreement at the end of the term stated in
paragraph 2, or at the end of any extended term
hereof as hereinafter provided, notice of the
election to terminate shall be given to the other
party no later than six (6) months before the end of
this Agreement. If no notice is given by either
party, the term, or extended term, of this Agreement
shall be deemed to have been extended for an
additional six (6) months.
3.2 In the event Company elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary and
other benefits provided elsewhere in this
Agreement for Employee's services rendered to
Company hereunder through the end of such
term or extended term.
3.2.2 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment equal to twelve (12)
months' salary at Employee's monthly rate for
the month immediately preceding the month in
which Company elects to terminate this
Agreement.
3.2.3 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment for all (a) vacation
time carried forward from a previous year in
accordance with paragraph 8, and (b) all
earned and unused vacation time for the then
current year. Earned vacation time shall,
for the purpose of this paragraph, be
calculated by dividing the number of days in
the calendar year which have transpired by
365, and then multiplying the result by the
number of vacation days to which Employee is
entitled for that year pursuant to paragraph
8.
3.2.4 If Employee has a leased automobile, the
lease payments on which are guaranteed by
Company, Employee shall have the option, to
be exercised on or before the last day of his
employment hereunder, of assuming the
remaining lease payments and retaining the
automobile, or assigning the lease agreement
to Company in return for Company's agreement
to assume the remaining lease payments.
3.2.5 Interests vested in Employee under paragraph
9 of this Agreement shall be assigned in due
course in compliance with paragraph 9.4.
Company and Employee agree that the promises,
covenants and undertakings of paragraph 9
shall
Employment Agreement--Robert E. Henderson
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<PAGE> 3
survive the termination of employment of
Employee and shall be binding on all assigns
of Company.
3.2.6 Employee shall reimburse Company for
Company's costs in acquiring Employee's
Houston Petroleum Club membership (which
membership shall then be Employee's property)
or, at Employee's option, the membership can
be tendered to Company.
3.2.7 On or before the last day of his employment
hereunder, Employee shall repay Company for
any amounts remaining due under paragraphs
10.16.
3.3 In the event Employee elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the
term, or extended term hereof, unless waived
by Company.
3.3.2 The provisions of paragraphs 3.2.1, 3.2.3,
3.2.4, 3.2.5, 3.2.6, and 3.2.7 shall be
applicable, but Employee shall not be
entitled to the payment provided for in
paragraph 3.2.2.
3.4 Company may at its option consent to a request by
Employee to terminate this Agreement at a time other
than that stated in paragraph 2, as extended, in
which case the date requested by Employee and agreed
to by Company will be the end of the term of this
Agreement and the provisions of paragraph 3.3 shall
be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon
written notice of such termination to Employee by
Company. Any termination of this Agreement by
Company for Cause shall be effective thirty (30) days
after written notice of termination for Cause is
given by Company to Employee. If Company terminates
this Agreement for Cause, Company shall have no
liability or obligation to Employee thereafter under
this Agreement except (i) for the payment of his
salary and other benefits through the month of
discharge, prorated in the case of salary for the
month of discharge on a daily basis to the date of
termination, and (ii) that the provisions of
paragraph 3.2.5 shall be applicable. As used in this
Agreement, the term "Cause" means (a) Employee is
found guilty of, admits in writing facts amounting
to, or is held civilly liable for fraud, embezzlement
or dishonesty, (b) Employee is convicted of a felony
involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in
good faith determines that the
Employment Agreement--Robert E. Henderson
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<PAGE> 4
continued employment of the Employee would be
materially detrimental to the Company (in any case
which felony through lapse of time or otherwise is
not subject to appeal), (c) Employee knowingly
discloses trade secrets or confidential Company
matters to unauthorized persons, (d) Employee
willfully breaches or habitually neglects any duties
he is required to perform under the terms of this
Agreement and any such breach or neglect is not cured
within thirty (30) days after Company has provided
Employee with written notice of such breach or
neglect, (e) Employee materially breaches any of the
other material terms of this Agreement and any such
breach is not cured within thirty (30) days after the
Company has provided Employee with written notice of
such breach, and (f) the occurrence of an action or
finding described in paragraph 17, except as
otherwise provided in paragraph 17. The waiver by
Company of a breach of any provision of this
Agreement by Employee shall not operate or be
construed as a waiver of any subsequent breach by
Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in
paragraphs 3.1, 3.4 or 3.5 above, Employee shall be
entitled to receive on the date of such termination
or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the
month immediately preceding the month in
which such termination or discharge occurs,
for the unexpired portion of the term or
extended term hereof then in effect.
3.6.2 The payments and other benefits provided for
in paragraphs 3.2.2, 3.2.3, 3.2.4 and 3.2.5
hereof.
3.7 In the event Employee terminates this Agreement for
"Good Reason" (as defined in paragraph 3.9), and
prior to such termination Employee has not terminated
this Agreement under paragraph 3.1 hereof, Employee
shall be entitled to receive from Company on the date
of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in effect
at the effective time of such termination
(but prior to giving effect to any reduction
therein which precipitated such termination),
for the unexpired portion of the term or
extended term hereof then in effect.
Employment Agreement--Robert E. Henderson
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3.7.2 A lump sum cash payment equal to twelve (12)
months' salary, at Employee's rate in effect
at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination).
3.7.3 The payments and other benefits provided for
in paragraphs 3.2.3, 3.2.4 and 3.2.5.
3.8 Any termination of this Agreement by Employee for
Good Reason shall be effective thirty (30) days after
written notice of termination for Good Reason is
given by Employee to Company
3.9 As used in this Agreement, the term "Good Reason"
means any one or more of the following events has
occurred:
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's
position (including office, title and
reporting requirements), authority, duties or
responsibilities with Company or any other
action that results in a material diminution
in, or interference with, such position,
authority, duties or responsibilities, and
any such assignment or action is not cured
within thirty (30) days after Employee has
provided Company with written notice of such
assignment or action;
3.9.2 The failure to continue to provide Employee
with office space, related facilities and
support personnel (including, but not limited
to, administrative and secretarial
assistance) (a) that are both commensurate
with Employee's responsibilities to and
position with Company and not materially
dissimilar to the office space, related
facilities and support personnel provided to
other employees of Company having comparable
responsibility to that of Employee or (b)
that are physically located at Company's
principal executive offices, and any such
failure is not cured within thirty (30) days
after Employee has provided Company with
written notice of such failure;
3.9.3 Any (a) reduction in Employee's monthly
salary as established in paragraph 5
(including subsequent increases), (b)
reduction in, discontinuance of, or failure
to allow or continue to allow Employee's
participation in, the incentive compensation
program provided under paragraph 9 hereof, or
(c) reduction in, or failure to allow or
continue Employee's participation in, any
employee benefit plan or program (except when
such benefit plan or program is replaced with
another benefit plan, program or arrangement
Employment Agreement--Robert E. Henderson
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<PAGE> 6
that provides Employee, in the aggregate,
with reasonably comparable benefits) in which
Employee is participating or is eligible to
participate prior to such reduction or
failure (other than as a result of the
expiration of such plan or program), and any
such reduction, discontinuance or failure is
not cured within thirty (30) days after
Employee has provided Company with written
notice of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of
Employee's performance of his duties and
responsibilities to a location more than 50
miles outside of the central business
district of the City of Houston, Texas; or
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2, 3.9.3,
and 3.9.4) which is not cured within thirty
(30) days after Employee has provided Company
with written notice of such breach.
Notwithstanding anything contained in this paragraph
3.9 to the contrary, in the event Employee is removed
or replaced as Chairman of the Board of either
Company or Mariner Holdings, Inc., a Delaware
corporation, effective upon or following an "Initial
Public Offering" (as defined in the next sentence),
any such removal or replacement shall not constitute
the occurrence of an event within the meaning of the
term "Good Reason." For purposes of the preceding
sentence, an "Initial Public Offering" shall mean an
offering of the Common Stock, $.01 par value, of
Mariner Holdings, Inc. that is underwritten on a firm
commitment basis by a nationally recognized
investment banking firm or in a merger or other
business combination involving Mariner Holdings, Inc.
if immediately thereafter Mariner Holdings, Inc. (or
its successor) is subject to the reporting
requirements of Section 13 or Section 15 of the
Securities Exchange Act of 1934.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of this
Agreement, and for a period of four (4) years from
the date of termination of his employment hereunder,
keep secret and confidential and not disclose to any
party not a party to this Agreement, land or lease
data, geological or geophysical data, well data or
any other information which he may receive as a
result of the performance of his duties hereunder,
except when disclosure is necessary for the
Employment Agreement--Robert E. Henderson
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<PAGE> 7
performance of his duties to Company hereunder. This
paragraph shall not apply to information that is in
the public domain through no action of Employee.
4.2 Upon termination of this employment hereunder,
Employee shall promptly deliver to Company all
written information and documents (whether
confidential or not), and all copies thereof,
relating to Company's business and activities and
which are in the possession of or under the control
of Employee.
5. Salary.
As compensation for his services rendered to Company
hereunder, Company shall pay to Employee a salary at the rate
of $19,666.67 per month. Employee's salary may be reviewed at
such times as may be determined by Company, and Company may at
its discretion increase this salary. Employee's salary shall
be paid in two equal monthly installments, payable on the
fifteenth and last days of each month (or on the first
business day of Company thereafter if any such payment date is
not a business day of Company), subject to any and all
necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $400.00
dollars per month to Employee. In addition to such monthly
allowance, Company shall pay, in accordance with Company
policy, for all gasoline, insurance and maintenance required
for use of the automobile.
7. Business Expenses.
Employee is authorized to incur reasonable business expenses
in accordance with Company's policies as may be established
from time to time for promoting the business of Company,
including expenditures for entertainment and travel. Company
shall reimburse Employee from time to time for all such
business expenses in accordance with those policies adopted by
Company which include, but are not limited to, the requirement
that Employee timely present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom;
and
Employment Agreement--Robert E. Henderson
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<PAGE> 8
7.4 The name and occupation of the person or persons
entertained to establish the business relationship
with Company.
With respect to any reimbursable business expense contemplated
above exceeding twenty-five dollars ($25.00), Employee will
furnish documentary evidence of such expense to Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of
twenty-five (25) days per calendar year at full pay. The
timing and use of such vacation days shall be requested by
Employee and approved by Company in accordance with its
policy. Up to one week may be carried over from year to year.
Employee shall not be entitled to receive payment in lieu of
unused vacation time except as otherwise provided herein.
With prior approval, vacation may be deferred if business
matters keep Employee from taking his normal vacation.
9. Incentive Compensation.
9.1 Definitions.
An "AFFILIATE" of a specified person is any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with
that specified person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated
persons (other than Joint Energy Development
Investments Limited Partnership ("JEDI") or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66 2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person,
if as a result any person (other than JEDI or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding
Employment Agreement--Robert E. Henderson
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<PAGE> 9
Voting Stock of Newco unless Newco becomes a
subsidiary of an entity which does not have a
beneficial owner, directly or indirectly, of 66-2/3
percent or more of the outstanding Voting Stock of
such entity (other than JEDI or an affiliate of Enron
Corp.), (y) any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of Newco and its subsidiaries taken as a whole
in one transaction or a series of related
transactions whether by direct sale of assets, sale
of stock of a subsidiary or a merger involving any
subsidiary, or (z) the dissolution of Newco; or
(iii) Recognizing that the events
described in this clause and the events described in
clause (ii) above may not necessarily be mutually
exclusive, any sale, exchange or other transfer of
two-thirds or more of the outstanding Voting Stock of
the Company or any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of the Company and its subsidiaries (if any)
taken as a whole in one transaction or a series of
related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of Company or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates,
Joint Energy Development Investments Limited Partnership or
any of its affiliates, Enron Capital & Trade Resources Corp.
or any of its affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development
Investments Limited Partnership or any of its affiliates or
Enron Capital & Trade Resources Corp. or any of its affiliates
for access to one or more Working Interests of Company.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in
such Prospect acquired by Company and, for purposes of this
paragraph 9, shall include each portion thereof that Company
may subsequently transfer to another member of Company Group
or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than
50 percent of the outstanding voting securities of a
non-individual person, (b) having the right, directly or
indirectly, to more than 50 percent of the profits of a
non-individual person, (c) having the right, directly or
indirectly, to more than 50 percent of the assets of a
non-individual person if it is dissolved or (d) having the
contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
Employment Agreement--Robert E. Henderson
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"DEVELOPMENT ACREAGE" means the acreage within a Prospect
covering a known or inferred geologic structure upon which
Company and/or its joint working interest owners or a farmee
of Company's Working Interest in a Prospect have drilled a
well capable of commercial oil and/or gas production. Such
acreage shall be deemed to be Development Acreage from the
surface of the earth down through the deepest known productive
horizon. The committee described in paragraph 9.5.1(a),
below, shall designate acreage within a Prospect as
Development Acreage based upon the most current interpretation
available at the time of designation.
"EFFECTIVE DATE" means the effective date of this amended and
restated Employment Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct,
capital costs actually incurred by Company Group in connection
with exploration and development of such Prospect or
Prospects, including, without limitation, all costs incurred
in preparing for drilling, drilling, testing, completing,
equipping (including, without limitation, installation of
platforms, facilities and pipelines and dry hole costs) and
recompleting wells, all geological and geophysical costs, and
all leasehold costs (including bonus, delay rentals and all
other costs of acquiring and maintaining in force the leases,
or portions thereof or undivided interests therein, included
in such Prospects). Exploration and Development Costs shall
not include lease operating expenses or general and
administrative expenses of the Company Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect
which has not been designated by the committee described in
paragraph 9.5.1(a), below, as either Development Acreage or a
Producing Property Acquisition. Exploratory Acreage shall not
be limited as to depth (except to the extent, if any, to which
Company's Working Interest therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing
a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such hydrocarbon reservoir being economic, based
on commercially producible shows of hydrocarbons in a well
drilled within such reservoir, together with other geological
and geophysical data and interpretations, such that Company in
its reasonable judgment plans to develop such reservoir, and
(b) is reasonably expected by Company to be exploited and/or
developed by utilizing a floating production facility and/or a
tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than
an FPF/TLP Exploitation Prospect) with respect to which
Company reasonably expects to utilize a floating production
facility and/or a tension
Employment Agreement--Robert E. Henderson
-10-
<PAGE> 11
leg platform in connection with operations to be conducted on
such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first
well drilled on such Prospect in which Company participates as
a Working Interest owner or with respect to which Company
retains an overriding royalty or other interest in oil and gas
production from such well.
"MAJOR PROSPECT" means any FPF/TLP Exploration Prospect,
FPF/TLP Exploitation Prospect, Subsea Tieback Exploration
Prospect or Subsea Tieback Exploitation Prospect with respect
to which the total amount estimated by Company for Exploration
and Development Costs to be incurred by Company Group (i.e.,
net to Company Group's interest) through the end of the
primary development period for the field comprising such
Prospect exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which
provides for sharing between lessor and lessee of the net
profits or net proceeds, as defined in said lease, from the
sale of oil and/or gas produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation,
or its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross
production of oil and gas under each oil and gas lease (or
portion thereof) included within a Prospect, which interest
(except as herein otherwise provided) shall be free of all
costs of acquisition, exploration, drilling, completing,
equipping, operating and developing any oil and gas produced
from such lease.
A "PARENT" of a specified person is another person that
controls such specified person directly or indirectly through
one or more intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue
to Company or its assigns from its interest in oil and gas
production from such well (after deduction of Company's or its
assigns' prorata part of the burden of (i) all landowners'
royalties, overriding royalties, net profits interests,
production payments or other burdens upon, measured by or
payable out of such production and (ii) all applicable ad
valorem, production, severance, sales, gathering, windfall
profits excise and similar taxes) equals the sum incurred by
or for the account of Company or its assigns (x) in preparing
for drilling, drilling, testing, completing, equipping
(including, without limitation, installation of platforms,
facilities and pipelines), operating, reworking and
recompleting the well, and marketing the production therefrom,
and (y) for such well's allocable share of geological and
geophysical costs, leasehold costs and other common costs.
"Leasehold costs" shall mean payments for bonus, delay
rentals, and all
Employment Agreement--Robert E. Henderson
-11-
<PAGE> 12
other costs of acquiring from the landowners (or, in the case
of an acquisition by Company (but not any assignee of
Company), from predecessors in title to such leases) and
maintaining in force the leases allocated to the well. Leases
"allocated" to a well shall mean the leases or portions
thereof or undivided interests therein to which production
from a well is attributed, whether on a lease or unit basis.
With respect to each such well, "common costs" shall mean
capital costs that are attributable to (a) such Prospect as a
whole or (b) such well and one or more other wells (but not
all wells) on such Prospect and shall include, without
limitation, costs of drilling, plugging and abandoning non-
productive wells on such Prospect. Each such well's allocable
share of common costs shall be determined by Company in any
manner it deems appropriate from time to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well
and each subsequent well drilled on a Prospect, the point in
time at which such revenue to Company or its assigns from its
interest in oil and gas production from such well, after such
deductions mentioned above, equals the product of 2.5 times
the sum incurred by or for the account of Company or its
assigns (x) in preparing for drilling, drilling, testing,
completing, equipping, operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for
such well's allocable share of geological and geophysical
costs, leasehold costs and other common costs as mentioned
above.
A "PERSON" is an individual, a corporation, a trust, a
partnership, a limited liability company, an association or
any other entity.
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
Company during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves
considered proved under such lease or leases at the time of
acquisition. A Producing Property Acquisition shall include
acquisition of such leasehold interests even though Company
may have previously acquired interests in some or all of the
same leases as a Prospect acquisition (i.e., prior to the time
such leases were considered to contain proved oil and gas
reserves). Company may in its sole discretion designate a
Producing Property Acquisition in whole or in part as a
Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by Company within the
United States and its coastal waters while Employee is
employed by Company and during the term or extended term of
this Agreement covering lands which in the sole opinion of
Company may contain one or more hydrocarbon accumulations
capable of being commercially produced. For purposes of this
definition
Employment Agreement--Robert E. Henderson
-12-
<PAGE> 13
of Prospect, the acquisition of a lease or leases shall mean
the acquisition by Company of legal or beneficial rights or
interests in a lease or leases, including (without limitation)
contractual rights to acquire or earn a lease or leases
(whether by farmout agreement or otherwise, and whether such
contractual rights are subject to certain conditions such as
the drilling or completion of a commercial well, and without
regard to the results of the drilling or completion of any
such well under such contract). A Prospect shall not include
a prospect acquired by Company by merger or consolidation of
Company with or into another entity unless such prospect is
so designated by Company. A Prospect shall not include a
Producing Property Acquisition unless such Prospect is so
designated by Company, and shall not include leases included
in a Prospect under previous Employee Incentive Compensation
Plans. All Prospects shall be deemed to be without depth
limitation unless the Company designates specified depths only
at the time said Prospect is initially acquired by Company.
Notwithstanding the date or dates on which leases in a
Prospect are actually acquired by Company, solely for purposes
of determining the employees of Company who are entitled to
receive an Overriding Royalty Interest therein, such leases,
or portions thereof or undivided interests therein, shall be
deemed to have been acquired by Company as of the date on
which Company's management approved such Prospect acquisition.
In furtherance of the foregoing, if any lease or leases, or
portions thereof or undivided interests therein, acquired by
Company on or after April 18, 1996, but prior to the
commencement of the term of this Agreement, would constitute a
"Prospect" under the foregoing definition but for the fact
that such lease or leases, or portions thereof or undivided
interests therein, were not acquired by Company during the
term of this Agreement, the same shall, nevertheless, be
deemed to have been acquired by Company as of the commencement
of the term of this Agreement and shall constitute a Prospect
for purposes of this paragraph 9.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a
sufficient likelihood of such hydrocarbon reservoir being
economic, based on commercially producible shows of
hydrocarbons in a well drilled within such reservoir, together
with other geological and geophysical data and
interpretations, such that Company in its reasonable judgment
plans to develop such reservoir, and (b) is reasonably
expected by Company to be exploited and/or developed by
utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect
(other than a Subsea Tieback Exploitation Prospect) with
respect to which Company reasonably expects to utilize a
subsea tieback system in connection with operations to be
conducted on such Prospect.
Employment Agreement--Robert E. Henderson
-13-
<PAGE> 14
A "SUBSIDIARY" of a specified person is an entity controlled
by such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election
of directors thereof.
"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the
costs and expenses relating to the maintenance and development
of, and operations relating to, such lease and the well or
wells associated therewith.
9.2 Employee's Property Interest.
9.2.1 Subject to the other provisions of this paragraph 9,
Employee shall own, be immediately vested with, and
be entitled to receive the benefits of an Overriding
Royalty Interest equal to an undivided percentage of
Company's Working Interest, more specifically
described below, in each well on a Prospect and the
lease or leases allocated thereto, as follows:
EMPLOYEE: Robert E. Henderson
OVERRIDING ROYALTY INTEREST
IN
FPF/TLP EXPLORATION PROSPECTS,
FPF/TLP EXPLOITATION PROSPECTS,
SUBSEA TIEBACK EXPLORATION PROSPECTS
AND
SUBSEA TIEBACK EXPLOITATION PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.213125 0.852499
Group XV 5/16/96 and Thereafter 0.213125 0.852499
</TABLE>
OVERRIDING ROYALTY INTEREST
IN
ALL OTHER PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.23250 0.93000
Group XV 5/16/96 and Thereafter 0.23250 0.93000
</TABLE>
At 7:00 a.m. on the first day of the month following the month
in which Payout of such well occurs, the Overriding Royalty
Interest shall increase from the applicable before-Payout
percentage to the applicable after-
-14-
<PAGE> 15
Payout percentage. Except as herein otherwise expressly
provided, references in this paragraph 9 to Employee's
"Overriding Royalty Interest" with respect to any Prospect
shall mean the applicable before-Payout and after-Payout
percentages of Company's Working Interest in such Prospect
as set forth above.
9.2.2 Under previous Employee Incentive Compensation Plans, Employee
has received or is entitled to receive overriding royalty
interests ("Existing ORIs") in certain prospects (the
"Existing Prospects"). The Existing ORIs are equal to an
undivided percentage of Company's Working Interest, more
specifically described below by Group and Time Period during
which Company acquired such Existing Prospects, in each well
on an Existing Prospect and the lease or leases allocated
thereto, as follows:
EMPLOYEE: Robert E. Henderson
<TABLE>
<CAPTION>
EXISTING ORI
------------
Group Time Period BEFORE PAYOUT After Payout
----- ----------- ------------- ------------
<S> <C> <C> <C>
GROUP I 4/1/87-9/3/87 0.18750% 0.7500%
GROUP II 9/4/87-10/31/87 0.25000% 1.0000%
GROUP III 11/1/87-7/16/88 0.25000% 1.0000%
GROUP IV 7/17/88-12/15/88 0.25000% 1.0000%
GROUP V 12/16/88-3/31/89 0.30000% 1.2000%
GROUP VI 4/1/89-9/24/90 0.30000% 1.2000%
GROUP VII 9/25/90-6/30/91 0.30000% 1.2000%
GROUP VIII 7/1/91-9/30/91 0.25000% 1.0000%
GROUP IX 10/1/91-2/14/93 0.25000% 1.0000%
GROUP X 2/15/93-6/30/93 0.25000% 1.0000%
GROUP XI 7/1/93-4/29/94 0.25000% 1.0000%
GROUP XII 4/30/94-3/31/95 0.25000% 1.0000%
GROUP XIII 4/1/95-4/17/96 0.25000% 1.0000%
</TABLE>
The provisions of paragraphs 9.4, 9.5, 9.6 and 9.7 shall apply
to the Existing ORIs in the Existing Prospects as fully as
such provisions apply to any Overriding Royalty Interest in a
Prospect to which Employee is entitled under this Agreement.
Employment Agreement--Robert E. Henderson
-15-
<PAGE> 16
Mention is made that, effective June 1, 1996, the Company has
repurchased certain of the Existing ORIs from Employee as
contemplated by the Stockholders' Agreement referred to in
paragraph 9.5.1(a).
9.3 Governmental Filings.
Company will assist Employee in Filing an 83b Election with
the Internal Revenue Service on each Prospect, on a prospect
by prospect or lease by lease basis, as the case may be,
denoting the transfer to Employee of the Overriding Royalty
Interest and stating the value of such interest for the
purposes at the time the interest is acquired.
9.4 Assignment of Overriding Royalty Interest.
Except as otherwise expressly provided in paragraphs 9.4.8 and
9.4.9, Employee shall not be entitled to obtain recordable
assignments of his interest under this paragraph 9 until his
completion of three years of employment by Company and, except
as otherwise expressly provided herein, Employee shall forfeit
ownership of such interest if Employee's employment is
terminated by Company pursuant to paragraph 3.5 or by Employee
without Good Reason as defined in paragraph 3.9, prior to the
completion of such three years of employment. Upon completion
of three years of employment of Employee by Company,
Employee's ownership of interests theretofore or thereafter
transferred to him pursuant to this Agreement will no longer
be subject to forfeiture, and assignments will be made in
accordance with this paragraph 9.4. Subject to the other
provisions of this paragraph 9, Employee shall be entitled to
the revenue arising from his Overriding Royalty Interest
whether or not he is entitled to a recordable assignment.
Subject to the foregoing provisions of this paragraph 9.4 and
to the provisions of paragraph 9.5, as soon as practicable
after the end of each calendar quarter during the term or
extended term of this Agreement, Employee shall be entitled to
receive recordable assignments of his Overriding Royalty
Interest in a lease or leases (or portions thereof) acquired
by Company in a Prospect during such calendar quarter. If
Employee's employment is terminated by Company pursuant to
paragraph 3.5 or by Employee without Good Reason as defined in
paragraph 3.9, during any such calendar quarter, Employee
shall not be entitled to receive recordable assignments that
would otherwise have been due under this paragraph in respect
of any lease or leases (or portions thereof) acquired by
Company in a Prospect during such calendar quarter or
thereafter (and Employee shall not own, be vested with or be
entitled to receive the benefits of any Overriding Royalty
Interest that would have been granted by such recordable
assignments) unless the termination is at the end of the term
or extended term of this Agreement. As soon as practicable
after the end of each such calendar quarter, Company shall
provide Employee with the following:
Employment Agreement--Robert E. Henderson
-16-
<PAGE> 17
(a) A recordable assignment of his Overriding
Royalty Interest in the leases (or portions
thereof) acquired by Company in each Prospect
during such calendar quarter.
(b) A plat outlining the geographical limits of
each such Prospect. Company shall review
each Prospect plat each calendar quarter in
light of drilling activity on or near the
Prospect, and expand the plat boundary if new
leases are acquired which Company believes to
contain a prospective hydrocarbon
accumulation that is located on the same
geological feature as such Prospect.
Employee shall be entitled to his Overriding
Royalty Interest in any lease acquired by
Company within the Prospect plat boundary
(and, to the extent provided in paragraph
9.7.2, in any renewal, extension or new lease
within the Prospect plat boundary) for as
long as such lease within the boundary
remains in effect.
9.4.1 Upon execution and delivery of such recordable
assignment to Employee, Company shall record the
assignment.
9.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, Company believes in good
faith that there is a substantial likelihood that it
may be necessary to exercise its discretion under
paragraph 9.5 with respect to adjustment of
Employee's Overriding Royalty Interest in leases
included within such Prospect, Company may defer
delivery of a recordable assignment of Employee's
Overriding Royalty Interest pending a determination
under paragraph 9.5.
9.4.3 Upon request by Company, Employee agrees to execute
and deliver any and all transfer orders, division
orders and other documents as may be necessary or
appropriate to cause all revenue attributable to his
interest in a well to be paid to Company on his
behalf until delivery by Company to Employee of a
recordable assignment of his interest in such well
pursuant to this paragraph 9. In such event, Company
agrees promptly to process such funds and pay all
funds due Employee at the same time third parties are
paid revenue distributions from such well by Company.
After an assignment is delivered to Employee, Company
shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct
payment to Employee of all revenue attributable to
his interest in such well.
9.4.4. Subject to the last sentence of this paragraph 9.4.4,
Company or its assigns shall quarterly perform Payout
calculations on each well which has not reached
Payout in every Prospect so that payments
Employment Agreement--Robert E. Henderson
-17-
<PAGE> 18
to Employee may be made on a proper before
payout/after payout basis on each well in every
Prospect. Company or its assigns shall prepare a
quarterly Payout statement for each well within each
Prospect and shall provide Employee a copy of said
quarterly Payout statements within ninety (90) days
following the end of the quarter. If Company or its
assigns fails to provide said quarterly Payout
statements for any such well(s) to at least five (5)
employees (whether or not such employees include the
Employee) who are entitled to receive an Overriding
Royalty Interest in such well(s) pursuant to this
Agreement and/or other employment agreements with
Company for a period of four (4) consecutive
quarters, any such employee (including without
limitation, the Employee) may give Company written
notice of said failure. If Company or its assigns
does not provide the overdue quarterly Payout
statements to each employee entitled to same within
thirty (30) days following receipt of such notice,
all wells within such Prospect which had previously
been considered before Payout pursuant to paragraph
9.2 shall be deemed to be after Payout pursuant to
paragraph 9.2 as of the first day of the month
following the month in which the earliest delinquent
quarterly Payout statement should have been provided.
When Payout status is reached on a well, Company or
its assigns shall deliver notice of such event to
Employee, the operator of such well and each
purchaser of production from such well and Company or
its assigns shall direct such operator or purchaser
of production (as appropriate) to disburse future
revenues attributable to Employee's and Company's
respective interests in such well on an after-Payout
basis. Notwithstanding the foregoing, if Employee's
Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph
9 so as to be the same percentage before and after
Payout of such well, then the provisions of this
paragraph 9.4.4 shall no longer apply from and after
the date of such adjustment.
9.4.5 Should Employee be married or divorced at such time
as Employee earns the right to have an Overriding
Royalty Interest assigned to him hereunder, Company
shall have no obligation to make assignments to
Employee's spouse/or former spouse. Any division of
community property shall be the responsibility of
Employee.
9.4.6 All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
(a) any joint operating agreement at any time
theretofore or thereafter entered into by Company or
its assigns with other Working Interest owners
covering any of the leases affected by the Overriding
Royalty Interest herein provided for, and (b) any
farm-out or other agreements under which Company
acquires or may acquire its
Employment Agreement--Robert E. Henderson
-18-
<PAGE> 19
interest in the leases; including, particularly, by
way of illustration and not by way of limitation, (i)
any provision of an applicable farm-out agreement
requiring reduction of Company's interest in the
leases after "payout" of an earning well or wells
thereunder, in which event Employee's Overriding
Royalty in such leases shall be proportionately
reduced, and (ii) any provision requiring forfeiture
of interest for nonparticipation, recoupment of
multiple recovery costs and the like to the extent
that Company would forfeit its Working Interest for
nonparticipation either forever or until recoupment
of drilling and/or operating costs by the third
parties electing to participate, or such other like
reason; and in the event any such provisions come
into effect, Employee's Overriding Royalty in such
leases shall be suspended until such time, if ever,
as such multiple recovery of costs by the
participating leasehold owners has been recovered or
such other cause for suspension is removed and such
Working Interest of Company is reinstated, at which
time Employee's Overriding Royalty shall be so
reinstated.
All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
the leases, any assignments and/or subleases thereof
theretofore made or agreed to be made by Company, and
any amendments or modifications of the leases,
theretofore or thereafter made, and Employee agrees
that any such amendments or modifications may be made
without the consent or joinder of Employee.
9.4.7 Company or its assigns shall not have the right to
sell, assign, farmout, convey or otherwise encumber
Employee's Overriding Royalty Interest, except as
otherwise provided in this paragraph 9.
9.4.8(a) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, there shall have been a
Change in Control, then Employee
shall be entitled to receive
recordable assignments of his
Overriding Royalty Interest,
adjusted in the manner described
hereinbelow, in any lease or leases
(or portions thereof or undivided
interests therein) theretofore
acquired by Company and not yet
assigned during the term or extended
term hereof and, upon subsequent
acquisition by Company, in any lease
or leases (or portions thereof or
undivided interests therein)
thereafter acquired by Company, in
all Prospects acquired by Company
prior to such Change in Control
(without regard to whether or not
Employment Agreement--Robert E. Henderson
-19-
<PAGE> 20
Employee has then completed three years
of employment by Company). Said
Overriding Royalty Interest shall be
assigned in the following manner:
Employee's after-Payout interest shall
be reduced to one-half of Employee's
after-Payout interest stated in
paragraph 9.2 (as such after-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9) and Employee's
before-Payout interest shall be
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9) with the result that
Employee's interests before and
after Payout shall be equal.
9.4.8(b) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, the Company's Working
Interest in any Prospect is sold,
transferred or conveyed to the
holder of any indebtedness of the
Company or of Newco or of any parent
or subsidiary of the Company or
Newco, or to any unaffiliated third
party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing
such indebtedness or any part
thereof or by transfer or conveyance
in lieu of such foreclosure, then
Employee shall be entitled to
receive, prior to the consummation
of such sale, transfer or
conveyance, a recordable assignment
of his Overriding Royalty Interest,
adjusted in the manner described in
paragraph 9.4.8(a), in any lease or
leases (or portions thereof or
undivided interests therein)
theretofore acquired by Company and
not yet assigned during the term or
extended term hereof and, upon
subsequent acquisition by Company,
in any lease or leases (or portions
thereof or undivided interests
therein) thereafter acquired by
Company, in all Prospects acquired
by Company prior to such sale,
transfer or conveyance (without
regard to whether or not Employee
has then completed three years of
employment by Company).
Employment Agreement--Robert E. Henderson
-20-
<PAGE> 21
9.4.9 Except as otherwise provided in the fifth sentence of
paragraph 9.4, and notwithstanding anything (other
than such fifth sentence of paragraph 9.4) contained
herein to the contrary, if, during the term or
extended term hereof, all or substantially all of the
Company's Working Interests in all or substantially
all Exploratory Acreage then owned by the Company are
sold, transferred or conveyed to an unaffiliated
third party, then Employee shall be entitled to
receive, prior to the consummation of such sale,
transfer or conveyance, recordable assignments of his
Overriding Royalty Interest, adjusted in the manner
described in paragraph 9.4.8(a), in all leases (or
portions thereof or undivided interests therein) that
cover and include such Exploratory Acreage not yet
assigned during the term or extended term hereof
(without regard to whether or not Employee has then
completed three years of employment by Company).
9.5 Retained Company Discretion
9.5.1 Employee and Company recognize that in instances
where all or a portion of Company's Working Interest
in a lease or leases will be sold or farmed out to
unaffiliated third parties, Employee's Overriding
Royalty Interest might in some circumstances have a
negative effect on the marketability of Company's
Working Interest to third parties. In such cases,
Company will in good faith attempt to transfer
Company's Working Interest subject to Employee's
Overriding Royalty Interest provided for in this
paragraph 9; provided, however, if, in Company's good
faith judgment, Company's Working Interest cannot be
sold or farmed out subject to Employee's Overriding
Royalty Interest, Company may elect to adjust
Employee's Overriding Royalty Interest as hereinafter
provided.
9.5.1(a) The Board of Directors of Company
shall designate a committee of not
less than three individual persons
employed by Company, at least half
of whom has been granted an employee
Overriding Royalty Interest by
Company, to exercise discretion on
behalf of Company in reducing or
modifying, pursuant to this
paragraph 9.5.1 only, the Overriding
Royalty Interests provided for in
this paragraph 9; provided, however,
that the Board of Directors of the
Company shall have the right to
designate a non-voting member of
such committee, who may be a
director of the Company or
otherwise, and such member shall
have the right to participate in all
meetings of such committee (and
shall receive reasonable advance
notice of any such meetings) and
shall be entitled to the same
Employment Agreement--Robert E. Henderson
-21-
<PAGE> 22
information as is available to the
other members of the committee.
Such committee shall make all
decisions under this paragraph 9.5.1
subject to obtaining the approval of
the Board of Directors of Company
where such approval is required
under the provisions of this
paragraph 9.5.1. Any decision made
by the committee shall require the
approval of a majority of the
members of the committee. Any
change to this paragraph 9.5.1(a)
shall require the approval of the
Board of Directors of the Company
and a majority of the Management
Directors (as that term is defined
in the Stockholders' Agreement dated
April 2, 1996, between Enron Capital
& Trade Resources Corp., Newco and
certain employees of and consultants
to the Company, as it may be amended
from time to time) who became
stockholders pursuant to Section B.1
of that agreement.
9.5.1(b) With respect to any Prospect on
which no initial Well has been
drilled and no assignments of
Overriding Royalty Interests have
been made to Employee, the committee
may modify or reduce the Overriding
Royalty Interest of Employee in
leases included within such Prospect
in any manner necessary in the good
faith judgment of the committee to
make an interest in such Prospect
saleable to any person not in
Company Group; provided, however, in
connection with any sale by Company
of an interest in such Prospect to
any such person, Employee's
Overriding Royalty Interest shall be
reduced to zero unless the committee
recommends a lesser reduction and
such recommendation is approved by
the Board of Directors of Company.
Such modification or reduction shall
apply only to the interest sold to
such a person, and shall not affect
the interest retained by the
Company. Any reduction or exercise
of discretion by Company under this
paragraph shall be applied
proportionately to all participants
who are entitled to receive from
Company an Overriding Royalty
Interest in leases included within
such Prospect.
9.5.1(c) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has not
been determined by Company to be
capable of producing oil and/or gas,
should Company desire to sell all or
any portion of its Working Interest
in such Prospect to unaffiliated
third parties, the committee
Employment Agreement--Robert E. Henderson
-22-
<PAGE> 23
may adjust the Overriding Royalty
Interest of Employee in leases
included within such Prospect in the
following manner:
Employee's after-Payout interest shall
be reduced to one-half of Employee's
after-Payout interest stated in
paragraph 9.2 (as such after-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9) and Employee's
before-Payout interest shall be
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9), with the result that
Employee's interests before and
after Payout shall be equal.
Such adjustment shall apply only to the
interest sold to unaffiliated third
parties, and shall not affect the
interest retained by Company. Any
exercise of discretion by Company
under this paragraph shall be
applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(c).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such
Employment Agreement--Robert E. Henderson
-23-
<PAGE> 24
holder or other third party shall not
have any right to make the
adjustment described above in this
paragraph 9.5.1.(c).
9.5.1(d) With respect to any Prospect which
has not been determined by Company
to be capable of producing oil
and/or gas, and regardless of
whether or not the Initial Well has
been drilled thereon, should Company
desire to farmout all or any portion
of its Working Interest in such
Prospect to unaffiliated third
parties, the committee shall (unless
the committee recommends otherwise
and the Board of Directors approves
such recommendation) adjust the
Overriding Royalty Interest of
Employee in leases included within
such Prospect in the following
manner:
Employee's Overriding Royalty Interest
shall be calculated by multiplying
Employee's percentage interests
stated in paragraph 9.2 above (as
such interests may have previously
been reduced pursuant to other
provisions of this paragraph 9) by
Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and during the period of time in
which Company receives such
overriding royalty interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph 9.2 above; provided,
however, if pursuant to such farmout
agreement, only a portion of
Company's overriding royalty
interest converts to a Working
Interest and Company retains,
following such conversion, some
overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest based
upon Company's Working Interest, an
interest equal to the percentage
stated in paragraph 9.2 above (as
such interest may have previously
been reduced pursuant to other
provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Employment Agreement--Robert E. Henderson
-24-
<PAGE> 25
Such adjustment shall apply only to the
interest farmed out to unaffiliated
third parties, and shall not affect
the interest retained by Company.
Any exercise of discretion by
Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
With respect to each well drilled on
the Prospect by a farmee of
Company's Working Interest and
solely for the purpose of this
paragraph 9.5.1 (d), Payout shall be
defined as the point in time at
which the revenue to Company from
its interest in oil and gas
production from such well (after
deduction of Company's prorata part
of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production
payments or other burdens upon,
measured by or payable out of such
production and (ii) all applicable
ad valorem, production, severance,
sales, gathering, windfall profits
excise and similar taxes) equals the
sum incurred by or for the account
of Company (x) in preparing for
drilling, drilling, testing,
completing, equipping (including,
without limitation, installation of
platforms, facilities and
pipelines), operating, reworking and
recompleting the well, and marketing
the production therefrom, and (y)
for such well's allocable share of
geological and geophysical costs,
leasehold costs, all other costs of
acquiring and maintaining in force
the leases allocated to the well and
other common costs. Leases
"allocated" to a well and "common
costs" shall have the respective
meanings ascribed thereto in the
definition of "Payout" set forth in
paragraph 9.1.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
has been a Change in Control, then
neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(d).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred
Employment Agreement--Robert E. Henderson
-25-
<PAGE> 26
or conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(d).
9.5.1(e) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has been
determined by Company to be capable
of producing oil and/or gas, should
Company desire to sell or farmout
all or any portion of its Working
Interest in such Prospect to
unaffiliated third parties, the
committee shall categorize
geographical areas of the leases
comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the Company's
Working Interest in any such
Development Acreage will be made
subject to Employee's Overriding
Royalty Interest provided for in
paragraph 9.2 hereinabove (as such
interest may have previously been
adjusted pursuant to other
provisions of this paragraph 9);
provided, however, with respect to
each well drilled on the Prospect by
a purchaser or farmee or their
assigns of Company's Working
Interest, and solely for the purpose
of this paragraph 9.5.1(e), Payout
shall be defined as the point in
time at which the revenue to
purchaser or farmee or their assigns
from its or their interest purchased
or farmed in from Company in oil
and/or gas production from such well
(after deduction of purchaser's or
farmee's prorata part of the burden
of (i) all landowners' royalties,
overriding royalties, net profits
interests, production payments or
other burdens upon, measured by or
payable out of such production and
(ii) all applicable ad valorem,
production, severance, sales,
gathering, windfall profits excise
and similar taxes) equals the sum
incurred by or for the account of
purchaser or farmee or their assigns
in preparing for drilling, drilling,
testing, completing, equipping,
operating, reworking and
recompleting the well, and marketing
the production therefrom.
Employment Agreement--Robert E. Henderson
-26-
<PAGE> 27
With respect to the Company's Working
Interest in Exploratory Acreage to
be sold by Company, the committee
may adjust the Overriding Royalty
Interest of Employee in the
following manner:
Employee's after-Payout interest shall
be reduced to one-half of Employee's
after-Payout interest stated in
paragraph 9.2 (as such after-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9) and Employee's
before-Payout interest shall be
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9), with the result that
Employee's interests before and
after Payout shall be equal.
With respect to the Company's Working
Interest in Exploratory Acreage to
be farmed out by Company, the
committee shall (unless the
committee recommends otherwise and
the Board of Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in the following manner:
Employee's Overriding Royalty Interest
shall be calculated by multiplying
Employee's percentage interests
stated in paragraph 9.2 above (as
such interests stated in paragraph
9.2 may have previously been reduced
pursuant to other provisions of this
paragraph 9) by Company's overriding
royalty interest set forth in the
particular farmout agreement for
said Prospect, for and during the
period of time in which Company
receives such overriding royalty
interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph
Employment Agreement--Robert E. Henderson
-27-
<PAGE> 28
9.2 above; provided, however, if
pursuant to such farmout agreement,
only a portion of Company's
overriding royalty interest converts
to a Working Interest and Company
retains, following such conversion,
some overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest and in
addition to such Overriding Royalty
Interest based upon Company's
Working Interest, an interest equal
to the percentage stated in
paragraph 9.2 above (as such
interest may have previously been
reduced pursuant to other provisions
of this paragraph 9) multiplied by
Company's retained overriding
royalty interest.
Such adjustment shall apply only to the
interest sold or farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by Company. Any exercise
of discretion by Company under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in
leases included within such
Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(e).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(e).
Employment Agreement--Robert E. Henderson
-28-
<PAGE> 29
If any of the events set forth in the
two immediately preceding sentences
hereof should occur, such that the
adjustment described above in this
paragraph 9.5.1(e) with respect to
the Overriding Royalty Interest of
Employee in leases in such
Exploratory Acreage is precluded
from occurring as provided above,
then, with respect to each well
drilled on such Exploratory Acreage
by a purchaser or farmee or their
assigns of Company's Working
Interest, and solely for purposes of
this paragraph 9.5.1(e), Payout
shall be defined as set forth above
in this paragraph 9.5.1(e).
9.5.2 Within sixty (60) days after the end of each fiscal
year of Company, Company may in its sole discretion
elect to reduce the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to Prospects
subject to this Agreement that were acquired by
Company during such fiscal year (which election, if
timely made as above provided, shall be effective as
of the beginning of such fiscal year) based on actual
Exploration and Development Costs incurred by Company
Group during such fiscal year in respect of all
Prospects subject to this Agreement, as follows (with
linear interpolation between indicated levels of
costs):
<TABLE>
<CAPTION>
Total E & D
Costs Level Permitted Reduction
----------- -------------------
<S> <C>
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
</TABLE>
**Permitted Reduction shall be determined in the sole discretion of
Company.
The total Exploration and Development Costs levels
and resultant ranges and escalation increments
provided for above are "Base Year" figures for fiscal
year 1996-1997, and shall be adjusted annually on a
compound basis beginning with the fiscal year
commencing April 1, 1997, according to the then
current Council of Petroleum Accountants Societies'
(COPAS) adjustment rate (based upon the percentage
increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers as of
April 1 as published by the United States Department
of Labor, Bureau of Labor Statistics).
Employment Agreement--Robert E. Henderson
-29-
<PAGE> 30
The "Permitted Reduction" shall mean the percentage
by which Employee's Overriding Royalty Interest (both
before and after Payout) may be adjusted downward.
Each such adjustment shall determine Employee's
Overriding Royalty Interest for the fiscal year in
question, and shall be uniform on Prospects acquired
during that period (subject to paragraphs 9.5.1 and
9.5.3). Without limiting the foregoing, a Permitted
Reduction shall apply to any Major Prospect subject
to this Agreement that was acquired by Company during
such fiscal year, whether or not an adjustment of
Employee's Overriding Royalty Interest in such Major
Prospect shall have been made pursuant to paragraph
9.5.3.
All leases acquired in those Prospects, whether
during the same fiscal year or thereafter, shall be
subject to the same Employee's Overriding Royalty
Interest established at the time the Prospect was
acquired, subject, however, to adjustment as provided
for in this paragraph 9. A Permitted Reduction in
Employee's Overriding Royalty Interest for a
particular fiscal year, however, shall not operate to
reduce Employee's Overriding Royalty Interest stated
in paragraph 9.2 in respect of any Prospects acquired
by Company in any subsequent fiscal year during the
term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploitation Prospects acquired by
Company during a fiscal year of
Company for which Company's estimate
of Exploration and Development Costs
incurred or to be incurred by
Company Group in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal year exceeds
$30 million through the end of the
respective primary development
periods for the fields comprising
such FPF/TLP Exploitation Prospects
(which periods, solely for purposes
of the adjustment provided for in
this paragraph, shall not exceed
five (5) years), an alternative
calculation will be made prior to
determining the applicable
"Permitted Reduction" of Employee's
Overriding Royalty Interest with
respect to such FPF/TLP Exploitation
Prospects. Such alternative
calculation shall be based upon the
assumptions that the total
Exploration and Development Costs to
be incurred by Company Group in
respect of all such FPF/TLP
Exploitation Prospects will be
incurred over a two (2) year period
and that such Exploration and
Development Costs will be in
addition to a "base level" of $70
million in Exploration
Employment Agreement--Robert E. Henderson
-30-
<PAGE> 31
and Development Costs to be incurred by
Company Group exclusive of the
identified FPF/TLP Exploitation
Prospects. Such alternative
Exploration and Development Costs
level (the "alternative E & D Costs
level") shall be determined as
follows:
The alternative E & D Costs level shall
be the sum of:
(i) One-half of Company's estimate
of Exploration and Development
Costs incurred or to be
incurred by Company Group
through the end of the
respective primary development
periods in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal year,
plus
(ii) $70 million.
The Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects (both before and after
Payout) may, in Company's sole
discretion, be reduced by the
greater of (x) the "Permitted
Reduction" percentage set forth in
the table above in this paragraph
for the actual "Total E & D Costs
Level" for such fiscal year and (y)
the "Permitted Reduction" percentage
set forth in the table above that
would be applicable if the "Total E
& D Costs Level" for such fiscal
year were equal to such "alternative
E & D Costs level".
If the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after
Payout, respectively) of such
Overriding Royalty Interest set
forth in paragraph 9.2. Further, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploitation
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths,
Employment Agreement--Robert E. Henderson
-31-
<PAGE> 32
Company may, in its sole discretion,
further reduce such Overriding
Royalty Interest set forth in
paragraph 9.2 with respect to such
FPF/TLP Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploitation Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(b) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploitation Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such Subsea Tieback
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such Subsea Tieback Exploitation
Prospect, would equal the Overriding
Royalty Interest percentage (before
and after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(c) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding
Royalty Interest set forth in
paragraph 9.2. Further, if the
Overriding Royalty
Employment Agreement--Robert E. Henderson
-32-
<PAGE> 33
Interest set forth in paragraph 9.2
with respect to any such FPF/TLP
Exploration Prospect, when reduced
to such two-thirds level pursuant to
the foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such FPF/TLP
Exploration Prospect to a percentage
(before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploration Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(d) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploration Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths, Company may, in its sole
discretion, further reduce such
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploration
Prospect to a percentage (before and
after Payout, respectively) that,
when multiplied times Company's
Working Interest in such Subsea
Tieback Exploration Prospect, would
equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.3 With respect to any Major Prospect, Company may in
its sole discretion elect to adjust the Overriding
Royalty Interest set forth in paragraph 9.2,
effective as of the date of Company's acquisition of
such Major Prospect, as follows:
Employment Agreement--Robert E. Henderson
-33-
<PAGE> 34
Employee's before-Payout interest shall be reduced
by the following formula:
<TABLE>
<S> <C>
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
-
Y
</TABLE>
where "X" equals the total amount estimated by
Company for Exploration and Development Costs to be
incurred by Company Group in respect of such Major
Prospect through the end of the primary development
period for the field comprising such Major Prospect
(which period, solely for purposes of such adjustment
calculation, shall not exceed five (5) years), and
where "Y" equals $30 million.
Employee's after-Payout interest shall be increased
by adding thereto the full amount of the percentage
interest so deducted from Employee's before-Payout
interest until 2.5 times Payout is reached, at which
time Employee's after-Payout interest shall be
reduced by subtracting therefrom the same percentage
interest that was previously added thereto pursuant
to this sentence.
Such election may be made by Company whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been reduced pursuant to
paragraph 9.5.2. In the case of any such prior
reduction pursuant to paragraph 9.5.2, the term
"original before-Payout interest" as used above in
this paragraph shall refer to Employee's
before-Payout interest as previously reduced pursuant
to paragraph 9.5.2.
9.5.4 Notwithstanding anything contained herein to the
contrary, after an assignment is delivered to
Employee with respect to a Prospect pursuant to
paragraph 9.4, Company or its assigns may no longer
reduce or modify Employee's Overriding Royalty
Interest on any well in such Prospect without written
consent of Employee, except pursuant to paragraphs
9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3 in the
case only of assignments other than those delivered
pursuant to paragraphs 9.4.8(a), 9.4.8(b) and 9.4.9.
Employment Agreement--Robert E. Henderson
-34-
<PAGE> 35
9.5.5 In no event may any party other than Company reduce
or modify Employee's Overriding Royalty Interest
without written consent of Employee.
9.5.6 Company shall give Employee written notice of any
adjustment made to Employee's Overriding Royalty
Interest pursuant to the provisions of paragraphs
9.5.1(b), 9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and
9.5.3 within one hundred twenty (120) days following
such adjustment.
9.5.7 Upon request by Company, Employee shall execute and
deliver to Company such reassignments, transfer
orders, division orders, releases and other documents
deemed by Company to be necessary or appropriate to
evidence any modification, reduction or other
adjustment pursuant to this paragraph 9.5.
9.6 Company's Preferential Right to Purchase.
If at any time during the term or extended term of this
Agreement, or if within one (1) year from the expiration of
this Agreement, Employee receives and desires to accept an
offer for the purchase of a part or all of Employee's
Overriding Royalty Interest assigned pursuant to this
paragraph 9 (the portion or all of such Overriding Royalty
Interest covered by such offer to purchase being herein
sometimes called the "Offered Interest"), from a prospective
third party purchaser who is ready, willing and able to
purchase the same, then Employee shall have the right to sell
such Offered Interest, but only after complying with the
following terms and provisions:
9.6.1 The offer shall first be reduced to writing and
signed by Employee and the offeror. Employee shall
give Company written notice of his receipt of, and
his desire to accept, such written offer, together
with a copy of such written offer signed by the
prospective third party purchaser and containing all
of the terms and conditions of such offer. The date
such written notice is given to Company is herein
sometimes called the "Original Date."
9.6.2 Company shall thereafter have an option to purchase
the Offered Interest upon the same terms set forth in
said offer, which option may be exercised by written
notice thereof given to Employee within ten (10) days
after the Original Date.
9.6.3 If the Offered Interest is not purchased by Company
pursuant to the foregoing provisions of this
paragraph, then Employee shall have the right to sell
the Offered Interest to the prospective third party
purchaser named in such offer, provided that such
sale is consummated within thirty (30) days from the
expiration date of
Employment Agreement--Robert E. Henderson
-35-
<PAGE> 36
the option of Company created hereby and provided
that such sale is made in strict conformity with the
terms of such offer.
9.6.4 If, however, such sale of the Offered Interest does
not occur within such thirty-day period for the price
and upon the terms set forth in such offer, then any
sale of part or all of such Offered Interest
thereafter shall again be subject to the option to
purchase granted to Company under this paragraph 9.6.
9.6.5 If Employee elects to take title to an Overriding
Royalty Interest in a legal entity other than himself
(which he may do only with Company's consent), such
entity shall take title subject to all of the terms
and conditions of this Agreement.
9.7 Additional Provisions Affecting Overriding Royalty
Interest.
In addition to the other provisions of this
paragraph 9, Employee's Overriding Royalty Interest
shall be subject to the following:
9.7.1 Notwithstanding anything to the contrary contained
herein, Employee shall not have the right to take in
kind or separately dispose of the production of oil
and gas attributable to his Overriding Royalty
Interest.
9.7.2 Employee's Overriding Royalty Interest shall also
apply to the production of oil and gas under the
terms and provisions of any renewal, extension or new
lease, to the extent such renewal, extension or new
lease covers all or any portion of any lands covered
by the expired lease which was subject to Employee's
Overriding Royalty Interest or is within the Prospect
plat, and provided, however, that any such renewal,
extension or new lease shall have been acquired by or
for the benefit of Company, either prior to or within
one (1) year after the expiration of the expired
lease.
9.7.3 Except as otherwise provided in this paragraph 9, in
no event shall Employee ever be liable or responsible
in any way for payment of any part of any
exploration, drilling or production costs or
liabilities incurred by Company or its assigns or
other lessees attributable to the lease or leases in
a Prospect or to the production therefrom, it being
the intent of the parties that Employee's Overriding
Royalty Interest shall constitute a non-participating
royalty interest for all purposes.
9.7.4 Company will conduct and carry on the development,
maintenance and operation of any lease subject to
Employee's Overriding Royalty Interest in a manner
which it deems in its sole judgment
Employment Agreement--Robert E. Henderson
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to be reasonable and prudent and in accordance with
good oil and gas field practices, and it will drill
such wells as it deems proper in its sole judgment
from time to time in order to protect such lease from
drainage; provided, however, (a) nothing herein
contained shall obligate Company to conduct any
drilling operations whatsoever upon such lease, or to
continue to operate any well or to operate or
maintain in force or attempt to maintain in force
such lease by payment of delay rentals, compensatory
royalties or other payments or by the drilling of any
wells upon said lease, or in any other manner, and
the extent and duration of all operations, as well as
the preservation of each of such leases by delay
rental payments or otherwise, shall be solely at the
will of Company, and (b) Company shall have the right
at any time to surrender, abandon or otherwise
terminate any such lease in whole or in part without
liability to Employee.
9.7.5 Company shall have the right to sell all production
attributable to Employee's Overriding Royalty
Interest on the same basis upon which the production
attributable to Company's interest in the same
production is sold, and shall account to Employee on
that basis. In no event shall Employee be entitled
to receive payments for production attributable to
his Overriding Royalty Interest calculated on a basis
higher than that upon which Company's interest in the
same production is calculated or computed on a higher
price than that payable to Company on account of
production attributable to its interest, and in no
event shall Employee be entitled to receive payments
on amounts suspended by purchasers of the production
pending determination of the authorized price by
governmental entities. However, if Company sells any
such production to an affiliate of Company, the price
therefor shall not be less than would have been
reasonably obtainable in a sale to a non-affiliated
purchaser.
9.7.6 There shall be deducted from the production, before
Employee's Overriding Royalty Interest is computed,
any production lost in the production from the
leases, or any lands pooled therewith, or used for
drilling, operating, development or production or in
plant operations (including gas injection, secondary
recovery, pressure maintenance, repressuring, cycling
operations, plant fuel or shrinkage) conducted for
the purpose of producing or processing production
from lands covered by the leases or from any lands
pooled with the leases.
9.7.7 Company shall have the right and option, but not the
obligation, to process gas produced and saved from
the leases. If Company elects to process or have
processed, such gas in a gas processing plant or
other facility, whether or not owned by Company, then
in such
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event Employee shall be paid his percentage share
provided for herein of the proceeds of sale of all
gasoline or other liquid hydrocarbons or other
products manufactured or extracted from such gas as a
result of such processing (collectively, the
"Products"), less the costs of extraction or
manufacture (which may consist of a portion of the
Products). Company shall also pay to Employee the
same percentage share of the proceeds of sale of all
residue gas sold by Company, less expenses incurred
by Company in transporting any such gas to point of
delivery and for dehydration and/or compression of
gas at or prior to such delivery and other expenses
and fees typically borne by royalty owners (excluding
expenses or fees for capital projects funded by
Company to the extent such expenses or fees have been
included in the Payout calculation for the well from
which such gas is produced).
9.7.8 Employee's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing
and transporting production from the leases or from
any lands pooled therewith which are typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such production
is produced).
9.7.9 Employee's Overriding Royalty Interest shall also
bear its share of all ad valorem, production,
severance, sales, gathering and other taxes typically
borne by royalty owners (whether state, federal or
otherwise) assessed or levied on or in connection
with the Overriding Royalty Interest or the
production from the leases.
9.7.10 Company or its assigns shall have the right and
power, without any approval by Employee, to pool or
unitize any lease which is subject to Employee's
Overriding Royalty Interest, and to alter, change,
amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as
to all or any part of a Prospect, as to any one or
more of the formations or horizons thereunder, upon
such terms and provisions as Company shall in its
sole discretion determine. If and whenever through
the exercise of such right and power, or pursuant to
any law now existing or hereafter enacted, or any
rule, regulation or order of any governmental body
now or hereafter promulgated, any of the leases of
Company are pooled or unitized in any manner,
Employee's Overriding Royalty Interest shall also be
pooled and unitized, and in such event Employee's
Overriding Royalty shall only be paid on that portion
of the production from the unit or units so pooled,
which is attributable to said leases under and by
virtue of the pooling and unitization.
Employment Agreement--Robert E. Henderson
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9.7.11 Company may withhold payment to Employee of any funds
attributable to Employee's Overriding Royalty
Interest which Company, in its sole discretion, deems
to be subject to a risk of refund or recoupment
pursuant to any rule, regulation or order of any
governmental authority or any adverse claims by third
parties. During such suspense period, Employee shall
not be entitled to interest on sums so withheld.
9.7.12 In the event Company's Working Interest in any lease
in which Employee is entitled to an Overriding
Royalty Interest covers less than all of the full and
entire undivided interest in and to the land
described therein, and in and to all the oil and gas
rights relating thereto, then in that event the
Overriding Royalty Interest as to that portion of the
leased premises in which Company's Working Interest
in such lease does not cover such full and entire
undivided interest shall be reduced proportionately
(i.e., in the proportion that the undivided interest
in and to said land and oil and gas rights covered by
such lease bears to such full and entire undivided
interest).
9.7.13 Notwithstanding anything contained in this paragraph
9 to the contrary, Employee's Overriding Royalty
Interest in any Net Profit Share Lease ("NPSL") shall
be reduced at the same time and in the same
percentage as Company's net revenue interest in said
NPSL is reduced pursuant to the provisions of said
NPSL.
9.7.14 Company and Employee further undertake and agree
promptly to execute and deliver, upon request of
either party, all assignments, reassignments,
transfer orders, division orders, releases and any
other documents as may be necessary to implement this
paragraph 9 or otherwise to more fully assure to each
party the rights and interests of such party provided
for in this paragraph 9.
10. Insurance.
10.1 Employee shall be eligible for participation in such
insurance programs as Company shall institute from
time to time covering medical and dental expenses and
such life and accidental death and dismemberment
insurance programs as Company shall institute from
time to time. Payment of premiums for such coverages
shall be in accordance with Company policy covering
all employees as may be established from time to time
by Company. Employee shall also be eligible for
participation in such retirement, pension, deferred
compensation and other benefit programs the Company
shall initiate from time to time.
Employment Agreement--Robert E. Henderson
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10.2 Employee currently owns a life insurance policy under
the Split Dollar Agreement (the "SDLA") dated April
1, 1984, between Company and Employee.
10.3 The SDLA is restated and reaffirmed by Company and
Employee in paragraphs 10.2 through 10.16 of this
Agreement. Employee owns the policy acquired
pursuant to the terms of the SDLA and he may exercise
all the rights of ownership with respect to the
policy except as otherwise hereinafter provided.
10.4 Employee has designated the person or persons as
beneficiary or beneficiaries to receive any proceeds
payable under the policy on Employee's life in excess
of the amount of the proceeds payable to Company
under paragraph 10.12 of this Agreement. The
settlement option to be selected by Employee as set
forth in the policy shall be in writing.
10.5 All dividends declared by Philadelphia Life Insurance
Company on the policy on Employee's life acquired
pursuant to the terms of the SDLA shall be applied
first to reducing any outstanding loans against the
contract, and secondly to purchase additional paid-up
insurance on the life of Employee.
10.6 The premiums for the insurance policy on the life of
Employee will be paid by Company and the cost to be
charged to Employee will be either the PS 58 table
cost, or the cost of Philadelphia Life Insurance
Company's yearly renewable term insurance, whichever
is less.
10.7 Employee may add a rider to the policy on Employee's
life acquired pursuant to the terms of the SDLA for
his own benefit. Upon written request made by
Company, Employee may add a rider to the policy for
the benefit of Company. Any additional premium for
any rider which is added to the policy shall be paid
by the party which will be entitled to receive the
proceeds of the rider.
10.8 Nothing in the SDLA Agreement shall restrict Employee
from making additional premium payments (over and
above those payments which are to be made by Company
pursuant to this Agreement), or changing the death
benefit from time to time as contemplated under the
terms of the policy; provided, however, that Company
shall only be entitled to the amounts set forth in
paragraphs 10.12 or 10.16, as the case may be, upon
Employee's death or upon termination of this
Agreement, and any additional benefits attributable
to voluntary premium payments by Employee shall be
for his account only.
Employment Agreement--Robert E. Henderson
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10.9 Company shall have the right to obtain loans on the
policy on Employee's life acquired pursuant to the
terms of this Agreement. The amount of such loans
together with the interest thereon shall at no time
exceed the amount of the proceeds payable to Company
under paragraph 10.12 of this Agreement. All
interest charges with respect to any such loans shall
be paid by Company.
10.10 Employee shall have the right to obtain loans on the
policy on Employee's life acquired pursuant to the
terms of the SDLA Agreement. The amount of such
loans, together with the interest thereon, shall at
no time exceed the difference between the cash value
of the policy and the amount of the proceeds payable
to Company under paragraph 10.12 of this Agreement.
All interest charges with respect to any such loans
shall be paid by the Employee.
10.11 Except as otherwise herein provided, Employee agrees
that while this Agreement remains in force and effect
he will not, without Company's consent, transfer,
assign or terminate the policy on Employee's life
acquired pursuant to the terms of this Agreement.
10.12 When Employee dies, Company shall be entitled to
receive a portion of the death benefits provided
under the policy on Employee's life acquired pursuant
to the terms of this Agreement, such portion being
equal to its contributions toward payment of premiums
on the policy pursuant to paragraph 10.6 of this
Agreement, less the amount of any indebtedness which
may exist against the policy and any interest due on
such indebtedness pursuant to paragraph 10.9, and
less any amounts forgiven under paragraph 10.14.
10.13 When Employee dies, the named beneficiary or
beneficiaries shall be entitled to receive the amount
of the death benefits provided under the policy on
Employee's life, to the extent such death benefits
are in excess of the amount payable to Company under
paragraph 10.12. The death benefits shall be paid in
accordance with the settlement option selected by
written notice of Employee to Philadelphia Life
Insurance Company.
10.14 Upon completion by Employee of four year's service
with Company, Company will forgive the premiums paid
during the first year of the SDLA. Each year
thereafter Company shall forgive an additional year's
premium payment until all premiums paid by Company
have been forgiven.
Employment Agreement--Robert E. Henderson
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<PAGE> 42
10.15 This restated SDLA Agreement shall terminate on the
occurrence of any of the following events:
10.15.1 Cessation of Company's doing business;
10.15.2 Written notice given by either party to the
other;
10.15.3 Termination of employment of Employee with
Company;
10.15.4 Bankruptcy, receivership or dissolution of
Company;
10.15.5 Failure of the Employee for any reason to
make the contribution required by paragraphs
10.7 and 10.8 of this Agreement in payment of
any premium due on the policy of Employee's
life; provided that any election to terminate
under this clause must be made within ninety
(90) days after the failure to make a
required contribution.
10.16 If this restated SDLA Agreement is terminated under
paragraph 10.15, Employee shall have thirty (30) days
in which to pay Company any unforgiven amount which
it has contributed toward payment of the premiums due
on the policy acquired pursuant to the terms of this
restated SDLA Agreement. Upon payment of this
amount, Company shall release the assignment of the
policy on Employee's life. If the policy is
encumbered by a policy loan in favor of Company at
the time the assignment of the policy loan is
released by Company, Company shall either remove the
encumbrance or reduce the price to be paid by
Employee for the policy by the amount of the
indebtedness.
10.17 The Philadelphia Life Insurance Company:
10.17.1 shall not be deemed to be a party to this
restated SDLA for any purpose, and shall in
no way be responsible for its validity;
10.17.2 shall not be obligated to inquire as to the
distribution of any monies payable or paid by
it under the policy on the life of Employee
acquired pursuant to the terms of this SDLA;
and
10.17.3 shall be fully discharged from any and all
liability under the terms of any policy
issued by it which is subject to the terms of
this SDLA upon payment or
Employment Agreement--Robert E. Henderson
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other performance of its obligations in
accordance with the terms of such policy.
11. Outside Activities.
During the term or extended term of this Agreement, Employee
shall devote all of his working time, energy and talents to
the due discharge and performance of his duties hereunder, at
the direction and subject to the control of Company, and shall
perform such services and duties as shall reasonably be
required from him from time to time by Company. Employee
agrees that he will not knowingly become involved in a
conflict of interest with Company or its subsidiaries, or upon
discovery thereof, allow such a conflict to continue.
Moreover, Employee agrees to provide Company a statement of
all other directorships Employee holds, with a brief
description of the business activities of each organization.
This statement shall be provided on or before December 31 of
each year. If, in the opinion of Company, a conflict of
interest exists between Company (and its affiliates) and the
organization in which the Employee holds a directorship,
Company can require Employee to resign the outside
directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed to
limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of the
issued and outstanding and publicly traded (on a recognized
national or regional securities exchange or in the
over-the-counter market) capital stock or other securities of
any corporation or other entity that conducts activities that
compete with the business of Company or any affiliate of
Company; or (ii) to invest, individually or with others, in
oil and gas prospects, subject, however, in the case of oil
and gas prospects to the following conditions:
12.1 Company must have first had the right and opportunity
to purchase all of the interest in any prospect made
available to Employee, even if this would preclude
Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made
available to Employee and have no desire to acquire
an additional interest, or declined to participate at
all in the prospect. If Company elects to
participate in less than the full interest made
available to Employee, Employee may invest in the
portion of such interest not acquired by Company.
Employment Agreement--Robert E. Henderson
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12.3 Employee must purchase his interest in the oil and
gas prospect on terms which are no more favorable
than those made available to Company.
13. Disability During Employment.
If Employee shall become unable to perform his duties by
reason of disability, he shall be entitled to receive, in
addition to any insurance benefits he may receive, all of his
salary for the first one (1) month of his disability, and
one-half (1/2) of his salary for the next three (3) months of
disability. Periods of disability shall not be cumulative so
long as they are separated by at least ninety (90) days of
continuous service.
The term "disability" shall mean disability which, in the
opinion of a doctor satisfactory to Company, renders Employee
unable to perform his duties hereunder as evidenced by such
doctor's certificate. The date disability commences shall be
the date Employee first absents himself from work during a
continuous period of disability.
14. Merger or Acquisition.
In the event Company should be acquired by or merged into
another company, by signature of Company's authorized
representatives, Company hereby agrees that this Employment
Agreement shall be binding upon Company, its successors and
assigns, and shall be disclosed to any party considering
merger with, or acquisition of, Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this
Agreement and the dispute cannot be settled through
direct discussions, Company and Employee agree that
they shall first endeavor to settle the dispute in an
amicable fashion. If such efforts fail to resolve
the dispute, the dispute shall, except as otherwise
provided in paragraph 19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2 below,
any and all claims, demands, cause of action,
disputes, controversies, and other matters in
question arising out of or relating to this
Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, even though some or all of
such claims allegedly are extracontractual in
nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal
Employment Agreement--Robert E. Henderson
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<PAGE> 45
law, whether provided by statute or the
common law, for damages or any other relief,
shall be resolved by binding arbitration
pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration
Rules then in effect with the American
Arbitration Association (the "AAA"). The
arbitration proceeding shall be conducted in
Houston, Texas. The arbitration may be
initiated by either party by providing to the
other a written notice of arbitration
specifying the claims, and the parties shall
thereafter endeavor to agree on an
arbitrator. If within thirty (30) days of
the notice of initiation of the arbitration
procedure, the parties are unable to agree on
an arbitrator, the party requesting
arbitration shall file a request with the AAA
that the Houston, Texas office of the AAA
provide a list of potential arbitrators to
both parties. The parties shall thereafter
have sixty (60) days to select an arbitrator
from such list, with such selection to be by
mutual agreement. If the parties fail to
select an arbitrator within such time by
mutual agreement, then either party may
request that the Chief Judge of the U.S.
District Court for the Southern District of
Texas appoint an arbitrator, and any such
appointment shall be binding. The
arbitrator, utilizing the Commercial
Arbitration Rules of the American Arbitration
Association, shall within 120 days of his or
her selection, resolve all disputes between
the parties. There shall be no transcript of
the hearings before the arbitrator. The
arbitrator's decision shall be in writing,
but shall be as brief as possible. The
arbitrator shall not assign the reasons for
his or her decision. The arbitrator's
decision shall be final and non-appealable to
the maximum extent permitted by law.
Judgment upon any award rendered in any such
arbitration proceeding may be entered by any
federal or state court having jurisdiction.
This agreement to arbitrate shall be
enforceable in either federal or state court.
The enforcement of this agreement to
arbitrate and all procedural aspects of this
agreement to arbitrate, including but not
limited to, the construction and
interpretation of this agreement to
arbitrate, the issues subject to arbitration
(i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver,
delay or defenses to arbitrability, and the
rules governing the conduct of the
arbitration, shall be governed by and
construed
Employment Agreement--Robert E. Henderson
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<PAGE> 46
pursuant to the Federal Arbitration Act and
shall be decided by the arbitrator. In
deciding the substance of any such claims,
the arbitrator shall apply the substantive
laws of the State of Texas (excluding Texas
choice-of-law principles that might call for
the application of some other State's law);
provided, however, it is expressly agreed
that the arbitrator shall have no authority
to award treble, exemplary, or punitive
damages under any circumstances regardless of
whether such damages may be available under
Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary,
or punitive damages in connection with any
such claims.
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the
event that either party wishes to seek a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief in connection with any or all such
claims, demands, cause of action, disputes,
controversies, and other matters in question
arising out of or relating to this Agreement,
any provision hereof, the alleged breach
thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, including disputes arising
out of a breach or alleged breach of
paragraph 4 or 16, even though some or all of
such claims allegedly are extra-contractual
in nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, each party shall
have the right to pursue such injunctive
relief in court, rather than by arbitration.
The parties agree that such action for a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief will be brought in the State or
federal courts residing in Houston, Harris
County, Texas.
15.2 The Company shall pay all costs and expenses of
Company and Employee (including, but not limited to,
attorneys' fees, the fees of the arbitrator and the
AAA and any other related costs) for any arbitration
proceeding or legal action; provided, however, that
if in any such arbitration proceeding or legal
action, the arbitrator or court, respectively,
determines that Employee has prosecuted or defended
any issue in such proceeding or action in bad faith,
the
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arbitrator or court, respectively, may allocate the
portion of such costs and expenses relating to such
issue between the parties in any other manner deemed
fair, equitable and reasonable by the arbitrator or
court, respectively.
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation and
benefits to be paid to Employee hereunder, and as an
additional incentive for Company to enter into this
Agreement, Company and Employee agree to the
non-competition obligations hereunder. Employee will
not, directly or indirectly for Employee or for
others:
16.1.1 in any geographic area or market where
Company or any of its subsidiaries are
conducting any business as of the date of
termination of the employment relationship or
have during the previous twelve months
conducted such business, engage in any
business competitive with any such business;
or
16.1.2 in any geographic area or market where
Employee knew Company contemplated entering
any business as of the date of termination of
the employment relationship, but only if
Company had, as of such date, invested
significant resources toward entering into
such business in such geographic area or
market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise
assist, any other person, association, or
entity who is engaged, directly or
indirectly, in any business competitive with
Company's business within the parameters
described in paragraphs 16.1.1 and 16.1.2
above with respect to such competitive
business; or
16.1.4 induce any employee of Company or any of its
subsidiaries to terminate his or her
employment with Company or its subsidiaries,
or hire or assist in the hiring of any such
employee by any person, association, or
entity not affiliated with Company.
These non-competition obligations shall commence upon
the date of execution of this Agreement and extend
until the earlier of (a) the expiration of the term
of this Agreement (or any extended term) or (b)
twelve (12) months after termination of the
employment relationship; provided, however, that
notwithstanding
Employment Agreement--Robert E. Henderson
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anything contained in this paragraph 16 to the
contrary, such obligations shall only apply after the
termination of employment if the termination of
employment results from termination for Cause by
Company under paragraph 3.5 or voluntary termination
without Good Reason by Employee (it being understood
and agreed that termination of this Agreement by
Employee under paragraph 3.1 shall not, for purposes
of this paragraph 16, constitute voluntary
termination without Good Reason by Employee).
16.2 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
businesses anywhere in the world during the period
provided for above, but acknowledges that Employee
will receive sufficiently high renumeration and other
benefits under this Agreement to justify such
restriction. Employee acknowledges that money
damages would not be sufficient remedy for any breach
of this Article by Employee, and Company shall be
entitled to enforce the provisions of this Agreement
and/or to specific performances and injunctive relief
as remedies for such breach or any threatened breach.
Such remedies shall not be deemed the exclusive
remedies for a breach of this Article, but shall be
in addition to all remedies available at law or in
equity to Company, including, without limitation, the
recovery of damages from Employee and Employee's
agents involved in such breach and remedies available
to Company pursuant to other agreements with
Employee.
16.3 It is expressly understood and agreed that Company
and Employee consider the restrictions contained in
this paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States
Foreign Corrupt Practices Act, generally codified in 15 USC 78
(FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo
contendere or admits civil or criminal liability under the
FCPA, or if a court finds that Employee committed an action
resulting in any Company entity having civil or criminal
liability or responsibility under the FCPA with knowledge of
the activities giving rise to such liability or knowledge of
facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred
Employment Agreement--Robert E. Henderson
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or were likely to occur, such action or finding shall
constitute Cause for termination by Company under paragraph
3.5 of this Agreement unless Company's Board of Directors
determines that the actions found to be in violation of the
FCPA were taken in good faith and in compliance with all
applicable policies of Company.
18. Survival.
The provisions of paragraphs 4 and 16 shall survive any
termination of the employment relationship and/or of this
Agreement for the periods stated therein. The provisions of
paragraph 15 relating to arbitration shall survive any
termination of the employment relationship between Employee
and Company and the termination of this Agreement. Amounts,
compensation, rights and benefits which Employee is entitled
to receive or have accrued to Employee under this Agreement or
under any plan, program, arrangement, agreement or policy of
or with Company or any of its affiliates before, at or
subsequent to the termination of the employment relationship
between Employee and Company or the termination of this
Agreement shall not be superseded and shall survive any such
termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by Company or any of
its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions
being individually referred to herein as a "Payment,"
and any two or more of such payments or distributions
being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax,
and any interest in respect of such penalties,
additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"),
then Employee shall be entitled to receive an
additional payment or payments (individually referred
to herein as a "Gross-Up Payment" and any two or more
of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in
paragraph 19.11) imposed upon the Gross-Up Payment,
Employee retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
Employment Agreement--Robert E. Henderson
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19.2 Subject to the provisions of paragraph 19.3 through
19.11, any determination (individually, a
"Determination") required to be made under this
paragraph 19, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment,
shall initially be made, at Company's expense, by
nationally recognized tax counsel mutually acceptable
to Company and Employee ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities,
calculations, and documentation both to Company and
Employee within 15 business days of the termination
of Employee's employment, if applicable, or such
other time or times as is reasonably requested by
Company or Employee. If Tax Counsel makes the
initial Determination that no Excise Tax is payable
by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably
acceptable to Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any
Determination (a "Dispute") within 15 business days
after delivery of Tax Counsel's opinion with respect
to such Determination. The Gross-Up Payment, if any,
as determined pursuant to such Determination shall be
paid by Company to Employee within five business days
of Employee's receipt of such Determination. The
existence of a Dispute shall not in any way affect
Employee's right to receive the Gross-Up Payment in
accordance with such Determination. If there is no
Dispute, such Determination shall be binding, final
and conclusive upon Company and Employee, subject in
all respects, however, to the provisions of paragraph
19.3 through 19.11 below. As a result of the
uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have
been made by Company should have been made
("Underpayment"), and if upon any reasonable written
request from Employee or Company to Tax Counsel, or
upon Tax Counsel's own initiative, Tax Counsel, at
Company's expense, thereafter determines that
Employee is required to make a payment of any Excise
Tax or any additional Excise Tax, as the case may be,
Tax Counsel shall, at Company's expense, determine
the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by
Company to Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from
and against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of Employee resulting from any Final
Determination (as defined in paragraph 19.10) that
any Payment is subject to the Excise Tax.
Employment Agreement--Robert E. Henderson
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19.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a claim
by Employee against Company under this paragraph 19
("Claim"), including, but not limited to, a claim for
indemnification of Employee by Company under
paragraph 19.3, then such party shall promptly notify
the other party hereto in writing of such Claim ("Tax
Claim Notice").
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken
such action in connection with contesting such
Employee Claim as Company shall reasonably request in
writing from time to time, including the retention of
counsel and experts as are reasonably designated by
Company (it being understood and agreed by the
parties hereto that the terms of any such retention
shall expressly provide that Company shall be solely
responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and
the execution of powers of attorney, provided that:
19.5.1 within 30 calendar days after Company
receives or delivers, as the case may be, the
Tax Claim Notice relating to such Employee
Claim (or such earlier date that any payment
of the taxes claimed is due from Employee,
but in no event sooner than five calendar
days after Company receives or delivers such
Tax Claim Notice), Company shall have
notified Employee in writing ("Election
Notice") that Company does not dispute its
obligations (including, but not limited to,
its indemnity obligations) under this
Agreement and that Company elects to contest,
and to control the defense or prosecution of,
such Employee Claim at Company's sole risk
and sole cost and expense; and
19.5.2 Company shall have advanced to Employee on an
interest-free basis, the total amount of the
tax claimed in order for Employee, at
Company's request, to pay or cause to be paid
the tax claimed, file a claim for refund of
such tax and, subject to the provisions of
the last sentence of paragraph 19.7, sue for
a refund of such tax if such claim for refund
is disallowed by the appropriate taxing
authority (it being understood and agreed by
the parties hereto that Company shall only be
entitled to sue for a refund and Company
shall not be entitled to initiate any
proceeding in, for example, United States Tax
Employment Agreement--Robert E. Henderson
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Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to
such advance or with respect to any imputed
income with respect to such advance; and
19.5.3 Company shall reimburse Employee for any and
all costs and expenses resulting from any
such request by Company and shall indemnify
and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute,
at the sole cost, expense and risk of Company, such
Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by Company to a Final Determination;
provided, however, that (i) Company shall not,
without Employee's prior written consent, enter into
any compromise or settlement of such Employee Claim
that would adversely affect Employee, (ii) any
request from Company to Employee regarding any
extension of the statute of limitations relating to
assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the
contested issues involved in, and amount of, the
Employee Claim relate is limited solely to such
contested issues and amount, and (iii) Company's
control of any contest or proceeding shall be limited
to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue
raised by the Internal Revenue Service or any other
taxing authority. So long as Company is diligently
defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to
Company any information reasonably requested by
Company that relates to such Employee Claim, and
shall otherwise cooperate with Company and its
representatives in good faith in order to contest
effectively such Employee Claim. Company shall keep
Employee informed of all developments and events
relating to any such Employee Claim (including,
without limitation, providing to Employee copies of
all written materials pertaining to any such Employee
Claim), and Employee or his authorized
representatives shall be entitled, at Employee's
expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of
a tax claimed (pursuant to an Employee Claim) that
has been advanced by Company pursuant to paragraph
19.5.2 hereof, the extent of the liability of Company
hereunder with respect to such tax claimed
Employment Agreement--Robert E. Henderson
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<PAGE> 53
has been established by a Final Determination,
Employee shall promptly pay or cause to be paid to
Company any refund actually received by, or actually
credited to, Employee with respect to such tax
(together with any interest paid or credited thereon
by the taxing authority and any recovery of legal
fees from such taxing authority related thereto),
except to the extent that any amounts are then due
and payable by Company to Employee, whether under the
provisions of this Agreement or otherwise. If, after
the receipt by Employee of an amount advanced by
Company pursuant to paragraph 19.5.2, a determination
is made by the Internal Revenue Service or other
appropriate taxing authority that Employee shall not
be entitled to any refund with respect to such tax
claimed and Company does not notify Employee in
writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof,
the amount of any Gross-Up Payments and other
payments required to be paid hereunder.
19.8 With respect to any Employee Claim, if Company fails
to deliver an Election Notice to Employee within the
period provided in paragraph 19.5.1 hereof or, after
delivery of such Election Notice, Company fails to
comply with the provisions of paragraph 19.5.2,
19.5.3 or 19.6 hereof, then Employee shall at any
time thereafter have the right (but not the
obligation), at his election and in his sole and
absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such Employee
Claim. Employee shall have full control of such
defense or prosecution and such proceedings,
including any settlement or compromise thereof. If
requested by Employee, Company shall cooperate, and
shall cause its affiliates to cooperate, in good
faith with Employee and his authorized
representatives in order to contest effectively such
Employee Claim. Company may attend, but not
participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph
19.8 and shall bear its own costs and expenses with
respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from
Company with respect to costs and expenses incurred
by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the
terms of this paragraph 19.9, Company shall pay, on a
fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such
Employment Agreement--Robert E. Henderson
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<PAGE> 54
Employee Claim that have not theretofore been paid by
Company to Employee, together with the costs and
expenses, on a fully grossed-up after tax basis,
incurred in connection therewith that have not
theretofore been paid by Company to Employee, within
ten calendar days after such Final Determination. In
the case of any Employee Claim not covered by the
preceding sentence, Company shall pay, on a fully
grossed-up after tax basis, to Employee in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such Employee Claim at least ten
calendar days before the date payment of such taxes
is due from Employee, except where payment of such
taxes is sooner required under the provisions of this
paragraph 19.9, in which case payment of such taxes
(and payment, on a fully grossed-up after tax basis,
of any costs and expenses required to be paid under
this paragraph 19.9 shall be made within the time and
in the manner otherwise provided in this paragraph
19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim for
refund or credit in respect to an overpayment of tax
unless a suit is filed on a timely basis; or (D) any
final disposition by reason of the expiration of all
applicable statutes of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes), together
with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee
pursuant to this Agreement, whether by seeking other
employment or otherwise; nor shall the amount of any such
payment or other benefit be reduced on account of any
compensation earned by Employee as a result of employment by
another person or entity.
Employment Agreement--Robert E. Henderson
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<PAGE> 55
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended
except in writing and signed by Company and Employee.
This Agreement shall be binding upon the heirs,
administrators, or executors and the successors and
assigns of each party to this Agreement.
21.2 The rights and benefits of Employee under the
Agreement are personal to him and shall not be
assigned or transferred without the prior written
consent of Company. Subject to the foregoing, this
Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
heirs, personal representatives, successors and
assigns.
21.3 All titles or headings of sections or paragraphs or
other divisions of this Agreement are only for the
convenience of the parties and shall not be construed
to have any effect or meaning with respect to the
other content of such sections or paragraphs or other
divisions, such content being controlling as to the
agreement between the parties hereto.
21.4 This Agreement is made and will be performed under,
and shall be governed by and construed in accordance
with, the law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO THIS
AGREEMENT THAT HE HAS READ THIS AGREEMENT BEFORE
SIGNING IT AND THAT HE FULLY UNDERSTANDS ITS
PURPOSES, TERMS AND PROVISIONS, WHICH HE HEREBY
EXPRESSLY ACKNOWLEDGED TO BE REASONABLE IN ALL
RESPECTS. EMPLOYEE FURTHER ACKNOWLEDGES RECEIPT OF
ONE COPY OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
580 Westlake Boulevard, Suite 1300
Houston, Texas 77079
Attention: General Counsel
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<PAGE> 56
If to Employee:
Robert E. Henderson
13419 Tosca
Houston, Texas 77079
Company and Employee may change the above addresses
for notice purposes by notifying the other in
writing.
21.7 The Company may withhold from any amounts payable
under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21.8 Except as otherwise expressly provided herein,
nothing contained in this Agreement shall limit or
otherwise affect any rights or benefits which are
vested in, accrued to, or earned by Employee, or for
which Employee is entitled to, prior to the Effective
Date whether under the Employment Agreement or
otherwise.
21.9 ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL
AGREEMENT DATED EFFECTIVE AS OF FEBRUARY 12, 1996,
BETWEEN COMPANY AND EMPLOYEE SHALL TERMINATE AND BE
FROM THE EFFECTIVE DATE NULL, VOID AND OF NO FURTHER
FORCE OR EFFECT WHATSOEVER.
Employment Agreement--Robert E. Henderson
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<PAGE> 57
Executed as of the Effective Date in duplicate originals at Houston,
Texas.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ JAMES M. FITZPATICK
---------------------------------------
Printed Name: James M. Fitzpatick
-------------------------------
Printed Title: Vice President of Land and
Legal and Corporate Secretary
------------------------------
EMPLOYEE:
/s/ ROBERT E. HENDERSON
---------------------------------------
Robert E. Henderson
Employment Agreement--Robert E. Henderson
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<PAGE> 1
EXHIBIT 10.5
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter called
this "Agreement") entered into effective as of June 27, 1996 (the "Effective
Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy Oil & Gas
USA Inc.) (hereinafter called "Company") and Richard R. Clark (hereinafter
called "Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated March 31, 1987, which was thereafter amended on a number of
occasions (such Employment Agreement, as heretofore amended, being referred to
herein as the "Employment Agreement"); and
WHEREAS, Enron Capital & Trade Resources Corp., a Delaware
corporation, Mystery Acquisition, Inc., a Delaware corporation ("Parent"),
Robert E. Henderson, Richard R. Clark, Michael W. Strickler, and D. S. Huber,
have entered into that certain Stockholders' Agreement dated April 2, 1996 (the
"Stockholders Agreement"); and
WHEREAS, Section C.1(a) of the Stockholders Agreement provides that
the Employment Agreement will be amended and restated as set forth herein and
Company and Employee desire to so amend and restate the Employment Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as Senior Vice
President - Production of Company. The permanent place of
Employee's employment shall be at a location within a 50-mile
radius of the central business district of the City of
Houston, Texas; provided, however, Employee shall be required
to undertake such ordinary and usual travel as is necessary to
properly discharge his duties and responsibilities hereunder.
Employee hereby accepts such employment, and agrees to serve
Company faithfully, diligently and in a good and workmanlike
manner.
2. Term.
The term of employment shall be for a term of five (5) years
beginning on the Effective Date, subject, however, to the
provisions of paragraph 3.
Employment Agreement - Richard R. Clark
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<PAGE> 2
3. Extension and Termination.
3.1 If either Employee or Company elects to terminate
this Agreement at the end of the term stated in
paragraph 2, or at the end of any extended term
hereof as hereinafter provided, notice of the
election to terminate shall be given to the other
party no later than six (6) months before the end of
this Agreement. If no notice is given by either
party, the term, or extended term, of this Agreement
shall be deemed to have been extended for an
additional six (6) months.
3.2 In the event Company elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary and
other benefits provided elsewhere in this
Agreement for Employee's services rendered to
Company hereunder through the end of such
term or extended term.
3.2.2 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment equal to nine (9)
months' salary at Employee's monthly rate for
the month immediately preceding the month in
which Company elects to terminate this
Agreement.
3.2.3 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment for all (a) vacation
time carried forward from a previous year in
accordance with paragraph 8, and (b) all
earned and unused vacation time for the then
current year. Earned vacation time shall,
for the purpose of this paragraph, be
calculated by dividing the number of days in
the calendar year which have transpired by
365, and then multiplying the result by the
number of vacation days to which Employee is
entitled for that year pursuant to paragraph
8.
3.2.4 If Employee has a leased automobile, the
lease payments on which are guaranteed by
Company, Employee shall have the option, to
be exercised on or before the last day of his
employment hereunder, of assuming the
remaining lease payments and retaining the
automobile, or assigning the lease agreement
to Company in return for Company's agreement
to assume the remaining lease payments.
3.2.5 Interests vested in Employee under paragraph
9 of this Agreement shall be assigned in due
course in compliance with paragraph 9.4.
Company and Employee agree that the promises,
covenants and undertakings of paragraph 9
shall
Employment Agreement - Richard R. Clark
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<PAGE> 3
survive the termination of employment of
Employee and shall be binding on all assigns
of Company.
3.3 In the event Employee elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the
term, or extended term hereof, unless waived
by Company.
3.3.2 The provisions of paragraphs 3.2.1, 3.2.3,
3.2.4, and 3.2.5 shall be applicable, but
Employee shall not be entitled to the payment
provided for in paragraph 3.2.2.
3.4 Company may at its option consent to a request by
Employee to terminate this Agreement at a time other
than that stated in paragraph 2, as extended, in
which case the date requested by Employee and agreed
to by Company will be the end of the term of this
Agreement and the provisions of paragraph 3.3 shall
be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon
written notice of such termination to Employee by
Company. Any termination of this Agreement by
Company for Cause shall be effective thirty (30) days
after written notice of termination for Cause is
given by Company to Employee. If Company terminates
this Agreement for Cause, Company shall have no
liability or obligation to Employee thereafter under
this Agreement except (i) for the payment of his
salary and other benefits through the month of
discharge, prorated in the case of salary for the
month of discharge on a daily basis to the date of
termination, and (ii) that the provisions of
paragraph 3.2.5 shall be applicable. As used in this
Agreement, the term "Cause" means (a) Employee is
found guilty of, admits in writing facts amounting
to, or is held civilly liable for fraud, embezzlement
or dishonesty, (b) Employee is convicted of a felony
involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in
good faith determines that the continued employment
of the Employee would be materially detrimental to
the Company (in any case which felony through lapse
of time or otherwise is not subject to appeal), (c)
Employee knowingly discloses trade secrets or
confidential Company matters to unauthorized persons,
(d) Employee willfully breaches or habitually
neglects any duties he is required to perform under
the terms of this Agreement and any such breach or
neglect is not cured within thirty (30) days after
Company has provided Employee with written notice of
such breach or neglect, (e) Employee materially
breaches any of the other material terms of
Employment Agreement - Richard R. Clark
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<PAGE> 4
this Agreement and any such breach is not cured
within thirty (30) days after the Company has
provided Employee with written notice of such breach,
and (f) the occurrence of an action or finding
described in paragraph 17, except as otherwise
provided in paragraph 17. The waiver by Company of a
breach of any provision of this Agreement by Employee
shall not operate or be construed as a waiver of any
subsequent breach by Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in
paragraphs 3.1, 3.4 or 3.5 above, Employee shall be
entitled to receive on the date of such termination
or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the
month immediately preceding the month in
which such termination or discharge occurs,
for the unexpired portion of the term or
extended term hereof then in effect.
3.6.2 The payments and other benefits provided for
in paragraphs 3.2.2, 3.2.3, 3.2.4 and 3.2.5
hereof.
3.7 In the event Employee terminates this Agreement for
"Good Reason" (as defined in paragraph 3.9), and
prior to such termination Employee has not terminated
this Agreement under paragraph 3.1 hereof, Employee
shall be entitled to receive from Company on the date
of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in effect
at the effective time of such termination
(but prior to giving effect to any reduction
therein which precipitated such termination),
for the unexpired portion of the term or
extended term hereof then in effect.
3.7.2 A lump sum cash payment equal to nine (9)
months' salary, at Employee's rate in effect
at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination).
3.7.3 The payments and other benefits provided for
in paragraphs 3.2.3, 3.2.4 and 3.2.5.
3.8 Any termination of this Agreement by Employee for
Good Reason shall be effective thirty (30) days after
written notice of termination for Good Reason is
given by Employee to Company
Employment Agreement - Richard R. Clark
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<PAGE> 5
3.9 As used in this Agreement, the term "Good Reason"
means any one or more of the following events has
occurred:
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's
position (including office, title and
reporting requirements), authority, duties or
responsibilities with Company or any other
action that results in a material diminution
in, or interference with, such position,
authority, duties or responsibilities, and
any such assignment or action is not cured
within thirty (30) days after Employee has
provided Company with written notice of such
assignment or action;
3.9.2 The failure to continue to provide Employee
with office space, related facilities and
support personnel (including, but not limited
to, administrative and secretarial
assistance) (a) that are both commensurate
with Employee's responsibilities to and
position with Company and not materially
dissimilar to the office space, related
facilities and support personnel provided to
other employees of Company having comparable
responsibility to that of Employee or (b)
that are physically located at Company's
principal executive offices, and any such
failure is not cured within thirty (30) days
after Employee has provided Company with
written notice of such failure;
3.9.3 Any (a) reduction in Employee's monthly
salary as established in paragraph 5
(including subsequent increases), (b)
reduction in, discontinuance of, or failure
to allow or continue to allow Employee's
participation in, the incentive compensation
program provided under paragraph 9 hereof, or
(c) reduction in, or failure to allow or
continue Employee's participation in, any
employee benefit plan or program (except when
such benefit plan or program is replaced with
another benefit plan, program or arrangement
that provides Employee, in the aggregate,
with reasonably comparable benefits) in which
Employee is participating or is eligible to
participate prior to such reduction or
failure (other than as a result of the
expiration of such plan or program), and any
such reduction, discontinuance or failure is
not cured within thirty (30) days after
Employee has provided Company with written
notice of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of
Employee's performance of his duties and
responsibilities to a location more than 50
miles outside
Employment Agreement - Richard R. Clark
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<PAGE> 6
of the central business district of the City
of Houston, Texas; or
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2, 3.9.3,
and 3.9.4) which is not cured within thirty
(30) days after Employee has provided Company
with written notice of such breach.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of this
Agreement, and for a period of four (4) years from
the date of termination of his employment hereunder,
keep secret and confidential and not disclose to any
party not a party to this Agreement, land or lease
data, geological or geophysical data, well data or
any other information which he may receive as a
result of the performance of his duties hereunder,
except when disclosure is necessary for the
performance of his duties to Company hereunder. This
paragraph shall not apply to information that is in
the public domain through no action of Employee.
4.2 Upon termination of this employment hereunder,
Employee shall promptly deliver to Company all
written information and documents (whether
confidential or not), and all copies thereof,
relating to Company's business and activities and
which are in the possession of or under the control
of Employee.
5. Salary.
As compensation for his services rendered to Company
hereunder, Company shall pay to Employee a salary at the rate
of $13,875.00 per month. Employee's salary may be reviewed at
such times as may be determined by Company, and Company may at
its discretion increase this salary. Employee's salary shall
be paid in two equal monthly installments, payable on the
fifteenth and last days of each month (or on the first
business day of Company thereafter if any such payment date is
not a business day of Company), subject to any and all
necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $250.00
dollars per month to Employee. In addition to such monthly
allowance, Company shall pay, in accordance with Company
policy, for all gasoline, insurance and maintenance required
for use of the automobile.
Employment Agreement - Richard R. Clark
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<PAGE> 7
7. Business Expenses.
Employee is authorized to incur reasonable business expenses
in accordance with Company's policies as may be established
from time to time for promoting the business of Company,
including expenditures for entertainment and travel. Company
shall reimburse Employee from time to time for all such
business expenses in accordance with those policies adopted by
Company which include, but are not limited to, the requirement
that Employee timely present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom;
and
7.4 The name and occupation of the person or persons
entertained to establish the business relationship
with Company.
With respect to any reimbursable business expense contemplated
above exceeding twenty-five dollars ($25.00), Employee will
furnish documentary evidence of such expense to Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of
twenty (20) days per calendar year at full pay. The timing
and use of such vacation days shall be requested by Employee
and approved by Company in accordance with its policy. Up to
one week may be carried over from year to year. Employee
shall not be entitled to receive payment in lieu of unused
vacation time except as otherwise provided herein. With prior
approval, vacation may be deferred if business matters keep
Employee from taking his normal vacation.
9. Incentive Compensation.
9.1 Definitions.
An "AFFILIATE" of a specified person is any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with
that specified person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
Employment Agreement - Richard R. Clark
-7-
<PAGE> 8
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated
persons (other than Joint Energy Development
Investments Limited Partnership ("JEDI") or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66 2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person,
if as a result any person (other than JEDI or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66-2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.), (y) any sale, lease, exchange or
other transfer of two-thirds or more of the
consolidated assets of Newco and its subsidiaries
taken as a whole in one transaction or a series of
related transactions whether by direct sale of
assets, sale of stock of a subsidiary or a merger
involving any subsidiary, or (z) the dissolution of
Newco; or
(iii) Recognizing that the events
described in this clause and the events described in
clause (ii) above may not necessarily be mutually
exclusive, any sale, exchange or other transfer of
two-thirds or more of the outstanding Voting Stock of
the Company or any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of the Company and its subsidiaries (if any)
taken as a whole in one transaction or a series of
related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of Company or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates,
Joint Energy Development Investments Limited Partnership or
any of its affiliates, Enron Capital & Trade Resources Corp.
or any of its affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development
Investments Limited Partnership or any of its affiliates or
Enron Capital
Employment Agreement - Richard R. Clark
-8-
<PAGE> 9
& Trade Resources Corp. or any of its affiliates for access to
one or more Working Interests of Company.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in
such Prospect acquired by Company and, for purposes of this
paragraph 9, shall include each portion thereof that Company
may subsequently transfer to another member of Company Group
or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than
50 percent of the outstanding voting securities of a
non-individual person, (b) having the right, directly or
indirectly, to more than 50 percent of the profits of a
non-individual person, (c) having the right, directly or
indirectly, to more than 50 percent of the assets of a
non-individual person if it is dissolved or (d) having the
contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
"DEVELOPMENT ACREAGE" means the acreage within a Prospect
covering a known or inferred geologic structure upon which
Company and/or its joint working interest owners or a farmee
of Company's Working Interest in a Prospect have drilled a
well capable of commercial oil and/or gas production. Such
acreage shall be deemed to be Development Acreage from the
surface of the earth down through the deepest known productive
horizon. The committee described in paragraph 9.5.1(a),
below, shall designate acreage within a Prospect as
Development Acreage based upon the most current interpretation
available at the time of designation.
"EFFECTIVE DATE" means the effective date of this amended and
restated Employment Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct,
capital costs actually incurred by Company Group in connection
with exploration and development of such Prospect or
Prospects, including, without limitation, all costs incurred
in preparing for drilling, drilling, testing, completing,
equipping (including, without limitation, installation of
platforms, facilities and pipelines and dry hole costs) and
recompleting wells, all geological and geophysical costs, and
all leasehold costs (including bonus, delay rentals and all
other costs of acquiring and maintaining in force the leases,
or portions thereof or undivided interests therein, included
in such Prospects). Exploration and Development Costs shall
not include lease operating expenses or general and
administrative expenses of the Company Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect
which has not been designated by the committee described in
paragraph 9.5.1(a),
Employment Agreement - Richard R. Clark
-9-
<PAGE> 10
below, as either Development Acreage or a Producing Property
Acquisition. Exploratory Acreage shall not be limited as to
depth (except to the extent, if any, to which Company's
Working Interest therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing
a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such hydrocarbon reservoir being economic, based
on commercially producible shows of hydrocarbons in a well
drilled within such reservoir, together with other geological
and geophysical data and interpretations, such that Company in
its reasonable judgment plans to develop such reservoir, and
(b) is reasonably expected by Company to be exploited and/or
developed by utilizing a floating production facility and/or a
tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than
an FPF/TLP Exploitation Prospect) with respect to which
Company reasonably expects to utilize a floating production
facility and/or a tension leg platform in connection with
operations to be conducted on such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first
well drilled on such Prospect in which Company participates as
a Working Interest owner or with respect to which Company
retains an overriding royalty or other interest in oil and gas
production from such well.
"MAJOR PROSPECT" means any FPF/TLP Exploration Prospect,
FPF/TLP Exploitation Prospect, Subsea Tieback Exploration
Prospect or Subsea Tieback Exploitation Prospect with respect
to which the total amount estimated by Company for Exploration
and Development Costs to be incurred by Company Group (i.e.,
net to Company Group's interest) through the end of the
primary development period for the field comprising such
Prospect exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which
provides for sharing between lessor and lessee of the net
profits or net proceeds, as defined in said lease, from the
sale of oil and/or gas produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation,
or its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross
production of oil and gas under each oil and gas lease (or
portion thereof) included within a Prospect, which interest
(except as herein otherwise provided) shall be free of all
costs of acquisition, exploration, drilling, completing,
equipping, operating and developing any oil and gas produced
from such lease.
Employment Agreement - Richard R. Clark
-10-
<PAGE> 11
A "PARENT" of a specified person is another person that
controls such specified person directly or indirectly through
one or more intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue
to Company or its assigns from its interest in oil and gas
production from such well (after deduction of Company's or its
assigns' prorata part of the burden of (i) all landowners'
royalties, overriding royalties, net profits interests,
production payments or other burdens upon, measured by or
payable out of such production and (ii) all applicable ad
valorem, production, severance, sales, gathering, windfall
profits excise and similar taxes) equals the sum incurred by
or for the account of Company or its assigns (x) in preparing
for drilling, drilling, testing, completing, equipping
(including, without limitation, installation of platforms,
facilities and pipelines), operating, reworking and
recompleting the well, and marketing the production therefrom,
and (y) for such well's allocable share of geological and
geophysical costs, leasehold costs and other common costs.
"Leasehold costs" shall mean payments for bonus, delay
rentals, and all other costs of acquiring from the landowners
(or, in the case of an acquisition by Company (but not any
assignee of Company), from predecessors in title to such
leases) and maintaining in force the leases allocated to the
well. Leases "allocated" to a well shall mean the leases or
portions thereof or undivided interests therein to which
production from a well is attributed, whether on a lease or
unit basis. With respect to each such well, "common costs"
shall mean capital costs that are attributable to (a) such
Prospect as a whole or (b) such well and one or more other
wells (but not all wells) on such Prospect and shall include,
without limitation, costs of drilling, plugging and abandoning
non- productive wells on such Prospect. Each such well's
allocable share of common costs shall be determined by Company
in any manner it deems appropriate from time to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well
and each subsequent well drilled on a Prospect, the point in
time at which such revenue to Company or its assigns from its
interest in oil and gas production from such well, after such
deductions mentioned above, equals the product of 2.5 times
the sum incurred by or for the account of Company or its
assigns (x) in preparing for drilling, drilling, testing,
completing, equipping, operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for
such well's allocable share of geological and geophysical
costs, leasehold costs and other common costs as mentioned
above.
A "PERSON" is an individual, a corporation, a trust, a
partnership, a limited liability company, an association or
any other entity.
Employment Agreement - Richard R. Clark
-11-
<PAGE> 12
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
Company during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves
considered proved under such lease or leases at the time of
acquisition. A Producing Property Acquisition shall include
acquisition of such leasehold interests even though Company
may have previously acquired interests in some or all of the
same leases as a Prospect acquisition (i.e., prior to the time
such leases were considered to contain proved oil and gas
reserves). Company may in its sole discretion designate a
Producing Property Acquisition in whole or in part as a
Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by Company within the
United States and its coastal waters while Employee is
employed by Company and during the term or extended term of
this Agreement covering lands which in the sole opinion of
Company may contain one or more hydrocarbon accumulations
capable of being commercially produced. For purposes of this
definition of Prospect, the acquisition of a lease or leases
shall mean the acquisition by Company of legal or beneficial
rights or interests in a lease or leases, including (without
limitation) contractual rights to acquire or earn a lease or
leases (whether by farmout agreement or otherwise, and whether
such contractual rights are subject to certain conditions such
as the drilling or completion of a commercial well, and
without regard to the results of the drilling or completion of
any such well under such contract). A Prospect shall not
include a prospect acquired by Company by merger or
consolidation of Company with or into another entity unless
such prospect is so designated by Company. A Prospect shall
not include a Producing Property Acquisition unless such
Prospect is so designated by Company, and shall not include
leases included in a Prospect under previous Employee
Incentive Compensation Plans. All Prospects shall be deemed
to be without depth limitation unless the Company designates
specified depths only at the time said Prospect is initially
acquired by Company. Notwithstanding the date or dates on
which leases in a Prospect are actually acquired by Company,
solely for purposes of determining the employees of Company
who are entitled to receive an Overriding Royalty Interest
therein, such leases, or portions thereof or undivided
interests therein, shall be deemed to have been acquired by
Company as of the date on which Company's management approved
such Prospect acquisition. In furtherance of the foregoing,
if any lease or leases, or portions thereof or undivided
interests therein, acquired by Company on or after April 18,
1996, but prior to the commencement of the term of this
Agreement, would constitute a "Prospect" under the foregoing
definition but for the fact that such lease or leases, or
portions thereof or undivided interests therein, were not
acquired by Company during the term of this Agreement, the
same shall, nevertheless, be
Employment Agreement - Richard R. Clark
-12-
<PAGE> 13
deemed to have been acquired by Company as of the commencement
of the term of this Agreement and shall constitute a Prospect
for purposes of this paragraph 9.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a
sufficient likelihood of such hydrocarbon reservoir being
economic, based on commercially producible shows of
hydrocarbons in a well drilled within such reservoir, together
with other geological and geophysical data and
interpretations, such that Company in its reasonable judgment
plans to develop such reservoir, and (b) is reasonably
expected by Company to be exploited and/or developed by
utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect
(other than a Subsea Tieback Exploitation Prospect) with
respect to which Company reasonably expects to utilize a
subsea tieback system in connection with operations to be
conducted on such Prospect.
A "SUBSIDIARY" of a specified person is an entity controlled
by such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election
of directors thereof.
"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the
costs and expenses relating to the maintenance and development
of, and operations relating to, such lease and the well or
wells associated therewith.
9.2 Employee's Property Interest.
9.2.1 Subject to the other provisions of this paragraph 9,
Employee shall own, be immediately vested with, and
be entitled to receive the benefits of an Overriding
Royalty Interest equal to an undivided percentage of
Company's Working Interest, more specifically
described below, in each well on a Prospect and the
lease or leases allocated thereto, as follows:
Employment Agreement - Richard R. Clark
-13-
<PAGE> 14
EMPLOYEE: Richard R. Clark
OVERRIDING ROYALTY INTEREST
IN
FPF/TLP EXPLORATION PROSPECTS,
FPF/TLP EXPLOITATION PROSPECTS,
SUBSEA TIEBACK EXPLORATION PROSPECTS
AND
SUBSEA TIEBACK EXPLOITATION PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.137499 0.549999
Group XV 5/16/96 and Thereafter 0.137499 0.549999
</TABLE>
OVERRIDING ROYALTY INTEREST
IN
ALL OTHER PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.15000 0.60000
Group XV 5/16/96 and Thereafter 0.15000 0.60000
</TABLE>
At 7:00 a.m. on the first day of the month following the month
in which Payout of such well occurs, the Overriding Royalty
Interest shall increase from the applicable before-Payout
percentage to the applicable after-Payout percentage. Except
as herein otherwise expressly provided, references in this
paragraph 9 to Employee's "Overriding Royalty Interest" with
respect to any Prospect shall mean the applicable
before-Payout and after-Payout percentages of Company's
Working Interest in such Prospect as set forth above.
9.2.2 Under previous Employee Incentive Compensation Plans, Employee
has received or is entitled to receive overriding royalty
interests ("Existing ORIs") in certain prospects (the
"Existing Prospects"). The Existing ORIs are equal to an
undivided percentage of Company's Working Interest, more
specifically described below by Group and Time Period during
which Company acquired such Existing Prospects, in each well
on an Existing Prospect and the lease or leases allocated
thereto, as follows:
Employment Agreement - Richard R. Clark
-14-
<PAGE> 15
EMPLOYEE: Richard R. Clark
<TABLE>
<CAPTION>
EXISTING ORI
------------
Group Time Period BEFORE PAYOUT After Payout
----- ----------- ------------- ------------
<S> <C> <C> <C>
GROUP I 4/1/87-9/3/87 0.10000% 0.4000%
GROUP II 9/4/87-10/31/87 0.12500% 0.5000%
GROUP III 11/1/87-7/16/88 0.12500% 0.5000%
GROUP IV 7/17/88-12/15/88 0.12500% 0.5000%
GROUP V 12/16/88-3/31/89 0.17500% 0.7000%
GROUP VI 4/1/89-9/24/90 0.17500% 0.7000%
GROUP VII 9/25/90-6/30/91 0.17500% 0.7000%
GROUP VIII 7/1/91-9/30/91 0.15000% 0.6000%
GROUP IX 10/1/91-2/14/93 0.15000% 0.6000%
GROUP X 2/15/93-6/30/93 0.15000% 0.6000%
GROUP XI 7/1/93-4/29/94 0.15000% 0.6000%
GROUP XII 4/30/94-3/31/95 0.15000% 0.6000%
GROUP XIII 4/1/95-4/17/96 0.15000% 0.6000%
</TABLE>
The provisions of paragraphs 9.4, 9.5, 9.6 and 9.7 shall apply
to the Existing ORIs in the Existing Prospects as fully as
such provisions apply to any Overriding Royalty Interest in a
Prospect to which Employee is entitled under this Agreement.
Mention is made that, effective June 1, 1996, the Company has
repurchased certain of the Existing ORIs from Employee as
contemplated by the Stockholders' Agreement referred to in
paragraph 9.5.1(a).
9.3 Governmental Filings.
Company will assist Employee in Filing an 83b Election with
the Internal Revenue Service on each Prospect, on a prospect
by prospect or lease by lease basis, as the case may be,
denoting the transfer to Employee of the Overriding Royalty
Interest and stating the value of such interest for the
purposes at the time the interest is acquired.
Employment Agreement - Richard R. Clark
-15-
<PAGE> 16
9.4 Assignment of Overriding Royalty Interest.
Except as otherwise expressly provided in paragraphs 9.4.8 and
9.4.9, Employee shall not be entitled to obtain recordable
assignments of his interest under this paragraph 9 until his
completion of three years of employment by Company and, except
as otherwise expressly provided herein, Employee shall forfeit
ownership of such interest if Employee's employment is
terminated by Company pursuant to paragraph 3.5 or by Employee
without Good Reason as defined in paragraph 3.9, prior to the
completion of such three years of employment. Upon completion
of three years of employment of Employee by Company,
Employee's ownership of interests theretofore or thereafter
transferred to him pursuant to this Agreement will no longer
be subject to forfeiture, and assignments will be made in
accordance with this paragraph 9.4. Subject to the other
provisions of this paragraph 9, Employee shall be entitled to
the revenue arising from his Overriding Royalty Interest
whether or not he is entitled to a recordable assignment.
Subject to the foregoing provisions of this paragraph 9.4 and
to the provisions of paragraph 9.5, as soon as practicable
after the end of each calendar quarter during the term or
extended term of this Agreement, Employee shall be entitled to
receive recordable assignments of his Overriding Royalty
Interest in a lease or leases (or portions thereof) acquired
by Company in a Prospect during such calendar quarter. If
Employee's employment is terminated by Company pursuant to
paragraph 3.5 or by Employee without Good Reason as defined in
paragraph 3.9, during any such calendar quarter, Employee
shall not be entitled to receive recordable assignments that
would otherwise have been due under this paragraph in respect
of any lease or leases (or portions thereof) acquired by
Company in a Prospect during such calendar quarter or
thereafter (and Employee shall not own, be vested with or be
entitled to receive the benefits of any Overriding Royalty
Interest that would have been granted by such recordable
assignments) unless the termination is at the end of the term
or extended term of this Agreement. As soon as practicable
after the end of each such calendar quarter, Company shall
provide Employee with the following:
(a) A recordable assignment of his Overriding
Royalty Interest in the leases (or portions
thereof) acquired by Company in each Prospect
during such calendar quarter.
(b) A plat outlining the geographical limits of
each such Prospect. Company shall review
each Prospect plat each calendar quarter in
light of drilling activity on or near the
Prospect, and expand the plat boundary if new
leases are acquired which Company believes to
contain a prospective hydrocarbon
accumulation that is located on the same
geological feature as such Prospect.
Employee shall be entitled to his Overriding
Royalty Interest in any lease
Employment Agreement - Richard R. Clark
-16-
<PAGE> 17
acquired by Company within the Prospect plat
boundary (and, to the extent provided in
paragraph 9.7.2, in any renewal, extension or
new lease within the Prospect plat boundary)
for as long as such lease within the boundary
remains in effect.
9.4.1 Upon execution and delivery of such recordable
assignment to Employee, Company shall record the
assignment.
9.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, Company believes in good
faith that there is a substantial likelihood that it
may be necessary to exercise its discretion under
paragraph 9.5 with respect to adjustment of
Employee's Overriding Royalty Interest in leases
included within such Prospect, Company may defer
delivery of a recordable assignment of Employee's
Overriding Royalty Interest pending a determination
under paragraph 9.5.
9.4.3 Upon request by Company, Employee agrees to execute
and deliver any and all transfer orders, division
orders and other documents as may be necessary or
appropriate to cause all revenue attributable to his
interest in a well to be paid to Company on his
behalf until delivery by Company to Employee of a
recordable assignment of his interest in such well
pursuant to this paragraph 9. In such event, Company
agrees promptly to process such funds and pay all
funds due Employee at the same time third parties are
paid revenue distributions from such well by Company.
After an assignment is delivered to Employee, Company
shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct
payment to Employee of all revenue attributable to
his interest in such well.
9.4.4. Subject to the last sentence of this paragraph 9.4.4,
Company or its assigns shall quarterly perform Payout
calculations on each well which has not reached
Payout in every Prospect so that payments to Employee
may be made on a proper before payout/after payout
basis on each well in every Prospect. Company or its
assigns shall prepare a quarterly Payout statement
for each well within each Prospect and shall provide
Employee a copy of said quarterly Payout statements
within ninety (90) days following the end of the
quarter. If Company or its assigns fails to provide
said quarterly Payout statements for any such well(s)
to at least five (5) employees (whether or not such
employees include the Employee) who are entitled to
receive an Overriding Royalty Interest in such
well(s) pursuant to this Agreement and/or other
employment agreements with Company for a period of
four (4) consecutive quarters, any such employee
(including without limitation, the
Employment Agreement - Richard R. Clark
-17-
<PAGE> 18
Employee) may give Company written notice of said
failure. If Company or its assigns does not provide
the overdue quarterly Payout statements to each
employee entitled to same within thirty (30) days
following receipt of such notice, all wells within
such Prospect which had previously been considered
before Payout pursuant to paragraph 9.2 shall be
deemed to be after Payout pursuant to paragraph 9.2
as of the first day of the month following the month
in which the earliest delinquent quarterly Payout
statement should have been provided. When Payout
status is reached on a well, Company or its assigns
shall deliver notice of such event to Employee, the
operator of such well and each purchaser of
production from such well and Company or its assigns
shall direct such operator or purchaser of production
(as appropriate) to disburse future revenues
attributable to Employee's and Company's respective
interests in such well on an after-Payout basis.
Notwithstanding the foregoing, if Employee's
Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph
9 so as to be the same percentage before and after
Payout of such well, then the provisions of this
paragraph 9.4.4 shall no longer apply from and after
the date of such adjustment.
9.4.5 Should Employee be married or divorced at such time
as Employee earns the right to have an Overriding
Royalty Interest assigned to him hereunder, Company
shall have no obligation to make assignments to
Employee's spouse/or former spouse. Any division of
community property shall be the responsibility of
Employee.
9.4.6 All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
(a) any joint operating agreement at any time
theretofore or thereafter entered into by Company or
its assigns with other Working Interest owners
covering any of the leases affected by the Overriding
Royalty Interest herein provided for, and (b) any
farm-out or other agreements under which Company
acquires or may acquire its interest in the leases;
including, particularly, by way of illustration and
not by way of limitation, (i) any provision of an
applicable farm-out agreement requiring reduction of
Company's interest in the leases after "payout" of an
earning well or wells thereunder, in which event
Employee's Overriding Royalty in such leases shall be
proportionately reduced, and (ii) any provision
requiring forfeiture of interest for
nonparticipation, recoupment of multiple recovery
costs and the like to the extent that Company would
forfeit its Working Interest for nonparticipation
either forever or until recoupment of drilling and/or
operating costs by the third parties electing to
participate, or such other like reason; and in the
event any such provisions come into effect,
Employee's Overriding
Employment Agreement - Richard R. Clark
-18-
<PAGE> 19
Royalty in such leases shall be suspended until such
time, if ever, as such multiple recovery of costs by
the participating leasehold owners has been recovered
or such other cause for suspension is removed and
such Working Interest of Company is reinstated, at
which time Employee's Overriding Royalty shall be so
reinstated.
All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
the leases, any assignments and/or subleases thereof
theretofore made or agreed to be made by Company, and
any amendments or modifications of the leases,
theretofore or thereafter made, and Employee agrees
that any such amendments or modifications may be made
without the consent or joinder of Employee.
9.4.7 Company or its assigns shall not have the right to
sell, assign, farmout, convey or otherwise encumber
Employee's Overriding Royalty Interest, except as
otherwise provided in this paragraph 9.
9.4.8(a) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, there shall have been a
Change in Control, then Employee
shall be entitled to receive
recordable assignments of his
Overriding Royalty Interest,
adjusted in the manner described
hereinbelow, in any lease or leases
(or portions thereof or undivided
interests therein) theretofore
acquired by Company and not yet
assigned during the term or extended
term hereof and, upon subsequent
acquisition by Company, in any lease
or leases (or portions thereof or
undivided interests therein)
thereafter acquired by Company, in
all Prospects acquired by Company
prior to such Change in Control
(without regard to whether or not
Employee has then completed three
years of employment by Company).
Said Overriding Royalty Interest
shall be assigned in the following
manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout
Employment Agreement - Richard R. Clark
-19-
<PAGE> 20
interest stated in paragraph 9.2 (as
such before-Payout interest stated
in paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) with
the result that Employee's interests
before and after Payout shall be
equal.
9.4.8(b) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, the Company's Working
Interest in any Prospect is sold,
transferred or conveyed to the
holder of any indebtedness of the
Company or of Newco or of any parent
or subsidiary of the Company or
Newco, or to any unaffiliated third
party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing
such indebtedness or any part
thereof or by transfer or conveyance
in lieu of such foreclosure, then
Employee shall be entitled to
receive, prior to the consummation
of such sale, transfer or
conveyance, a recordable assignment
of his Overriding Royalty Interest,
adjusted in the manner described in
paragraph 9.4.8(a), in any lease or
leases (or portions thereof or
undivided interests therein)
theretofore acquired by Company and
not yet assigned during the term or
extended term hereof and, upon
subsequent acquisition by Company,
in any lease or leases (or portions
thereof or undivided interests
therein) thereafter acquired by
Company, in all Prospects acquired
by Company prior to such sale,
transfer or conveyance (without
regard to whether or not Employee
has then completed three years of
employment by Company).
9.4.9 Except as otherwise provided in the fifth sentence of
paragraph 9.4, and notwithstanding anything (other
than such fifth sentence of paragraph 9.4) contained
herein to the contrary, if, during the term or
extended term hereof, all or substantially all of the
Company's Working Interests in all or substantially
all Exploratory Acreage then owned by the Company are
sold, transferred or conveyed to an unaffiliated
third party, then Employee shall be entitled to
receive, prior to the consummation of such sale,
transfer or conveyance, recordable assignments of his
Overriding Royalty Interest, adjusted in the manner
described in paragraph 9.4.8(a), in all leases (or
portions thereof or undivided interests therein) that
Employment Agreement - Richard R. Clark
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<PAGE> 21
cover and include such Exploratory Acreage not yet
assigned during the term or extended term hereof
(without regard to whether or not Employee has then
completed three years of employment by Company).
9.5 Retained Company Discretion
9.5.1 Employee and Company recognize that in instances
where all or a portion of Company's Working Interest
in a lease or leases will be sold or farmed out to
unaffiliated third parties, Employee's Overriding
Royalty Interest might in some circumstances have a
negative effect on the marketability of Company's
Working Interest to third parties. In such cases,
Company will in good faith attempt to transfer
Company's Working Interest subject to Employee's
Overriding Royalty Interest provided for in this
paragraph 9; provided, however, if, in Company's good
faith judgment, Company's Working Interest cannot be
sold or farmed out subject to Employee's Overriding
Royalty Interest, Company may elect to adjust
Employee's Overriding Royalty Interest as hereinafter
provided.
9.5.1(a) The Board of Directors of Company
shall designate a committee of not
less than three individual persons
employed by Company, at least half
of whom has been granted an employee
Overriding Royalty Interest by
Company, to exercise discretion on
behalf of Company in reducing or
modifying, pursuant to this
paragraph 9.5.1 only, the Overriding
Royalty Interests provided for in
this paragraph 9; provided, however,
that the Board of Directors of the
Company shall have the right to
designate a non-voting member of
such committee, who may be a
director of the Company or
otherwise, and such member shall
have the right to participate in all
meetings of such committee (and
shall receive reasonable advance
notice of any such meetings) and
shall be entitled to the same
information as is available to the
other members of the committee.
Such committee shall make all
decisions under this paragraph 9.5.1
subject to obtaining the approval of
the Board of Directors of Company
where such approval is required
under the provisions of this
paragraph 9.5.1. Any decision made
by the committee shall require the
approval of a majority of the
members of the committee. Any
change to this paragraph 9.5.1(a)
shall require the approval of the
Board of Directors of the Company
and a majority of the Management
Directors (as that
Employment Agreement - Richard R. Clark
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<PAGE> 22
term is defined in the Stockholders'
Agreement dated April 2, 1996,
between Enron Capital & Trade
Resources Corp., Newco and certain
employees of and consultants to the
Company, as it may be amended from
time to time) who became
stockholders pursuant to Section B.1
of that agreement.
9.5.1(b) With respect to any Prospect on
which no initial Well has been
drilled and no assignments of
Overriding Royalty Interests have
been made to Employee, the committee
may modify or reduce the Overriding
Royalty Interest of Employee in
leases included within such Prospect
in any manner necessary in the good
faith judgment of the committee to
make an interest in such Prospect
saleable to any person not in
Company Group; provided, however, in
connection with any sale by Company
of an interest in such Prospect to
any such person, Employee's
Overriding Royalty Interest shall be
reduced to zero unless the committee
recommends a lesser reduction and
such recommendation is approved by
the Board of Directors of Company.
Such modification or reduction shall
apply only to the interest sold to
such a person, and shall not affect
the interest retained by the
Company. Any reduction or exercise
of discretion by Company under this
paragraph shall be applied
proportionately to all participants
who are entitled to receive from
Company an Overriding Royalty
Interest in leases included within
such Prospect.
9.5.1(c) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has not
been determined by Company to be
capable of producing oil and/or gas,
should Company desire to sell all or
any portion of its Working Interest
in such Prospect to unaffiliated
third parties, the committee may
adjust the Overriding Royalty
Interest of Employee in leases
included within such Prospect in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be
Employment Agreement - Richard R. Clark
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<PAGE> 23
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9), with the result that
Employee's interests before and
after Payout shall be equal.
Such adjustment shall apply only to
the interest sold to unaffiliated
third parties, and shall not affect
the interest retained by Company.
Any exercise of discretion by Company
under this paragraph shall be applied
in like manner to all participants
who are entitled to receive from
Company an Overriding Royalty
Interest in leases included within
such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(c).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(c).
9.5.1(d) With respect to any Prospect which
has not been determined by Company
to be capable of producing oil
and/or gas, and regardless of
whether or not the Initial Well has
been drilled thereon, should Company
desire to farmout all or any portion
of its Working Interest in such
Prospect to unaffiliated third
parties, the committee shall (unless
the committee
Employment Agreement - Richard R. Clark
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<PAGE> 24
recommends otherwise and the Board of
Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in leases included within
such Prospect in the following
manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests may have
previously been reduced pursuant to
other provisions of this paragraph 9)
by Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and during the period of time in
which Company receives such
overriding royalty interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph 9.2 above; provided,
however, if pursuant to such farmout
agreement, only a portion of
Company's overriding royalty
interest converts to a Working
Interest and Company retains,
following such conversion, some
overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest based
upon Company's Working Interest, an
interest equal to the percentage
stated in paragraph 9.2 above (as
such interest may have previously
been reduced pursuant to other
provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest farmed out to
unaffiliated third parties, and shall
not affect the interest retained by
Company. Any exercise of discretion
by Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Employment Agreement - Richard R. Clark
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<PAGE> 25
With respect to each well drilled on
the Prospect by a farmee of
Company's Working Interest and
solely for the purpose of this
paragraph 9.5.1 (d), Payout shall be
defined as the point in time at
which the revenue to Company from
its interest in oil and gas
production from such well (after
deduction of Company's prorata part
of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production
payments or other burdens upon,
measured by or payable out of such
production and (ii) all applicable
ad valorem, production, severance,
sales, gathering, windfall profits
excise and similar taxes) equals the
sum incurred by or for the account
of Company (x) in preparing for
drilling, drilling, testing,
completing, equipping (including,
without limitation, installation of
platforms, facilities and
pipelines), operating, reworking and
recompleting the well, and marketing
the production therefrom, and (y)
for such well's allocable share of
geological and geophysical costs,
leasehold costs, all other costs of
acquiring and maintaining in force
the leases allocated to the well and
other common costs. Leases
"allocated" to a well and "common
costs" shall have the respective
meanings ascribed thereto in the
definition of "Payout" set forth in
paragraph 9.1.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
has been a Change in Control, then
neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(d).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to
Employment Agreement - Richard R. Clark
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<PAGE> 26
make the adjustment described above
in this paragraph 9.5.1.(d).
9.5.1(e) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has been
determined by Company to be capable
of producing oil and/or gas, should
Company desire to sell or farmout
all or any portion of its Working
Interest in such Prospect to
unaffiliated third parties, the
committee shall categorize
geographical areas of the leases
comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the Company's
Working Interest in any such
Development Acreage will be made
subject to Employee's Overriding
Royalty Interest provided for in
paragraph 9.2 hereinabove (as such
interest may have previously been
adjusted pursuant to other
provisions of this paragraph 9);
provided, however, with respect to
each well drilled on the Prospect by
a purchaser or farmee or their
assigns of Company's Working
Interest, and solely for the purpose
of this paragraph 9.5.1(e), Payout
shall be defined as the point in
time at which the revenue to
purchaser or farmee or their assigns
from its or their interest purchased
or farmed in from Company in oil
and/or gas production from such well
(after deduction of purchaser's or
farmee's prorata part of the burden
of (i) all landowners' royalties,
overriding royalties, net profits
interests, production payments or
other burdens upon, measured by or
payable out of such production and
(ii) all applicable ad valorem,
production, severance, sales,
gathering, windfall profits excise
and similar taxes) equals the sum
incurred by or for the account of
purchaser or farmee or their assigns
in preparing for drilling, drilling,
testing, completing, equipping,
operating, reworking and
recompleting the well, and marketing
the production therefrom.
With respect to the Company's Working
Interest in Exploratory Acreage to
be sold by Company, the committee
may adjust the Overriding Royalty
Interest of Employee in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout
Employment Agreement - Richard R. Clark
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<PAGE> 27
interest stated in paragraph 9.2 (as
such after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout interest
stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9),
with the result that Employee's
interests before and after Payout
shall be equal.
With respect to the Company's Working
Interest in Exploratory Acreage to
be farmed out by Company, the
committee shall (unless the
committee recommends otherwise and
the Board of Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in the following manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) by
Company's overriding royalty interest
set forth in the particular farmout
agreement for said Prospect, for and
during the period of time in which
Company receives such overriding
royalty interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph 9.2 above; provided,
however, if pursuant to such farmout
agreement, only a portion of
Company's overriding royalty
interest converts to a Working
Interest and Company retains,
following such conversion, some
overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding
Employment Agreement - Richard R. Clark
-27-
<PAGE> 28
Royalty Interest and in addition to
such Overriding Royalty Interest
based upon Company's Working
Interest, an interest equal to the
percentage stated in paragraph 9.2
above (as such interest may have
previously been reduced pursuant to
other provisions of this paragraph
9) multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest sold or farmed out to
unaffiliated third parties, and shall
not affect the interest retained by
Company. Any exercise of discretion
by Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(e).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(e).
If any of the events set forth in the
two immediately preceding sentences
hereof should occur, such that the
adjustment described above in this
paragraph 9.5.1(e) with respect to
the Overriding Royalty Interest of
Employee in leases in such
Exploratory Acreage is precluded
from occurring as provided above,
then, with respect to each well
drilled on such
Employment Agreement - Richard R. Clark
-28-
<PAGE> 29
Exploratory Acreage by a purchaser or
farmee or their assigns of Company's
Working Interest, and solely for
purposes of this paragraph 9.5.1(e),
Payout shall be defined as set forth
above in this paragraph 9.5.1(e).
9.5.2 Within sixty (60) days after the end of each fiscal
year of Company, Company may in its sole discretion
elect to reduce the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to Prospects
subject to this Agreement that were acquired by
Company during such fiscal year (which election, if
timely made as above provided, shall be effective as
of the beginning of such fiscal year) based on actual
Exploration and Development Costs incurred by Company
Group during such fiscal year in respect of all
Prospects subject to this Agreement, as follows (with
linear interpolation between indicated levels of
costs):
<TABLE>
<CAPTION>
Total E & D
Costs Level Permitted Reduction
----------- -------------------
<S> <C>
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
</TABLE>
**Permitted Reduction shall be determined in the sole discretion of
Company.
The total Exploration and Development Costs levels
and resultant ranges and escalation increments
provided for above are "Base Year" figures for fiscal
year 1996-1997, and shall be adjusted annually on a
compound basis beginning with the fiscal year
commencing April 1, 1997, according to the then
current Council of Petroleum Accountants Societies'
(COPAS) adjustment rate (based upon the percentage
increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers as of
April 1 as published by the United States Department
of Labor, Bureau of Labor Statistics).
The "Permitted Reduction" shall mean the percentage
by which Employee's Overriding Royalty Interest (both
before and after Payout) may be adjusted downward.
Each such adjustment shall determine Employee's
Overriding Royalty Interest for the fiscal year in
question, and shall be uniform on Prospects acquired
during that period (subject to paragraphs 9.5.1 and
9.5.3). Without limiting the foregoing, a Permitted
Reduction shall apply to any
Employment Agreement - Richard R. Clark
-29-
<PAGE> 30
Major Prospect subject to this Agreement that was
acquired by Company during such fiscal year, whether
or not an adjustment of Employee's Overriding Royalty
Interest in such Major Prospect shall have been made
pursuant to paragraph 9.5.3.
All leases acquired in those Prospects, whether
during the same fiscal year or thereafter, shall be
subject to the same Employee's Overriding Royalty
Interest established at the time the Prospect was
acquired, subject, however, to adjustment as provided
for in this paragraph 9. A Permitted Reduction in
Employee's Overriding Royalty Interest for a
particular fiscal year, however, shall not operate to
reduce Employee's Overriding Royalty Interest stated
in paragraph 9.2 in respect of any Prospects acquired
by Company in any subsequent fiscal year during the
term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploitation Prospects acquired by
Company during a fiscal year of
Company for which Company's estimate
of Exploration and Development Costs
incurred or to be incurred by
Company Group in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal year exceeds
$30 million through the end of the
respective primary development
periods for the fields comprising
such FPF/TLP Exploitation Prospects
(which periods, solely for purposes
of the adjustment provided for in
this paragraph, shall not exceed
five (5) years), an alternative
calculation will be made prior to
determining the applicable
"Permitted Reduction" of Employee's
Overriding Royalty Interest with
respect to such FPF/TLP Exploitation
Prospects. Such alternative
calculation shall be based upon the
assumptions that the total
Exploration and Development Costs to
be incurred by Company Group in
respect of all such FPF/TLP
Exploitation Prospects will be
incurred over a two (2) year period
and that such Exploration and
Development Costs will be in
addition to a "base level" of $70
million in Exploration and
Development Costs to be incurred by
Company Group exclusive of the
identified FPF/TLP Exploitation
Prospects. Such alternative
Exploration and Development Costs
level (the "alternative E & D Costs
level") shall be determined as
follows:
Employment Agreement - Richard R. Clark
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<PAGE> 31
The alternative E & D Costs level
shall be the sum of:
(i) One-half of Company's estimate
of Exploration and
Development Costs incurred or
to be incurred by Company
Group through the end of the
respective primary
development periods in
respect of all FPF/TLP
Exploitation Prospects
acquired in such fiscal year,
plus
(ii) $70 million.
The Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects (both before and after
Payout) may, in Company's sole
discretion, be reduced by the
greater of (x) the "Permitted
Reduction" percentage set forth in
the table above in this paragraph
for the actual "Total E & D Costs
Level" for such fiscal year and (y)
the "Permitted Reduction" percentage
set forth in the table above that
would be applicable if the "Total E
& D Costs Level" for such fiscal
year were equal to such "alternative
E & D Costs level".
If the Overriding Royalty Interest
set forth in paragraph 9.2 with
respect to such FPF/TLP Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set forth
in paragraph 9.2, Company may, in its
sole discretion, further reduce such
Overriding Royalty Interest to an
interest equal to two- thirds (before
and after Payout, respectively) of
such Overriding Royalty Interest set
forth in paragraph 9.2. Further, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploitation
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph 9.2
times a Working Interest percentage
of 50% of 8/8ths, Company may, in its
sole discretion, further reduce such
Overriding Royalty Interest set forth
in paragraph 9.2 with respect to such
FPF/TLP Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP
Employment Agreement - Richard R. Clark
-31-
<PAGE> 32
Exploitation Prospect, would equal
the Overriding Royalty Interest
percentage (before and after Payout,
respectively) set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths.
9.5.2(b) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploitation Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such Subsea Tieback
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such Subsea Tieback Exploitation
Prospect, would equal the Overriding
Royalty Interest percentage (before
and after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(c) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding
Royalty Interest set forth in
paragraph 9.2. Further, if the
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
Employment Agreement - Richard R. Clark
-32-
<PAGE> 33
percentage set forth in paragraph 9.2
times a Working Interest percentage
of 50% of 8/8ths, Company may, in
its sole discretion, further reduce
such Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploration Prospect
to a percentage (before and after
Payout, respectively) that, when
multiplied times Company's Working
Interest in such FPF/TLP Exploration
Prospect, would equal the Overriding
Royalty Interest percentage (before
and after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(d) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploration Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths, Company may, in its sole
discretion, further reduce such
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploration
Prospect to a percentage (before and
after Payout, respectively) that,
when multiplied times Company's
Working Interest in such Subsea
Tieback Exploration Prospect, would
equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.3 With respect to any Major Prospect, Company may in
its sole discretion elect to adjust the Overriding
Royalty Interest set forth in paragraph 9.2,
effective as of the date of Company's acquisition of
such Major Prospect, as follows:
Employee's before-Payout interest shall be reduced by
the following formula:
where "X" equals the total amount estimated by
Company for Exploration and Development Costs to be
incurred by Company Group in respect of such
Employment Agreement - Richard R. Clark
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<PAGE> 34
<TABLE>
<S> <C>
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
-
Y
</TABLE>
Major Prospect through the end of the primary
development period for the field comprising such
Major Prospect (which period, solely for purposes of
such adjustment calculation, shall not exceed five
(5) years), and where "Y" equals $30 million.
Employee's after-Payout interest shall be increased
by adding thereto the full amount of the percentage
interest so deducted from Employee's before-Payout
interest until 2.5 times Payout is reached, at which
time Employee's after-Payout interest shall be
reduced by subtracting therefrom the same percentage
interest that was previously added thereto pursuant
to this sentence.
Such election may be made by Company whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been reduced pursuant to
paragraph 9.5.2. In the case of any such prior
reduction pursuant to paragraph 9.5.2, the term
"original before-Payout interest" as used above in
this paragraph shall refer to Employee's
before-Payout interest as previously reduced pursuant
to paragraph 9.5.2.
9.5.4 Notwithstanding anything contained herein to the
contrary, after an assignment is delivered to
Employee with respect to a Prospect pursuant to
paragraph 9.4, Company or its assigns may no longer
reduce or modify Employee's Overriding Royalty
Interest on any well in such Prospect without written
consent of Employee, except pursuant to paragraphs
9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3 in the
case only of assignments other than those delivered
pursuant to paragraphs 9.4.8(a), 9.4.8(b) and 9.4.9.
9.5.5 In no event may any party other than Company reduce
or modify Employee's Overriding Royalty Interest
without written consent of Employee.
9.5.6 Company shall give Employee written notice of any
adjustment made to Employee's Overriding Royalty
Interest pursuant to the provisions of paragraphs
9.5.1(b), 9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and
9.5.3 within one hundred twenty (120) days following
such adjustment.
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<PAGE> 35
9.5.7 Upon request by Company, Employee shall execute and
deliver to Company such reassignments, transfer
orders, division orders, releases and other documents
deemed by Company to be necessary or appropriate to
evidence any modification, reduction or other
adjustment pursuant to this paragraph 9.5.
9.6 Company's Preferential Right to Purchase.
If at any time during the term or extended term of this
Agreement, or if within one (1) year from the expiration of
this Agreement, Employee receives and desires to accept an
offer for the purchase of a part or all of Employee's
Overriding Royalty Interest assigned pursuant to this
paragraph 9 (the portion or all of such Overriding Royalty
Interest covered by such offer to purchase being herein
sometimes called the "Offered Interest"), from a prospective
third party purchaser who is ready, willing and able to
purchase the same, then Employee shall have the right to sell
such Offered Interest, but only after complying with the
following terms and provisions:
9.6.1 The offer shall first be reduced to writing and
signed by Employee and the offeror. Employee shall
give Company written notice of his receipt of, and
his desire to accept, such written offer, together
with a copy of such written offer signed by the
prospective third party purchaser and containing all
of the terms and conditions of such offer. The date
such written notice is given to Company is herein
sometimes called the "Original Date."
9.6.2 Company shall thereafter have an option to purchase
the Offered Interest upon the same terms set forth in
said offer, which option may be exercised by written
notice thereof given to Employee within ten (10) days
after the Original Date.
9.6.3 If the Offered Interest is not purchased by Company
pursuant to the foregoing provisions of this
paragraph, then Employee shall have the right to sell
the Offered Interest to the prospective third party
purchaser named in such offer, provided that such
sale is consummated within thirty (30) days from the
expiration date of the option of Company created
hereby and provided that such sale is made in strict
conformity with the terms of such offer.
9.6.4 If, however, such sale of the Offered Interest does
not occur within such thirty-day period for the price
and upon the terms set forth in such offer, then any
sale of part or all of such Offered Interest
thereafter shall again be subject to the option to
purchase granted to Company under this paragraph 9.6.
Employment Agreement - Richard R. Clark
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9.6.5 If Employee elects to take title to an Overriding
Royalty Interest in a legal entity other than himself
(which he may do only with Company's consent), such
entity shall take title subject to all of the terms
and conditions of this Agreement.
9.7 Additional Provisions Affecting Overriding Royalty
Interest.
In addition to the other provisions of this paragraph 9,
Employee's Overriding Royalty Interest shall be subject to the
following:
9.7.1 Notwithstanding anything to the contrary contained
herein, Employee shall not have the right to take in
kind or separately dispose of the production of oil
and gas attributable to his Overriding Royalty
Interest.
9.7.2 Employee's Overriding Royalty Interest shall also
apply to the production of oil and gas under the
terms and provisions of any renewal, extension or new
lease, to the extent such renewal, extension or new
lease covers all or any portion of any lands covered
by the expired lease which was subject to Employee's
Overriding Royalty Interest or is within the Prospect
plat, and provided, however, that any such renewal,
extension or new lease shall have been acquired by or
for the benefit of Company, either prior to or within
one (1) year after the expiration of the expired
lease.
9.7.3 Except as otherwise provided in this paragraph 9, in
no event shall Employee ever be liable or responsible
in any way for payment of any part of any
exploration, drilling or production costs or
liabilities incurred by Company or its assigns or
other lessees attributable to the lease or leases in
a Prospect or to the production therefrom, it being
the intent of the parties that Employee's Overriding
Royalty Interest shall constitute a non-participating
royalty interest for all purposes.
9.7.4 Company will conduct and carry on the development,
maintenance and operation of any lease subject to
Employee's Overriding Royalty Interest in a manner
which it deems in its sole judgment to be reasonable
and prudent and in accordance with good oil and gas
field practices, and it will drill such wells as it
deems proper in its sole judgment from time to time
in order to protect such lease from drainage;
provided, however, (a) nothing herein contained
shall obligate Company to conduct any drilling
operations whatsoever upon such lease, or to continue
to operate any well or to operate or maintain in
force or attempt to maintain in force such lease by
payment of delay rentals, compensatory royalties or
other payments or by the drilling of any wells upon
said lease, or in any
Employment Agreement - Richard R. Clark
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<PAGE> 37
other manner, and the extent and duration of all
operations, as well as the preservation of each of
such leases by delay rental payments or otherwise,
shall be solely at the will of Company, and (b)
Company shall have the right at any time to
surrender, abandon or otherwise terminate any such
lease in whole or in part without liability to
Employee.
9.7.5 Company shall have the right to sell all production
attributable to Employee's Overriding Royalty
Interest on the same basis upon which the production
attributable to Company's interest in the same
production is sold, and shall account to Employee on
that basis. In no event shall Employee be entitled
to receive payments for production attributable to
his Overriding Royalty Interest calculated on a basis
higher than that upon which Company's interest in the
same production is calculated or computed on a higher
price than that payable to Company on account of
production attributable to its interest, and in no
event shall Employee be entitled to receive payments
on amounts suspended by purchasers of the production
pending determination of the authorized price by
governmental entities. However, if Company sells any
such production to an affiliate of Company, the price
therefor shall not be less than would have been
reasonably obtainable in a sale to a non-affiliated
purchaser.
9.7.6 There shall be deducted from the production, before
Employee's Overriding Royalty Interest is computed,
any production lost in the production from the
leases, or any lands pooled therewith, or used for
drilling, operating, development or production or in
plant operations (including gas injection, secondary
recovery, pressure maintenance, repressuring, cycling
operations, plant fuel or shrinkage) conducted for
the purpose of producing or processing production
from lands covered by the leases or from any lands
pooled with the leases.
9.7.7 Company shall have the right and option, but not the
obligation, to process gas produced and saved from
the leases. If Company elects to process or have
processed, such gas in a gas processing plant or
other facility, whether or not owned by Company, then
in such event Employee shall be paid his percentage
share provided for herein of the proceeds of sale of
all gasoline or other liquid hydrocarbons or other
products manufactured or extracted from such gas as a
result of such processing (collectively, the
"Products"), less the costs of extraction or
manufacture (which may consist of a portion of the
Products). Company shall also pay to Employee the
same percentage share of the proceeds of sale of all
residue gas sold by Company, less expenses incurred
by Company in transporting any such gas to point of
delivery and for dehydration
Employment Agreement - Richard R. Clark
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<PAGE> 38
and/or compression of gas at or prior to such
delivery and other expenses and fees typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such gas is
produced).
9.7.8 Employee's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing
and transporting production from the leases or from
any lands pooled therewith which are typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such production
is produced).
9.7.9 Employee's Overriding Royalty Interest shall also
bear its share of all ad valorem, production,
severance, sales, gathering and other taxes typically
borne by royalty owners (whether state, federal or
otherwise) assessed or levied on or in connection
with the Overriding Royalty Interest or the
production from the leases.
9.7.10 Company or its assigns shall have the right and
power, without any approval by Employee, to pool or
unitize any lease which is subject to Employee's
Overriding Royalty Interest, and to alter, change,
amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as
to all or any part of a Prospect, as to any one or
more of the formations or horizons thereunder, upon
such terms and provisions as Company shall in its
sole discretion determine. If and whenever through
the exercise of such right and power, or pursuant to
any law now existing or hereafter enacted, or any
rule, regulation or order of any governmental body
now or hereafter promulgated, any of the leases of
Company are pooled or unitized in any manner,
Employee's Overriding Royalty Interest shall also be
pooled and unitized, and in such event Employee's
Overriding Royalty shall only be paid on that portion
of the production from the unit or units so pooled,
which is attributable to said leases under and by
virtue of the pooling and unitization.
9.7.11 Company may withhold payment to Employee of any funds
attributable to Employee's Overriding Royalty
Interest which Company, in its sole discretion, deems
to be subject to a risk of refund or recoupment
pursuant to any rule, regulation or order of any
governmental authority or any adverse claims by third
parties. During such suspense period, Employee shall
not be entitled to interest on sums so withheld.
Employment Agreement - Richard R. Clark
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<PAGE> 39
9.7.12 In the event Company's Working Interest in any lease
in which Employee is entitled to an Overriding
Royalty Interest covers less than all of the full and
entire undivided interest in and to the land
described therein, and in and to all the oil and gas
rights relating thereto, then in that event the
Overriding Royalty Interest as to that portion of the
leased premises in which Company's Working Interest
in such lease does not cover such full and entire
undivided interest shall be reduced proportionately
(i.e., in the proportion that the undivided interest
in and to said land and oil and gas rights covered by
such lease bears to such full and entire undivided
interest).
9.7.13 Notwithstanding anything contained in this paragraph
9 to the contrary, Employee's Overriding Royalty
Interest in any Net Profit Share Lease ("NPSL") shall
be reduced at the same time and in the same
percentage as Company's net revenue interest in said
NPSL is reduced pursuant to the provisions of said
NPSL.
9.7.14 Company and Employee further undertake and agree
promptly to execute and deliver, upon request of
either party, all assignments, reassignments,
transfer orders, division orders, releases and any
other documents as may be necessary to implement this
paragraph 9 or otherwise to more fully assure to each
party the rights and interests of such party provided
for in this paragraph 9.
10. Insurance.
10.1 Employee shall be eligible for participation in such
insurance programs as Company shall institute from
time to time covering medical and dental expenses and
such life and accidental death and dismemberment
insurance programs as Company shall institute from
time to time. Payment of premiums for such coverages
shall be in accordance with Company policy covering
all employees as may be established from time to time
by Company. Employee shall also be eligible for
participation in such retirement, pension, deferred
compensation and other benefit programs the Company
shall initiate from time to time.
11. Outside Activities.
During the term or extended term of this Agreement, Employee
shall devote all of his working time, energy and talents to
the due discharge and performance of his duties hereunder, at
the direction and subject to the control of Company, and shall
perform such services and duties as shall reasonably be
required from him from time to time by Company. Employee
agrees that he will not knowingly become involved in a
conflict of interest with Company or its subsidiaries, or upon
discovery thereof,
Employment Agreement - Richard R. Clark
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<PAGE> 40
allow such a conflict to continue. Moreover, Employee agrees
to provide Company a statement of all other directorships
Employee holds, with a brief description of the business
activities of each organization. This statement shall be
provided on or before December 31 of each year. If, in the
opinion of Company, a conflict of interest exists between
Company (and its affiliates) and the organization in which the
Employee holds a directorship, Company can require Employee to
resign the outside directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed to
limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of the
issued and outstanding and publicly traded (on a recognized
national or regional securities exchange or in the
over-the-counter market) capital stock or other securities of
any corporation or other entity that conducts activities that
compete with the business of Company or any affiliate of
Company; or (ii) to invest, individually or with others, in
oil and gas prospects, subject, however, in the case of oil
and gas prospects to the following conditions:
12.1 Company must have first had the right and opportunity
to purchase all of the interest in any prospect made
available to Employee, even if this would preclude
Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made
available to Employee and have no desire to acquire
an additional interest, or declined to participate at
all in the prospect. If Company elects to
participate in less than the full interest made
available to Employee, Employee may invest in the
portion of such interest not acquired by Company.
12.3 Employee must purchase his interest in the oil and
gas prospect on terms which are no more favorable
than those made available to Company.
13. Disability During Employment.
If Employee shall become unable to perform his duties by
reason of disability, he shall be entitled to receive, in
addition to any insurance benefits he may receive, all of his
salary for the first one (1) month of his disability, and
one-half (1/2) of his salary for the next three (3) months of
disability. Periods of disability shall not be cumulative so
long as they are separated by at least ninety (90) days of
continuous service.
Employment Agreement - Richard R. Clark
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<PAGE> 41
The term "disability" shall mean disability which, in the
opinion of a doctor satisfactory to Company, renders Employee
unable to perform his duties hereunder as evidenced by such
doctor's certificate. The date disability commences shall be
the date Employee first absents himself from work during a
continuous period of disability.
14. Merger or Acquisition.
In the event Company should be acquired by or merged into
another company, by signature of Company's authorized
representatives, Company hereby agrees that this Employment
Agreement shall be binding upon Company, its successors and
assigns, and shall be disclosed to any party considering
merger with, or acquisition of, Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this
Agreement and the dispute cannot be settled through
direct discussions, Company and Employee agree that
they shall first endeavor to settle the dispute in an
amicable fashion. If such efforts fail to resolve
the dispute, the dispute shall, except as otherwise
provided in paragraph 19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2 below,
any and all claims, demands, cause of action,
disputes, controversies, and other matters in
question arising out of or relating to this
Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, even though some or all of
such claims allegedly are extracontractual in
nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, shall be
resolved by binding arbitration pursuant to
the Federal Arbitration Act in accordance
with the Commercial Arbitration Rules then in
effect with the American Arbitration
Association (the "AAA"). The arbitration
proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by
either party by providing to the other a
written notice of arbitration specifying the
claims, and the parties shall thereafter
endeavor to agree on an arbitrator. If
within thirty (30) days of the notice of
initiation of the arbitration procedure, the
parties are unable to agree on an
Employment Agreement - Richard R. Clark
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<PAGE> 42
arbitrator, the party requesting arbitration
shall file a request with the AAA that the
Houston, Texas office of the AAA provide a
list of potential arbitrators to both
parties. The parties shall thereafter have
sixty (60) days to select an arbitrator from
such list, with such selection to be by
mutual agreement. If the parties fail to
select an arbitrator within such time by
mutual agreement, then either party may
request that the Chief Judge of the U.S.
District Court for the Southern District of
Texas appoint an arbitrator, and any such
appointment shall be binding. The
arbitrator, utilizing the Commercial
Arbitration Rules of the American Arbitration
Association, shall within 120 days of his or
her selection, resolve all disputes between
the parties. There shall be no transcript of
the hearings before the arbitrator. The
arbitrator's decision shall be in writing,
but shall be as brief as possible. The
arbitrator shall not assign the reasons for
his or her decision. The arbitrator's
decision shall be final and non-appealable to
the maximum extent permitted by law.
Judgment upon any award rendered in any such
arbitration proceeding may be entered by any
federal or state court having jurisdiction.
This agreement to arbitrate shall be
enforceable in either federal or state court.
The enforcement of this agreement to
arbitrate and all procedural aspects of this
agreement to arbitrate, including but not
limited to, the construction and
interpretation of this agreement to
arbitrate, the issues subject to arbitration
(i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver,
delay or defenses to arbitrability, and the
rules governing the conduct of the
arbitration, shall be governed by and
construed pursuant to the Federal Arbitration
Act and shall be decided by the arbitrator.
In deciding the substance of any such claims,
the arbitrator shall apply the substantive
laws of the State of Texas (excluding Texas
choice-of-law principles that might call for
the application of some other State's law);
provided, however, it is expressly agreed
that the arbitrator shall have no authority
to award treble, exemplary, or punitive
damages under any circumstances regardless of
whether such damages may be available under
Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary,
or punitive damages in connection with any
such claims.
Employment Agreement - Richard R. Clark
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<PAGE> 43
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the
event that either party wishes to seek a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief in connection with any or all such
claims, demands, cause of action, disputes,
controversies, and other matters in question
arising out of or relating to this Agreement,
any provision hereof, the alleged breach
thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, including disputes arising
out of a breach or alleged breach of
paragraph 4 or 16, even though some or all of
such claims allegedly are extra-contractual
in nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, each party shall
have the right to pursue such injunctive
relief in court, rather than by arbitration.
The parties agree that such action for a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief will be brought in the State or
federal courts residing in Houston, Harris
County, Texas.
15.2 The Company shall pay all costs and expenses of
Company and Employee (including, but not limited to,
attorneys' fees, the fees of the arbitrator and the
AAA and any other related costs) for any arbitration
proceeding or legal action; provided, however, that
if in any such arbitration proceeding or legal
action, the arbitrator or court, respectively,
determines that Employee has prosecuted or defended
any issue in such proceeding or action in bad faith,
the arbitrator or court, respectively, may allocate
the portion of such costs and expenses relating to
such issue between the parties in any other manner
deemed fair, equitable and reasonable by the
arbitrator or court, respectively.
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation and
benefits to be paid to Employee hereunder, and as an
additional incentive for Company to enter into this
Agreement, Company and Employee agree to the
non-competition obligations hereunder. Employee will
not, directly or indirectly for Employee or for
others:
Employment Agreement - Richard R. Clark
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<PAGE> 44
16.1.1 in any geographic area or market where
Company or any of its subsidiaries are
conducting any business as of the date of
termination of the employment relationship or
have during the previous twelve months
conducted such business, engage in any
business competitive with any such business;
or
16.1.2 in any geographic area or market where
Employee knew Company contemplated entering
any business as of the date of termination of
the employment relationship, but only if
Company had, as of such date, invested
significant resources toward entering into
such business in such geographic area or
market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise
assist, any other person, association, or
entity who is engaged, directly or
indirectly, in any business competitive with
Company's business within the parameters
described in paragraphs 16.1.1 and 16.1.2
above with respect to such competitive
business; or
16.1.4 induce any employee of Company or any of its
subsidiaries to terminate his or her
employment with Company or its subsidiaries,
or hire or assist in the hiring of any such
employee by any person, association, or
entity not affiliated with Company.
These non-competition obligations shall commence upon
the date of execution of this Agreement and extend
until the earlier of (a) the expiration of the term
of this Agreement (or any extended term) or (b)
twelve (12) months after termination of the
employment relationship; provided, however, that
notwithstanding anything contained in this paragraph
16 to the contrary, such obligations shall only apply
after the termination of employment if the
termination of employment results from termination
for Cause by Company under paragraph 3.5 or voluntary
termination without Good Reason by Employee (it being
understood and agreed that termination of this
Agreement by Employee under paragraph 3.1 shall not,
for purposes of this paragraph 16, constitute
voluntary termination without Good Reason by
Employee).
16.2 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
businesses anywhere in the world during the period
provided for above, but acknowledges that Employee
will receive sufficiently high renumeration and other
Employment Agreement - Richard R. Clark
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<PAGE> 45
benefits under this Agreement to justify such
restriction. Employee acknowledges that money
damages would not be sufficient remedy for any breach
of this Article by Employee, and Company shall be
entitled to enforce the provisions of this Agreement
and/or to specific performances and injunctive relief
as remedies for such breach or any threatened breach.
Such remedies shall not be deemed the exclusive
remedies for a breach of this Article, but shall be
in addition to all remedies available at law or in
equity to Company, including, without limitation, the
recovery of damages from Employee and Employee's
agents involved in such breach and remedies available
to Company pursuant to other agreements with
Employee.
16.3 It is expressly understood and agreed that Company
and Employee consider the restrictions contained in
this paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States
Foreign Corrupt Practices Act, generally codified in 15 USC 78
(FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo
contendere or admits civil or criminal liability under the
FCPA, or if a court finds that Employee committed an action
resulting in any Company entity having civil or criminal
liability or responsibility under the FCPA with knowledge of
the activities giving rise to such liability or knowledge of
facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were
likely to occur, such action or finding shall constitute Cause
for termination by Company under paragraph 3.5 of this
Agreement unless Company's Board of Directors determines that
the actions found to be in violation of the FCPA were taken in
good faith and in compliance with all applicable policies of
Company.
18. Survival.
The provisions of paragraphs 4 and 16 shall survive any
termination of the employment relationship and/or of this
Agreement for the periods stated therein. The provisions of
paragraph 15 relating to arbitration shall survive any
termination of the employment relationship between Employee
and Company and the termination of this Agreement.
Employment Agreement - Richard R. Clark
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Amounts, compensation, rights and benefits which Employee is
entitled to receive or have accrued to Employee under this
Agreement or under any plan, program, arrangement, agreement
or policy of or with Company or any of its affiliates before,
at or subsequent to the termination of the employment
relationship between Employee and Company or the termination
of this Agreement shall not be superseded and shall survive
any such termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by Company or any of
its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions
being individually referred to herein as a "Payment,"
and any two or more of such payments or distributions
being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax,
and any interest in respect of such penalties,
additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"),
then Employee shall be entitled to receive an
additional payment or payments (individually referred
to herein as a "Gross-Up Payment" and any two or more
of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in
paragraph 19.11) imposed upon the Gross-Up Payment,
Employee retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
19.2 Subject to the provisions of paragraph 19.3 through
19.11, any determination (individually, a
"Determination") required to be made under this
paragraph 19, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment,
shall initially be made, at Company's expense, by
nationally recognized tax counsel mutually acceptable
to Company and Employee ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities,
calculations, and documentation both to Company and
Employee within 15 business days of the termination
of Employee's employment, if applicable, or such
other time or times as is reasonably requested by
Company or Employee. If Tax Counsel makes the
initial Determination that no Excise Tax is payable
by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably
acceptable to Employee that no Excise Tax will be
imposed with respect to any such Payment
Employment Agreement - Richard R. Clark
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<PAGE> 47
or Payments. Employee shall have the right to
dispute any Determination (a "Dispute") within 15
business days after delivery of Tax Counsel's opinion
with respect to such Determination. The Gross-Up
Payment, if any, as determined pursuant to such
Determination shall be paid by Company to Employee
within five business days of Employee's receipt of
such Determination. The existence of a Dispute shall
not in any way affect Employee's right to receive the
Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such
Determination shall be binding, final and conclusive
upon Company and Employee, subject in all respects,
however, to the provisions of paragraph 19.3 through
19.11 below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it
is possible that Gross-Up Payments (or portions
thereof) which will not have been made by Company
should have been made ("Underpayment"), and if upon
any reasonable written request from Employee or
Company to Tax Counsel, or upon Tax Counsel's own
initiative, Tax Counsel, at Company's expense,
thereafter determines that Employee is required to
make a payment of any Excise Tax or any additional
Excise Tax, as the case may be, Tax Counsel shall, at
Company's expense, determine the amount of the
Underpayment that has occurred and any such
Underpayment shall be promptly paid by Company to
Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from
and against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of Employee resulting from any Final
Determination (as defined in paragraph 19.10) that
any Payment is subject to the Excise Tax.
19.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a claim
by Employee against Company under this paragraph 19
("Claim"), including, but not limited to, a claim for
indemnification of Employee by Company under
paragraph 19.3, then such party shall promptly notify
the other party hereto in writing of such Claim ("Tax
Claim Notice").
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken
such action in connection with contesting such
Employee Claim as Company shall reasonably request in
writing from time to time, including the retention of
Employment Agreement - Richard R. Clark
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<PAGE> 48
counsel and experts as are reasonably designated by
Company (it being understood and agreed by the
parties hereto that the terms of any such retention
shall expressly provide that Company shall be solely
responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and
the execution of powers of attorney, provided that:
19.5.1 within 30 calendar days after Company
receives or delivers, as the case may be, the
Tax Claim Notice relating to such Employee
Claim (or such earlier date that any payment
of the taxes claimed is due from Employee,
but in no event sooner than five calendar
days after Company receives or delivers such
Tax Claim Notice), Company shall have
notified Employee in writing ("Election
Notice") that Company does not dispute its
obligations (including, but not limited to,
its indemnity obligations) under this
Agreement and that Company elects to contest,
and to control the defense or prosecution of,
such Employee Claim at Company's sole risk
and sole cost and expense; and
19.5.2 Company shall have advanced to Employee on an
interest-free basis, the total amount of the
tax claimed in order for Employee, at
Company's request, to pay or cause to be paid
the tax claimed, file a claim for refund of
such tax and, subject to the provisions of
the last sentence of paragraph 19.7, sue for
a refund of such tax if such claim for refund
is disallowed by the appropriate taxing
authority (it being understood and agreed by
the parties hereto that Company shall only be
entitled to sue for a refund and Company
shall not be entitled to initiate any
proceeding in, for example, United States Tax
Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to
such advance or with respect to any imputed
income with respect to such advance; and
19.5.3 Company shall reimburse Employee for any and
all costs and expenses resulting from any
such request by Company and shall indemnify
and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.
Employment Agreement - Richard R. Clark
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<PAGE> 49
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute,
at the sole cost, expense and risk of Company, such
Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by Company to a Final Determination;
provided, however, that (i) Company shall not,
without Employee's prior written consent, enter into
any compromise or settlement of such Employee Claim
that would adversely affect Employee, (ii) any
request from Company to Employee regarding any
extension of the statute of limitations relating to
assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the
contested issues involved in, and amount of, the
Employee Claim relate is limited solely to such
contested issues and amount, and (iii) Company's
control of any contest or proceeding shall be limited
to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue
raised by the Internal Revenue Service or any other
taxing authority. So long as Company is diligently
defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to
Company any information reasonably requested by
Company that relates to such Employee Claim, and
shall otherwise cooperate with Company and its
representatives in good faith in order to contest
effectively such Employee Claim. Company shall keep
Employee informed of all developments and events
relating to any such Employee Claim (including,
without limitation, providing to Employee copies of
all written materials pertaining to any such Employee
Claim), and Employee or his authorized
representatives shall be entitled, at Employee's
expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of
a tax claimed (pursuant to an Employee Claim) that
has been advanced by Company pursuant to paragraph
19.5.2 hereof, the extent of the liability of Company
hereunder with respect to such tax claimed has been
established by a Final Determination, Employee shall
promptly pay or cause to be paid to Company any
refund actually received by, or actually credited to,
Employee with respect to such tax (together with any
interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such
taxing authority related thereto), except to the
extent that any amounts are then due and payable by
Company to Employee, whether under the provisions of
this Agreement or otherwise. If, after the receipt
by Employee of an amount advanced by Company pursuant
to paragraph 19.5.2, a determination is made by the
Internal Revenue Service or other appropriate taxing
authority that Employee shall not be entitled to any
refund with respect to such tax claimed and
Employment Agreement - Richard R. Clark
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<PAGE> 50
Company does not notify Employee in writing of its
intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of
any Gross-Up Payments and other payments required to
be paid hereunder.
19.8 With respect to any Employee Claim, if Company fails
to deliver an Election Notice to Employee within the
period provided in paragraph 19.5.1 hereof or, after
delivery of such Election Notice, Company fails to
comply with the provisions of paragraph 19.5.2,
19.5.3 or 19.6 hereof, then Employee shall at any
time thereafter have the right (but not the
obligation), at his election and in his sole and
absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such Employee
Claim. Employee shall have full control of such
defense or prosecution and such proceedings,
including any settlement or compromise thereof. If
requested by Employee, Company shall cooperate, and
shall cause its affiliates to cooperate, in good
faith with Employee and his authorized
representatives in order to contest effectively such
Employee Claim. Company may attend, but not
participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph
19.8 and shall bear its own costs and expenses with
respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from
Company with respect to costs and expenses incurred
by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the
terms of this paragraph 19.9, Company shall pay, on a
fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such Employee Claim that have not
theretofore been paid by Company to Employee,
together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by
Company to Employee, within ten calendar days after
such Final Determination. In the case of any
Employee Claim not covered by the preceding sentence,
Company shall pay, on a fully grossed-up after tax
basis, to Employee in immediately available funds the
full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim at
least ten calendar days before the date payment of
such taxes is due from Employee, except where payment
of such taxes is sooner required under the provisions
of this paragraph
Employment Agreement - Richard R. Clark
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<PAGE> 51
19.9, in which case payment of such taxes (and
payment, on a fully grossed-up after tax basis, of
any costs and expenses required to be paid under this
paragraph 19.9 shall be made within the time and in
the manner otherwise provided in this paragraph 19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim for
refund or credit in respect to an overpayment of tax
unless a suit is filed on a timely basis; or (D) any
final disposition by reason of the expiration of all
applicable statutes of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes), together
with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee
pursuant to this Agreement, whether by seeking other
employment or otherwise; nor shall the amount of any such
payment or other benefit be reduced on account of any
compensation earned by Employee as a result of employment by
another person or entity.
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended
except in writing and signed by Company and Employee.
This Agreement shall be binding upon the heirs,
administrators, or executors and the successors and
assigns of each party to this Agreement.
21.2 The rights and benefits of Employee under the
Agreement are personal to him and shall not be
assigned or transferred without the prior written
consent of Company. Subject to the foregoing, this
Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
heirs, personal representatives, successors and
assigns.
Employment Agreement - Richard R. Clark
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<PAGE> 52
21.3 All titles or headings of sections or paragraphs or
other divisions of this Agreement are only for the
convenience of the parties and shall not be construed
to have any effect or meaning with respect to the
other content of such sections or paragraphs or other
divisions, such content being controlling as to the
agreement between the parties hereto.
21.4 This Agreement is made and will be performed under,
and shall be governed by and construed in accordance
with, the law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO THIS
AGREEMENT THAT HE HAS READ THIS AGREEMENT BEFORE
SIGNING IT AND THAT HE FULLY UNDERSTANDS ITS
PURPOSES, TERMS AND PROVISIONS, WHICH HE HEREBY
EXPRESSLY ACKNOWLEDGED TO BE REASONABLE IN ALL
RESPECTS. EMPLOYEE FURTHER ACKNOWLEDGES RECEIPT OF
ONE COPY OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
580 Westlake Boulevard, Suite 1300
Houston, Texas 77079
Attention: President and Chief Executive
Officer
If to Employee:
Richard R. Clark
19235 Kessington Lane
Houston, Texas 77094
Company and Employee may change the above addresses
for notice purposes by notifying the other in
writing.
21.7 The Company may withhold from any amounts payable
under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21.8 Except as otherwise expressly provided herein,
nothing contained in this Agreement shall limit or
otherwise affect any rights or benefits which are
vested in, accrued to, or earned by Employee, or
Employment Agreement - Richard R. Clark
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<PAGE> 53
for which Employee is entitled to, prior to the
Effective Date whether under the Employment Agreement
or otherwise.
21.9 ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL
AGREEMENT DATED EFFECTIVE AS OF FEBRUARY 12, 1996,
BETWEEN COMPANY AND EMPLOYEE SHALL TERMINATE AND BE
FROM THE EFFECTIVE DATE NULL, VOID AND OF NO FURTHER
FORCE OR EFFECT WHATSOEVER.
Executed as of the Effective Date in duplicate originals at Houston,
Texas.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ ROBERT E. HENDERSON
--------------------------------
Printed Name: Robert E. Henderson
------------------------
Printed Title: President and Chief
------------------------
Executive Officer
------------------------
EMPLOYEE:
/s/ RICHARD R. CLARK
--------------------------------------
Richard R. Clark
Employment Agreement - Richard R. Clark
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<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter called
this "Agreement") is entered into effective as of June 27, 1996 (the "Effective
Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy Oil & Gas
USA Inc.) (hereinafter called "Company") and Michael W. Strickler (hereinafter
called "Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated March 31, 1987, which was thereafter amended on a number of
occasions (such Employment Agreement, as heretofore amended, being referred to
herein as the "Employment Agreement"); and
WHEREAS, Enron Capital & Trade Resources Corp., a Delaware
corporation, Mystery Acquisition, Inc., a Delaware corporation ("Parent"),
Robert E. Henderson, Richard R. Clark, Michael W. Strickler, and D. S. Huber,
have entered into that certain Stockholders' Agreement dated April 2, 1996 (the
"Stockholders Agreement"); and
WHEREAS, Section C.1(a) of the Stockholders Agreement provides that
the Employment Agreement will be amended and restated as set forth herein and
Company and Employee desire to so amend and restate the Employment Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as Senior Vice
President - Exploration of Company. The permanent place of
Employee's employment shall be at a location within a 50-mile
radius of the central business district of the City of
Houston, Texas; provided, however, Employee shall be required
to undertake such ordinary and usual travel as is necessary to
properly discharge his duties and responsibilities hereunder.
Employee hereby accepts such employment, and agrees to serve
Company faithfully, diligently and in a good and workmanlike
manner.
2. Term.
The term of employment shall be for a term of five (5) years
beginning on the Effective Date, subject, however, to the
provisions of paragraph 3.
<PAGE> 2
3. Extension and Termination.
3.1 If either Employee or Company elects to terminate
this Agreement at the end of the term stated in
paragraph 2, or at the end of any extended term
hereof as hereinafter provided, notice of the
election to terminate shall be given to the other
party no later than six (6) months before the end of
this Agreement. If no notice is given by either
party, the term, or extended term, of this Agreement
shall be deemed to have been extended for an
additional six (6) months.
3.2 In the event Company elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary and
other benefits provided elsewhere in this
Agreement for Employee's services rendered to
Company hereunder through the end of such
term or extended term.
3.2.2 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment equal to nine (9)
months' salary at Employee's monthly rate for
the month immediately preceding the month in
which Company elects to terminate this
Agreement.
3.2.3 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment for all (a) vacation
time carried forward from a previous year in
accordance with paragraph 8, and (b) all
earned and unused vacation time for the then
current year. Earned vacation time shall,
for the purpose of this paragraph, be
calculated by dividing the number of days in
the calendar year which have transpired by
365, and then multiplying the result by the
number of vacation days to which Employee is
entitled for that year pursuant to paragraph
8.
3.2.4 If Employee has a leased automobile, the
lease payments on which are guaranteed by
Company, Employee shall have the option, to
be exercised on or before the last day of his
employment hereunder, of assuming the
remaining lease payments and retaining the
automobile, or assigning the lease agreement
to Company in return for Company's agreement
to assume the remaining lease payments.
3.2.5 Interests vested in Employee under paragraph
9 of this Agreement shall be assigned in due
course in compliance with paragraph 9.4.
Company and Employee agree that the promises,
covenants and undertakings of paragraph 9
shall
Employment Agreement -- Michael W. Strickler
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<PAGE> 3
survive the termination of employment of
Employee and shall be binding on all assigns
of Company.
3.3 In the event Employee elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the
term, or extended term hereof, unless waived
by Company.
3.3.2 The provisions of paragraphs 3.2.1, 3.2.3,
3.2.4, and 3.2.5 shall be applicable, but
Employee shall not be entitled to the payment
provided for in paragraph 3.2.2.
3.4 Company may at its option consent to a request by
Employee to terminate this Agreement at a time other
than that stated in paragraph 2, as extended, in
which case the date requested by Employee and agreed
to by Company will be the end of the term of this
Agreement and the provisions of paragraph 3.3 shall
be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon
written notice of such termination to Employee by
Company. Any termination of this Agreement by
Company for Cause shall be effective thirty (30) days
after written notice of termination for Cause is
given by Company to Employee. If Company terminates
this Agreement for Cause, Company shall have no
liability or obligation to Employee thereafter under
this Agreement except (i) for the payment of his
salary and other benefits through the month of
discharge, prorated in the case of salary for the
month of discharge on a daily basis to the date of
termination, and (ii) that the provisions of
paragraph 3.2.5 shall be applicable. As used in this
Agreement, the term "Cause" means (a) Employee is
found guilty of, admits in writing facts amounting
to, or is held civilly liable for fraud, embezzlement
or dishonesty, (b) Employee is convicted of a felony
involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in
good faith determines that the continued employment
of the Employee would be materially detrimental to
the Company (in any case which felony through lapse
of time or otherwise is not subject to appeal), (c)
Employee knowingly discloses trade secrets or
confidential Company matters to unauthorized persons,
(d) Employee willfully breaches or habitually
neglects any duties he is required to perform under
the terms of this Agreement and any such breach or
neglect is not cured within thirty (30) days after
Company has provided Employee with written notice of
such breach or neglect, (e) Employee materially
breaches any of the other material terms of this
Agreement and any such breach is not cured within
thirty (30)
Employment Agreement -- Michael W. Strickler
-3-
<PAGE> 4
days after the Company has provided Employee with
written notice of such breach, and (f) the occurrence
of an action or finding described in paragraph 17,
except as otherwise provided in paragraph 17. The
waiver by Company of a breach of any provision of
this Agreement by Employee shall not operate or be
construed as a waiver of any subsequent breach by
Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in
paragraphs 3.1, 3.4 or 3.5 above, Employee shall be
entitled to receive on the date of such termination
or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the
month immediately preceding the month in
which such termination or discharge occurs,
for the unexpired portion of the term or
extended term hereof then in effect.
3.6.2 The payments and other benefits provided for
in paragraphs 3.2.2, 3.2.3, 3.2.4 and 3.2.5
hereof.
3.7 In the event Employee terminates this Agreement for
"Good Reason" (as defined in paragraph 3.9), and
prior to such termination Employee has not terminated
this Agreement under paragraph 3.1 hereof, Employee
shall be entitled to receive from Company on the date
of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in effect
at the effective time of such termination
(but prior to giving effect to any reduction
therein which precipitated such termination),
for the unexpired portion of the term or
extended term hereof then in effect.
3.7.2 A lump sum cash payment equal to nine (9)
months' salary, at Employee's rate in effect
at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination).
3.7.3 The payments and other benefits provided for
in paragraphs 3.2.3, 3.2.4 and 3.2.5.
3.8 Any termination of this Agreement by Employee for
Good Reason shall be effective thirty (30) days after
written notice of termination for Good Reason is
given by Employee to Company
3.9 As used in this Agreement, the term "Good Reason"
means any one or more of the following events has
occurred:
Employment Agreement -- Michael W. Strickler
-4-
<PAGE> 5
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's
position (including office, title and
reporting requirements), authority, duties or
responsibilities with Company or any other
action that results in a material diminution
in, or interference with, such position,
authority, duties or responsibilities, and
any such assignment or action is not cured
within thirty (30) days after Employee has
provided Company with written notice of such
assignment or action;
3.9.2 The failure to continue to provide Employee
with office space, related facilities and
support personnel (including, but not limited
to, administrative and secretarial
assistance) (a) that are both commensurate
with Employee's responsibilities to and
position with Company and not materially
dissimilar to the office space, related
facilities and support personnel provided to
other employees of Company having comparable
responsibility to that of Employee or (b)
that are physically located at Company's
principal executive offices, and any such
failure is not cured within thirty (30) days
after Employee has provided Company with
written notice of such failure;
3.9.3 Any (a) reduction in Employee's monthly
salary as established in paragraph 5
(including subsequent increases), (b)
reduction in, discontinuance of, or failure
to allow or continue to allow Employee's
participation in, the incentive compensation
program provided under paragraph 9 hereof, or
(c) reduction in, or failure to allow or
continue Employee's participation in, any
employee benefit plan or program (except when
such benefit plan or program is replaced with
another benefit plan, program or arrangement
that provides Employee, in the aggregate,
with reasonably comparable benefits) in which
Employee is participating or is eligible to
participate prior to such reduction or
failure (other than as a result of the
expiration of such plan or program), and any
such reduction, discontinuance or failure is
not cured within thirty (30) days after
Employee has provided Company with written
notice of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of
Employee's performance of his duties and
responsibilities to a location more than 50
miles outside of the central business
district of the City of Houston, Texas; or
Employment Agreement -- Michael W. Strickler
-5-
<PAGE> 6
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2, 3.9.3,
and 3.9.4) which is not cured within thirty
(30) days after Employee has provided Company
with written notice of such breach.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of this
Agreement, and for a period of four (4) years from
the date of termination of his employment hereunder,
keep secret and confidential and not disclose to any
party not a party to this Agreement, land or lease
data, geological or geophysical data, well data or
any other information which he may receive as a
result of the performance of his duties hereunder,
except when disclosure is necessary for the
performance of his duties to Company hereunder. This
paragraph shall not apply to information that is in
the public domain through no action of Employee.
4.2 Upon termination of this employment hereunder,
Employee shall promptly deliver to Company all
written information and documents (whether
confidential or not), and all copies thereof,
relating to Company's business and activities and
which are in the possession of or under the control
of Employee.
5. Salary.
As compensation for his services rendered to Company
hereunder, Company shall pay to Employee a salary at the rate
of $12,500.00 per month. Employee's salary may be reviewed at
such times as may be determined by Company, and Company may at
its discretion increase this salary. Employee's salary shall
be paid in two equal monthly installments, payable on the
fifteenth and last days of each month (or on the first
business day of Company thereafter if any such payment date is
not a business day of Company), subject to any and all
necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $250.00
dollars per month to Employee. In addition to such monthly
allowance, Company shall pay, in accordance with Company
policy, for all gasoline, insurance and maintenance required
for use of the automobile.
7. Business Expenses.
Employee is authorized to incur reasonable business expenses
in accordance with Company's policies as may be established
from time to
Employment Agreement -- Michael W. Strickler
-6-
<PAGE> 7
time for promoting the business of Company, including
expenditures for entertainment and travel. Company shall
reimburse Employee from time to time for all such business
expenses in accordance with those policies adopted by Company
which include, but are not limited to, the requirement that
Employee timely present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom;
and
7.4 The name and occupation of the person or persons
entertained to establish the business relationship
with Company.
With respect to any reimbursable business expense contemplated
above exceeding twenty-five dollars ($25.00), Employee will
furnish documentary evidence of such expense to Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of
twenty (20) days per calendar year at full pay. The timing
and use of such vacation days shall be requested by Employee
and approved by Company in accordance with its policy. Up to
one week may be carried over from year to year. Employee
shall not be entitled to receive payment in lieu of unused
vacation time except as otherwise provided herein. With prior
approval, vacation may be deferred if business matters keep
Employee from taking his normal vacation.
9. Incentive Compensation.
9.1 Definitions.
An "AFFILIATE" of a specified person is any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with
that specified person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated
persons (other than Joint Energy Development
Investments Limited Partnership ("JEDI") or an
affiliate of Enron Corp.) shall
Employment Agreement -- Michael W. Strickler
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<PAGE> 8
become the beneficial owner, directly or indirectly,
of 66-2/3 percent or more of the outstanding Voting
Stock of Newco unless Newco becomes a subsidiary of
an entity which does not have a beneficial owner,
directly or indirectly, of 66 2/3 percent or more of
the outstanding Voting Stock of such entity (other
than JEDI or an affiliate of Enron Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person,
if as a result any person (other than JEDI or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66-2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.), (y) any sale, lease, exchange or
other transfer of two-thirds or more of the
consolidated assets of Newco and its subsidiaries
taken as a whole in one transaction or a series of
related transactions whether by direct sale of
assets, sale of stock of a subsidiary or a merger
involving any subsidiary, or (z) the dissolution of
Newco; or
(iii) Recognizing that the events
described in this clause and the events described in
clause (ii) above may not necessarily be mutually
exclusive, any sale, exchange or other transfer of
two-thirds or more of the outstanding Voting Stock of
the Company or any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of the Company and its subsidiaries (if any)
taken as a whole in one transaction or a series of
related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of Company or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates,
Joint Energy Development Investments Limited Partnership or
any of its affiliates, Enron Capital & Trade Resources Corp.
or any of its affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development
Investments Limited Partnership or any of its affiliates or
Enron Capital & Trade Resources Corp. or any of its affiliates
for access to one or more Working Interests of Company.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in
such Prospect acquired by Company and, for purposes of this
paragraph 9, shall include
Employment Agreement -- Michael W. Strickler
-8-
<PAGE> 9
each portion thereof that Company may subsequently transfer
to another member of Company Group or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than
50 percent of the outstanding voting securities of a
non-individual person, (b) having the right, directly or
indirectly, to more than 50 percent of the profits of a
non-individual person, (c) having the right, directly or
indirectly, to more than 50 percent of the assets of a
non-individual person if it is dissolved or (d) having the
contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
"DEVELOPMENT ACREAGE" means the acreage within a Prospect
covering a known or inferred geologic structure upon which
Company and/or its joint working interest owners or a farmee
of Company's Working Interest in a Prospect have drilled a
well capable of commercial oil and/or gas production. Such
acreage shall be deemed to be Development Acreage from the
surface of the earth down through the deepest known productive
horizon. The committee described in paragraph 9.5.1(a),
below, shall designate acreage within a Prospect as
Development Acreage based upon the most current interpretation
available at the time of designation.
"EFFECTIVE DATE" means the effective date of this amended and
restated Employment Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct,
capital costs actually incurred by Company Group in connection
with exploration and development of such Prospect or
Prospects, including, without limitation, all costs incurred
in preparing for drilling, drilling, testing, completing,
equipping (including, without limitation, installation of
platforms, facilities and pipelines and dry hole costs) and
recompleting wells, all geological and geophysical costs, and
all leasehold costs (including bonus, delay rentals and all
other costs of acquiring and maintaining in force the leases,
or portions thereof or undivided interests therein, included
in such Prospects). Exploration and Development Costs shall
not include lease operating expenses or general and
administrative expenses of the Company Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect
which has not been designated by the committee described in
paragraph 9.5.1(a), below, as either Development Acreage or a
Producing Property Acquisition. Exploratory Acreage shall not
be limited as to depth (except to the extent, if any, to which
Company's Working Interest therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing
a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such
Employment Agreement -- Michael W. Strickler
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<PAGE> 10
hydrocarbon reservoir being economic, based on commercially
producible shows of hydrocarbons in a well drilled within such
reservoir, together with other geological and geophysical data
and interpretations, such that Company in its reasonable
judgment plans to develop such reservoir, and (b) is
reasonably expected by Company to be exploited and/or
developed by utilizing a floating production
facility and/or a tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than
an FPF/TLP Exploitation Prospect) with respect to which
Company reasonably expects to utilize a floating production
facility and/or a tension leg platform in connection with
operations to be conducted on such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first
well drilled on such Prospect in which Company participates as
a Working Interest owner or with respect to which Company
retains an overriding royalty or other interest in oil and gas
production from such well.
"MAJOR PROSPECT" means any FPF/TLP Exploration Prospect,
FPF/TLP Exploitation Prospect, Subsea Tieback Exploration
Prospect or Subsea Tieback Exploitation Prospect with respect
to which the total amount estimated by Company for Exploration
and Development Costs to be incurred by Company Group (i.e.,
net to Company Group's interest) through the end of the
primary development period for the field comprising such
Prospect exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which
provides for sharing between lessor and lessee of the net
profits or net proceeds, as defined in said lease, from the
sale of oil and/or gas produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation,
or its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross
production of oil and gas under each oil and gas lease (or
portion thereof) included within a Prospect, which interest
(except as herein otherwise provided) shall be free of all
costs of acquisition, exploration, drilling, completing,
equipping, operating and developing any oil and gas produced
from such lease.
A "PARENT" of a specified person is another person that
controls such specified person directly or indirectly through
one or more intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue
to Company or its assigns from its interest in oil and gas
production from such well (after deduction of Company's or its
assigns' prorata part of the burden of (i) all landowners'
royalties, overriding royalties, net profits interests,
production payments or other burdens upon, measured by or
payable out
Employment Agreement -- Michael W. Strickler
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<PAGE> 11
of such production and (ii) all applicable ad valorem,
production, severance, sales, gathering, windfall profits
excise and similar taxes) equals the sum incurred by or for
the account of Company or its assigns (x) in preparing for
drilling, drilling, testing, completing, equipping (including,
without limitation, installation of platforms, facilities and
pipelines), operating, reworking and recompleting the well,
and marketing the production therefrom, and (y) for such
well's allocable share of geological and geophysical costs,
leasehold costs and other common costs. "Leasehold costs"
shall mean payments for bonus, delay rentals, and all other
costs of acquiring from the landowners (or, in the case of an
acquisition by Company (but not any assignee of Company), from
predecessors in title to such leases) and maintaining in force
the leases allocated to the well. Leases "allocated" to a
well shall mean the leases or portions thereof or undivided
interests therein to which production from a well is
attributed, whether on a lease or unit basis. With respect to
each such well, "common costs" shall mean capital costs that
are attributable to (a) such Prospect as a whole or (b) such
well and one or more other wells (but not all wells) on such
Prospect and shall include, without limitation, costs of
drilling, plugging and abandoning non-productive wells on such
Prospect. Each such well's allocable share of common costs
shall be determined by Company in any manner it deems
appropriate from time to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well
and each subsequent well drilled on a Prospect, the point in
time at which such revenue to Company or its assigns from its
interest in oil and gas production from such well, after such
deductions mentioned above, equals the product of 2.5 times
the sum incurred by or for the account of Company or its
assigns (x) in preparing for drilling, drilling, testing,
completing, equipping, operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for
such well's allocable share of geological and geophysical
costs, leasehold costs and other common costs as mentioned
above.
A "PERSON" is an individual, a corporation, a trust, a
partnership, a limited liability company, an association or
any other entity.
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
Company during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves
considered proved under such lease or leases at the time of
acquisition. A Producing Property Acquisition shall include
acquisition of such leasehold interests even though Company
may have previously acquired interests in some or all of the
same leases as a Prospect acquisition (i.e., prior to the time
such leases were considered to contain proved oil and gas
reserves). Company may in its sole discretion
Employment Agreement -- Michael W. Strickler
-11-
<PAGE> 12
designate a Producing Property Acquisition in whole or in
part as a Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by Company within the
United States and its coastal waters while Employee is
employed by Company and during the term or extended term of
this Agreement covering lands which in the sole opinion of
Company may contain one or more hydrocarbon accumulations
capable of being commercially produced. For purposes of this
definition of Prospect, the acquisition of a lease or leases
shall mean the acquisition by Company of legal or beneficial
rights or interests in a lease or leases, including (without
limitation) contractual rights to acquire or earn a lease or
leases (whether by farmout agreement or otherwise, and whether
such contractual rights are subject to certain conditions such
as the drilling or completion of a commercial well, and
without regard to the results of the drilling or completion of
any such well under such contract). A Prospect shall not
include a prospect acquired by Company by merger or
consolidation of Company with or into another entity unless
such prospect is so designated by Company. A Prospect shall
not include a Producing Property Acquisition unless such
Prospect is so designated by Company, and shall not include
leases included in a Prospect under previous Employee
Incentive Compensation Plans. All Prospects shall be deemed
to be without depth limitation unless the Company designates
specified depths only at the time said Prospect is initially
acquired by Company. Notwithstanding the date or dates on
which leases in a Prospect are actually acquired by Company,
solely for purposes of determining the employees of Company
who are entitled to receive an Overriding Royalty Interest
therein, such leases, or portions thereof or undivided
interests therein, shall be deemed to have been acquired by
Company as of the date on which Company's management approved
such Prospect acquisition. In furtherance of the foregoing,
if any lease or leases, or portions thereof or undivided
interests therein, acquired by Company on or after April 18,
1996, but prior to the commencement of the term of this
Agreement, would constitute a "Prospect" under the foregoing
definition but for the fact that such lease or leases, or
portions thereof or undivided interests therein, were not
acquired by Company during the term of this Agreement, the
same shall, nevertheless, be deemed to have been acquired by
Company as of the commencement of the term of this Agreement
and shall constitute a Prospect for purposes of this paragraph
9.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a
sufficient likelihood of such hydrocarbon reservoir being
economic, based on commercially producible shows of
hydrocarbons in a well drilled within such reservoir, together
with other geological and geophysical data and
interpretations, such that Company in its reasonable judgment
plans to develop such reservoir, and
Employment Agreement -- Michael W. Strickler
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<PAGE> 13
(b) is reasonably expected by Company to be exploited and/or
developed by utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect
(other than a Subsea Tieback Exploitation Prospect) with
respect to which Company reasonably expects to utilize a
subsea tieback system in connection with operations to be
conducted on such Prospect.
A "SUBSIDIARY" of a specified person is an entity controlled
by such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election
of directors thereof.
"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the
costs and expenses relating to the maintenance and development
of, and operations relating to, such lease and the well or
wells associated therewith.
9.2 Employee's Property Interest.
9.2.1 Subject to the other provisions of this paragraph 9,
Employee shall own, be immediately vested with, and
be entitled to receive the benefits of an Overriding
Royalty Interest equal to an undivided percentage of
Company's Working Interest, more specifically
described below, in each well on a Prospect and the
lease or leases allocated thereto, as follows:
Employment Agreement -- Michael W. Strickler
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<PAGE> 14
EMPLOYEE: Michael W. Strickler
OVERRIDING ROYALTY INTEREST
IN
FPF/TLP EXPLORATION PROSPECTS,
FPF/TLP EXPLOITATION PROSPECTS,
SUBSEA TIEBACK EXPLORATION PROSPECTS
AND
SUBSEA TIEBACK EXPLOITATION PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.137499 0.549999
Group XV 5/16/96 and Thereafter 0.137499 0.549999
</TABLE>
OVERRIDING ROYALTY INTEREST
IN
ALL OTHER PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.15000 0.60000
Group XV 5/16/96 and Thereafter 0.15000 0.60000
</TABLE>
At 7:00 a.m. on the first day of the month following the month
in which Payout of such well occurs, the Overriding Royalty
Interest shall increase from the applicable before-Payout
percentage to the applicable after-Payout percentage. Except
as herein otherwise expressly provided, references in this
paragraph 9 to Employee's "Overriding Royalty Interest" with
respect to any Prospect shall mean the applicable
before-Payout and after-Payout percentages of Company's
Working Interest in such Prospect as set forth above.
9.2.2 Under previous Employee Incentive Compensation Plans, Employee
has received or is entitled to receive overriding royalty
interests ("Existing ORIs") in certain prospects (the
"Existing Prospects"). The Existing ORIs are equal to an
undivided percentage of Company's Working Interest, more
specifically described below by Group and Time Period during
which Company acquired such Existing Prospects, in each well
on an Existing Prospect and the lease or leases allocated
thereto, as follows:
Employment Agreement -- Michael W. Strickler
-14-
<PAGE> 15
EMPLOYEE: Michael W. Strickler
<TABLE>
<CAPTION>
EXISTING ORI
------------
GROUP DATES BEFORE PAYOUT After Payout
----- ----- ------------- ------------
<S> <C> <C> <C>
GROUP I 4/1/87-9/3/87 0.10000% 0.4000%
GROUP II 9/4/87-10/31/87 0.16250% 0.6500%
GROUP III 11/1/87-7/16/88 0.16250% 0.6500%
GROUP IV 7/17/88-12/15/88 0.16250% 0.6500%
GROUP V 12/16/88-3/31/89 0.17500% 0.7000%
GROUP VI 4/1/89-9/24/90 0.17500% 0.7000%
GROUP VII 9/25/90-6/30/91 0.17500% 0.7000%
GROUP VIII 7/1/91-9/30/91 0.15000% 0.6000%
GROUP IX 10/1/91-2/14/93 0.15000% 0.6000%
GROUP X 2/15/93-6/30/93 0.15000% 0.6000%
GROUP XI 7/1/93-4/29/94 0.15000% 0.6000%
GROUP XII 4/30/94-3/31/95 0.15000% 0.6000%
GROUP XIII 4/1/95-4/17/96 0.15000% 0.6000%
</TABLE>
The provisions of paragraphs 9.4, 9.5, 9.6 and 9.7 shall apply
to the Existing ORIs in the Existing Prospects as fully as
such provisions apply to any Overriding Royalty Interest in a
Prospect to which Employee is entitled under this Agreement.
Mention is made that, effective June 1, 1996, the Company has
repurchased certain of the Existing ORIs from Employee as
contemplated by the Stockholders' Agreement referred to in
paragraph 9.5.1(a).
9.3 Governmental Filings.
Company will assist Employee in Filing an 83b Election with
the Internal Revenue Service on each Prospect, on a prospect
by prospect or lease by lease basis, as the case may be,
denoting the transfer to Employee of the Overriding Royalty
Interest and stating the value of such interest for the
purposes at the time the interest is acquired.
9.4 Assignment of Overriding Royalty Interest.
Except as otherwise expressly provided in paragraphs 9.4.8 and
9.4.9, Employee shall not be entitled to obtain recordable
assignments of his
Employment Agreement -- Michael W. Strickler
-15-
<PAGE> 16
interest under this paragraph 9 until his completion of three years of
employment by Company and, except as otherwise expressly provided
herein, Employee shall forfeit ownership of such interest if
Employee's employment is terminated by Company pursuant to paragraph
3.5 or by Employee without Good Reason as defined in paragraph 3.9,
prior to the completion of such three years of employment. Upon
completion of three years of employment of Employee by Company,
Employee's ownership of interests theretofore or thereafter
transferred to him pursuant to this Agreement will no longer be
subject to forfeiture, and assignments will be made in accordance
with this paragraph 9.4. Subject to the other provisions of this
paragraph 9, Employee shall be entitled to the revenue arising from
his Overriding Royalty Interest whether or not he is entitled to a
recordable assignment. Subject to the foregoing provisions of this
paragraph 9.4 and to the provisions of paragraph 9.5, as soon as
practicable after the end of each calendar quarter during the term or
extended term of this Agreement, Employee shall be entitled to receive
recordable assignments of his Overriding Royalty Interest in a lease
or leases (or portions thereof) acquired by Company in a Prospect
during such calendar quarter. If Employee's employment is terminated
by Company pursuant to paragraph 3.5 or by Employee without Good
Reason as defined in paragraph 3.9, during any such calendar quarter,
Employee shall not be entitled to receive recordable assignments that
would otherwise have been due under this paragraph in respect of any
lease or leases (or portions thereof) acquired by Company in a
Prospect during such calendar quarter or thereafter (and Employee
shall not own, be vested with or be entitled to receive the benefits
of any Overriding Royalty Interest that would have been granted by
such recordable assignments) unless the termination is at the end of
the term or extended term of this Agreement. As soon as practicable
after the end of each such calendar quarter, Company shall provide
Employee with the following:
(a) A recordable assignment of his Overriding
Royalty Interest in the leases (or portions
thereof) acquired by Company in each Prospect
during such calendar quarter.
(b) A plat outlining the geographical limits of
each such Prospect. Company shall review
each Prospect plat each calendar quarter in
light of drilling activity on or near the
Prospect, and expand the plat boundary if new
leases are acquired which Company believes to
contain a prospective hydrocarbon
accumulation that is located on the same
geological feature as such Prospect.
Employee shall be entitled to his Overriding
Royalty Interest in any lease acquired by
Company within the Prospect plat boundary
(and, to the extent provided in paragraph
9.7.2, in any renewal, extension or new lease
within the Prospect plat boundary) for as
long as such lease within the boundary
remains in effect.
Employment Agreement -- Michael W. Strickler
-16-
<PAGE> 17
9.4.1 Upon execution and delivery of such recordable
assignment to Employee, Company shall record the
assignment.
9.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, Company believes in good
faith that there is a substantial likelihood that it
may be necessary to exercise its discretion under
paragraph 9.5 with respect to adjustment of
Employee's Overriding Royalty Interest in leases
included within such Prospect, Company may defer
delivery of a recordable assignment of Employee's
Overriding Royalty Interest pending a determination
under paragraph 9.5.
9.4.3 Upon request by Company, Employee agrees to execute
and deliver any and all transfer orders, division
orders and other documents as may be necessary or
appropriate to cause all revenue attributable to his
interest in a well to be paid to Company on his
behalf until delivery by Company to Employee of a
recordable assignment of his interest in such well
pursuant to this paragraph 9. In such event, Company
agrees promptly to process such funds and pay all
funds due Employee at the same time third parties are
paid revenue distributions from such well by Company.
After an assignment is delivered to Employee, Company
shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct
payment to Employee of all revenue attributable to
his interest in such well.
9.4.4. Subject to the last sentence of this paragraph 9.4.4,
Company or its assigns shall quarterly perform Payout
calculations on each well which has not reached
Payout in every Prospect so that payments to Employee
may be made on a proper before payout/after payout
basis on each well in every Prospect. Company or its
assigns shall prepare a quarterly Payout statement
for each well within each Prospect and shall provide
Employee a copy of said quarterly Payout statements
within ninety (90) days following the end of the
quarter. If Company or its assigns fails to provide
said quarterly Payout statements for any such well(s)
to at least five (5) employees (whether or not such
employees include the Employee) who are entitled to
receive an Overriding Royalty Interest in such
well(s) pursuant to this Agreement and/or other
employment agreements with Company for a period of
four (4) consecutive quarters, any such employee
(including without limitation, the Employee) may give
Company written notice of said failure. If Company
or its assigns does not provide the overdue quarterly
Payout statements to each employee entitled to same
within thirty (30) days following receipt of such
notice, all wells within such Prospect which had
previously been considered before Payout pursuant to
paragraph 9.2 shall be deemed to be after Payout
pursuant to paragraph 9.2 as of the first day of the
month
Employment Agreement -- Michael W. Strickler
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<PAGE> 18
following the month in which the earliest delinquent
quarterly Payout statement should have been provided.
When Payout status is reached on a well, Company or
its assigns shall deliver notice of such event to
Employee, the operator of such well and each purchaser
of production from such well and Company or its
assigns shall direct such operator or purchaser of
production (as appropriate) to disburse future
revenues attributable to Employee's and Company's
respective interests in such well on an after-Payout
basis. Notwithstanding the foregoing, if Employee's
Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph
9 so as to be the same percentage before and after
Payout of such well, then the provisions of this
paragraph 9.4.4 shall no longer apply from and after
the date of such adjustment.
9.4.5 Should Employee be married or divorced at such time
as Employee earns the right to have an Overriding
Royalty Interest assigned to him hereunder, Company
shall have no obligation to make assignments to
Employee's spouse/or former spouse. Any division of
community property shall be the responsibility of
Employee.
9.4.6 All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
(a) any joint operating agreement at any time
theretofore or thereafter entered into by Company or
its assigns with other Working Interest owners
covering any of the leases affected by the Overriding
Royalty Interest herein provided for, and (b) any
farm-out or other agreements under which Company
acquires or may acquire its interest in the leases;
including, particularly, by way of illustration and
not by way of limitation, (i) any provision of an
applicable farm-out agreement requiring reduction of
Company's interest in the leases after "payout" of an
earning well or wells thereunder, in which event
Employee's Overriding Royalty in such leases shall be
proportionately reduced, and (ii) any provision
requiring forfeiture of interest for
nonparticipation, recoupment of multiple recovery
costs and the like to the extent that Company would
forfeit its Working Interest for nonparticipation
either forever or until recoupment of drilling and/or
operating costs by the third parties electing to
participate, or such other like reason; and in the
event any such provisions come into effect,
Employee's Overriding Royalty in such leases shall be
suspended until such time, if ever, as such multiple
recovery of costs by the participating leasehold
owners has been recovered or such other cause for
suspension is removed and such Working Interest of
Company is reinstated, at which time Employee's
Overriding Royalty shall be so reinstated.
All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
the leases, any assignments
Employment Agreement -- Michael W. Strickler
-18-
<PAGE> 19
and/or subleases thereof theretofore made or agreed to
be made by Company, and any amendments or
modifications of the leases, theretofore or thereafter
made, and Employee agrees that any such amendments or
modifications may be made without the consent or
joinder of Employee.
9.4.7 Company or its assigns shall not have the right to
sell, assign, farmout, convey or otherwise encumber
Employee's Overriding Royalty Interest, except as
otherwise provided in this paragraph 9.
9.4.8(a) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, there shall have been a
Change in Control, then Employee
shall be entitled to receive
recordable assignments of his
Overriding Royalty Interest,
adjusted in the manner described
hereinbelow, in any lease or leases
(or portions thereof or undivided
interests therein) theretofore
acquired by Company and not yet
assigned during the term or extended
term hereof and, upon subsequent
acquisition by Company, in any lease
or leases (or portions thereof or
undivided interests therein)
thereafter acquired by Company, in
all Prospects acquired by Company
prior to such Change in Control
(without regard to whether or not
Employee has then completed three
years of employment by Company).
Said Overriding Royalty Interest
shall be assigned in the following
manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout interest
stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) with
the result that Employee's interests
before and after Payout shall be
equal.
9.4.8(b) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other
Employment Agreement -- Michael W. Strickler
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<PAGE> 20
than such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, the Company's Working
Interest in any Prospect is sold,
transferred or conveyed to the holder
of any indebtedness of the Company or
of Newco or of any parent or
subsidiary of the Company or Newco,
or to any unaffiliated third party,
by or pursuant to a foreclosure of
any mortgage or other security
interest therein securing such
indebtedness or any part thereof or
by transfer or conveyance in lieu of
such foreclosure, then Employee shall
be entitled to receive, prior to the
consummation of such sale, transfer
or conveyance, a recordable
assignment of his Overriding Royalty
Interest, adjusted in the manner
described in paragraph 9.4.8(a), in
any lease or leases (or portions
thereof or undivided interests
therein) theretofore acquired by
Company and not yet assigned during
the term or extended term hereof and,
upon subsequent acquisition by
Company, in any lease or leases (or
portions thereof or undivided
interests therein) thereafter
acquired by Company, in all Prospects
acquired by Company prior to such
sale, transfer or conveyance (without
regard to whether or not Employee has
then completed three years of
employment by Company).
9.4.9 Except as otherwise provided in the fifth sentence of
paragraph 9.4, and notwithstanding anything (other
than such fifth sentence of paragraph 9.4) contained
herein to the contrary, if, during the term or
extended term hereof, all or substantially all of the
Company's Working Interests in all or substantially
all Exploratory Acreage then owned by the Company are
sold, transferred or conveyed to an unaffiliated
third party, then Employee shall be entitled to
receive, prior to the consummation of such sale,
transfer or conveyance, recordable assignments of his
Overriding Royalty Interest, adjusted in the manner
described in paragraph 9.4.8(a), in all leases (or
portions thereof or undivided interests therein) that
cover and include such Exploratory Acreage not yet
assigned during the term or extended term hereof
(without regard to whether or not Employee has then
completed three years of employment by Company).
9.5 Retained Company Discretion
9.5.1 Employee and Company recognize that in instances
where all or a portion of Company's Working Interest
in a lease or leases will be sold or farmed out to
unaffiliated third parties, Employee's
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<PAGE> 21
Overriding Royalty Interest might in some
circumstances have a negative effect on the
marketability of Company's Working Interest to third
parties. In such cases, Company will in good faith
attempt to transfer Company's Working Interest subject
to Employee's Overriding Royalty Interest provided for
in this paragraph 9; provided, however, if, in
Company's good faith judgment, Company's Working
Interest cannot be sold or farmed out subject to
Employee's Overriding Royalty Interest, Company may
elect to adjust Employee's Overriding Royalty Interest
as hereinafter provided.
9.5.1(a) The Board of Directors of Company
shall designate a committee of not
less than three individual persons
employed by Company, at least half
of whom has been granted an employee
Overriding Royalty Interest by
Company, to exercise discretion on
behalf of Company in reducing or
modifying, pursuant to this
paragraph 9.5.1 only, the Overriding
Royalty Interests provided for in
this paragraph 9; provided, however,
that the Board of Directors of the
Company shall have the right to
designate a non-voting member of
such committee, who may be a
director of the Company or
otherwise, and such member shall
have the right to participate in all
meetings of such committee (and
shall receive reasonable advance
notice of any such meetings) and
shall be entitled to the same
information as is available to the
other members of the committee.
Such committee shall make all
decisions under this paragraph 9.5.1
subject to obtaining the approval of
the Board of Directors of Company
where such approval is required
under the provisions of this
paragraph 9.5.1. Any decision made
by the committee shall require the
approval of a majority of the
members of the committee. Any
change to this paragraph 9.5.1(a)
shall require the approval of the
Board of Directors of the Company
and a majority of the Management
Directors (as that term is defined
in the Stockholders' Agreement dated
April 2, 1996, between Enron Capital
& Trade Resources Corp., Newco and
certain employees of and consultants
to the Company, as it may be amended
from time to time) who became
stockholders pursuant to Section B.1
of that agreement.
9.5.1(b) With respect to any Prospect on
which no initial Well has been
drilled and no assignments of
Overriding Royalty Interests have
been made to Employee, the committee
may modify or reduce the Overriding
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<PAGE> 22
Royalty Interest of Employee in
leases included within such Prospect
in any manner necessary in the good
faith judgment of the committee to
make an interest in such Prospect
saleable to any person not in Company
Group; provided, however, in
connection with any sale by Company
of an interest in such Prospect to
any such person, Employee's
Overriding Royalty Interest shall be
reduced to zero unless the committee
recommends a lesser reduction and
such recommendation is approved by
the Board of Directors of Company.
Such modification or reduction shall
apply only to the interest sold to
such a person, and shall not affect
the interest retained by the Company.
Any reduction or exercise of
discretion by Company under this
paragraph shall be applied
proportionately to all participants
who are entitled to receive from
Company an Overriding Royalty
Interest in leases included
within such Prospect.
9.5.1(c) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has not
been determined by Company to be
capable of producing oil and/or gas,
should Company desire to sell all or
any portion of its Working Interest
in such Prospect to unaffiliated
third parties, the committee may
adjust the Overriding Royalty
Interest of Employee in leases
included within such Prospect in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout interest
stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9), with
the result that Employee's interests
before and after Payout shall be
equal.
Such adjustment shall apply only to
the interest sold to unaffiliated
third parties, and shall not affect
the interest retained by Company.
Any exercise of discretion by Company
under this paragraph shall be
Employment Agreement -- Michael W. Strickler
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<PAGE> 23
applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(c).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(c).
9.5.1(d) With respect to any Prospect which
has not been determined by Company
to be capable of producing oil
and/or gas, and regardless of
whether or not the Initial Well has
been drilled thereon, should Company
desire to farmout all or any portion
of its Working Interest in such
Prospect to unaffiliated third
parties, the committee shall (unless
the committee recommends otherwise
and the Board of Directors approves
such recommendation) adjust the
Overriding Royalty Interest of
Employee in leases included within
such Prospect in the following
manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests may have
previously been reduced pursuant to
other provisions of this paragraph 9)
by Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and
Employment Agreement -- Michael W. Strickler
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<PAGE> 24
during the period of time in which
Company receives such overriding
royalty interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph 9.2 above; provided,
however, if pursuant to such farmout
agreement, only a portion of
Company's overriding royalty
interest converts to a Working
Interest and Company retains,
following such conversion, some
overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest based
upon Company's Working Interest, an
interest equal to the percentage
stated in paragraph 9.2 above (as
such interest may have previously
been reduced pursuant to other
provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest farmed out to
unaffiliated third parties, and shall
not affect the interest retained by
Company. Any exercise of discretion
by Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
With respect to each well drilled on
the Prospect by a farmee of Company's
Working Interest and solely for the
purpose of this paragraph 9.5.1 (d),
Payout shall be defined as the point
in time at which the revenue to
Company from its interest in oil and
gas production from such well (after
deduction of Company's prorata part
of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production
payments or other burdens upon,
measured by or payable out of such
production and (ii) all applicable ad
valorem, production, severance,
sales, gathering, windfall profits
excise and similar taxes) equals the
sum incurred by or for the account of
Company (x) in preparing for
drilling, drilling, testing,
completing, equipping (including,
Employment Agreement -- Michael W. Strickler
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<PAGE> 25
without limitation, installation of
platforms, facilities and pipelines),
operating, reworking and recompleting
the well, and marketing the
production therefrom, and (y) for
such well's allocable share of
geological and geophysical costs,
leasehold costs, all other costs of
acquiring and maintaining in force
the leases allocated to the well and
other common costs. Leases
"allocated" to a well and "common
costs" shall have the respective
meanings ascribed thereto in the
definition of "Payout" set forth in
paragraph 9.1.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
has been a Change in Control, then
neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(d).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(d).
9.5.1(e) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has been
determined by Company to be capable
of producing oil and/or gas, should
Company desire to sell or farmout
all or any portion of its Working
Interest in such Prospect to
unaffiliated third parties, the
committee shall categorize
geographical areas of the leases
comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the Company's
Working Interest in any such
Development Acreage will be made
subject to Employee's Overriding
Royalty Interest provided for in
paragraph 9.2 hereinabove (as
Employment Agreement -- Michael W. Strickler
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<PAGE> 26
such interest may have previously
been adjusted pursuant to other
provisions of this paragraph 9);
provided, however, with respect to
each well drilled on the Prospect by
a purchaser or farmee or their
assigns of Company's Working
Interest, and solely for the purpose
of this paragraph 9.5.1(e), Payout
shall be defined as the point in time
at which the revenue to purchaser or
farmee or their assigns from its or
their interest purchased or farmed in
from Company in oil and/or gas
production from such well (after
deduction of purchaser's or farmee's
prorata part of the burden of (i) all
landowners' royalties, overriding
royalties, net profits interests,
production payments or other burdens
upon, measured by or payable out of
such production and (ii) all
applicable ad valorem, production,
severance, sales, gathering, windfall
profits excise and similar taxes)
equals the sum incurred by or for the
account of purchaser or farmee or
their assigns in preparing for
drilling, drilling, testing,
completing, equipping, operating,
reworking and recompleting the well,
and marketing the production
therefrom.
With respect to the Company's Working
Interest in Exploratory Acreage to
be sold by Company, the committee
may adjust the Overriding Royalty
Interest of Employee in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout interest
stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9), with
the result that Employee's interests
before and after Payout shall be
equal.
With respect to the Company's Working
Interest in Exploratory Acreage to be
farmed out by Company, the committee
shall (unless the committee
recommends otherwise and the Board of
Directors approves such
recommendation) adjust the Overriding
Employment Agreement -- Michael W. Strickler
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<PAGE> 27
Royalty Interest of Employee in the
following manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) by
Company's overriding royalty interest
set forth in the particular farmout
agreement for said Prospect, for and
during the period of time in which
Company receives such overriding
royalty interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph 9.2 above; provided,
however, if pursuant to such farmout
agreement, only a portion of
Company's overriding royalty
interest converts to a Working
Interest and Company retains,
following such conversion, some
overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest and in
addition to such Overriding Royalty
Interest based upon Company's
Working Interest, an interest equal
to the percentage stated in
paragraph 9.2 above (as such
interest may have previously been
reduced pursuant to other provisions
of this paragraph 9) multiplied by
Company's retained overriding
royalty interest.
Such adjustment shall apply only to
the interest sold or farmed out to
unaffiliated third parties, and shall
not affect the interest retained by
Company. Any exercise of discretion
by Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after the
Effective Date and during the
Employment Agreement -- Michael W. Strickler
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<PAGE> 28
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(e).
Notwithstanding anything contained
herein to the contrary, if, after the
Effective Date and during the term or
extended term hereof, the Company's
Working Interest in any Prospect is
sold, transferred or conveyed to the
holder of any indebtedness of the
Company or of Newco or of any parent
or subsidiary of the Company or
Newco, or to any unaffiliated third
party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing
such indebtedness or any part thereof
or by transfer or conveyance in lieu
of such foreclosure, then such holder
or other third party shall not have
any right to make the adjustment
described above in this paragraph
9.5.1.(e).
If any of the events set forth in the
two immediately preceding sentences
hereof should occur, such that the
adjustment described above in this
paragraph 9.5.1(e) with respect to
the Overriding Royalty Interest of
Employee in leases in such
Exploratory Acreage is precluded from
occurring as provided above, then,
with respect to each well drilled on
such Exploratory Acreage by a
purchaser or farmee or their assigns
of Company's Working Interest, and
solely for purposes of this paragraph
9.5.1(e), Payout shall be defined as
set forth above in this paragraph
9.5.1(e).
9.5.2 Within sixty (60) days after the end of each fiscal
year of Company, Company may in its sole discretion
elect to reduce the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to Prospects
subject to this Agreement that were acquired by
Company during such fiscal year (which election, if
timely made as above provided, shall be effective as
of the beginning of such fiscal year) based on actual
Exploration and Development Costs incurred by Company
Group during such fiscal year in respect of all
Prospects subject to this Agreement, as follows (with
linear interpolation between indicated levels of
costs):
Employment Agreement -- Michael W. Strickler
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<PAGE> 29
<TABLE>
<CAPTION>
Total E & D
Costs Level Permitted Reduction
----------- -------------------
<S> <C>
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
</TABLE>
**Permitted Reduction shall be determined in the sole discretion of Company.
The total Exploration and Development Costs levels
and resultant ranges and escalation increments
provided for above are "Base Year" figures for fiscal
year 1996-1997, and shall be adjusted annually on a
compound basis beginning with the fiscal year
commencing April 1, 1997, according to the then
current Council of Petroleum Accountants Societies'
(COPAS) adjustment rate (based upon the percentage
increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers as of
April 1 as published by the United States Department
of Labor, Bureau of Labor Statistics).
The "Permitted Reduction" shall mean the percentage
by which Employee's Overriding Royalty Interest (both
before and after Payout) may be adjusted downward.
Each such adjustment shall determine Employee's
Overriding Royalty Interest for the fiscal year in
question, and shall be uniform on Prospects acquired
during that period (subject to paragraphs 9.5.1 and
9.5.3). Without limiting the foregoing, a Permitted
Reduction shall apply to any Major Prospect subject
to this Agreement that was acquired by Company during
such fiscal year, whether or not an adjustment of
Employee's Overriding Royalty Interest in such Major
Prospect shall have been made pursuant to paragraph
9.5.3.
All leases acquired in those Prospects, whether
during the same fiscal year or thereafter, shall be
subject to the same Employee's Overriding Royalty
Interest established at the time the Prospect was
acquired, subject, however, to adjustment as provided
for in this paragraph 9. A Permitted Reduction in
Employee's Overriding Royalty Interest for a
particular fiscal year, however, shall not operate to
reduce Employee's Overriding Royalty Interest stated
in paragraph 9.2 in respect of any Prospects acquired
by Company in any subsequent fiscal year during the
term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Employment Agreement -- Michael W. Strickler
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<PAGE> 30
Exploitation Prospects acquired by
Company during a fiscal year of
Company for which Company's estimate
of Exploration and Development Costs
incurred or to be incurred by Company
Group in respect of all FPF/TLP
Exploitation Prospects acquired in
such fiscal year exceeds $30 million
through the end of the respective
primary development periods for the
fields comprising such FPF/TLP
Exploitation Prospects (which
periods, solely for purposes of the
adjustment provided for in this
paragraph, shall not exceed five (5)
years), an alternative calculation
will be made prior to determining the
applicable "Permitted Reduction" of
Employee's Overriding Royalty
Interest with respect to such FPF/TLP
Exploitation Prospects. Such
alternative calculation shall be
based upon the assumptions that the
total Exploration and Development
Costs to be incurred by Company Group
in respect of all such FPF/TLP
Exploitation Prospects will be
incurred over a two (2) year period
and that such Exploration and
Development Costs will be in addition
to a "base level" of $70 million in
Exploration and Development Costs to
be incurred by Company Group
exclusive of the identified FPF/TLP
Exploitation Prospects. Such
alternative Exploration and
Development Costs level (the
"alternative E & D Costs level")
shall be determined as follows:
The alternative E & D Costs level
shall be the sum of:
(i) One-half of Company's estimate
of Exploration and Development
Costs incurred or to be
incurred by Company Group
through the end of the
respective primary development
periods in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal
year, plus
(ii) $70 million.
The Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects (both before and after
Payout) may, in Company's sole
discretion, be reduced by the
greater of (x) the "Permitted
Reduction" percentage set forth in
the table above in this paragraph
for the actual "Total E & D Costs
Level" for such fiscal year and (y)
the "Permitted Reduction" percentage
set forth in the table above that
would be applicable if
Employment Agreement -- Michael W. Strickler
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<PAGE> 31
the "Total E & D Costs Level" for
such fiscal year were equal to such
"alternative E & D Costs level".
If the Overriding Royalty Interest
set forth in paragraph 9.2 with
respect to such FPF/TLP Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set forth
in paragraph 9.2, Company may, in its
sole discretion, further reduce such
Overriding Royalty Interest to an
interest equal to two-thirds (before
and after Payout, respectively) of
such Overriding Royalty Interest set
forth in paragraph 9.2. Further, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploitation
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph 9.2
times a Working Interest percentage
of 50% of 8/8ths, Company may, in its
sole discretion, further reduce such
Overriding Royalty Interest set forth
in paragraph 9.2 with respect to such
FPF/TLP Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploitation Prospect,
would equal the Overriding Royalty
Interest percentage (before and after
Payout, respectively) set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths.
9.5.2(b) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploitation Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such Subsea Tieback
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
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<PAGE> 32
times Company's Working Interest in
such Subsea Tieback Exploitation
Prospect, would equal the Overriding
Royalty Interest percentage (before
and after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50% of
8/8ths.
9.5.2(c) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding
Royalty Interest set forth in
paragraph 9.2. Further, if the
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such FPF/TLP
Exploration Prospect to a percentage
(before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploration Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(d) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploration Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the
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<PAGE> 33
Overriding Royalty Interest
percentage set forth in paragraph 9.2
times a Working Interest percentage
of 50% of 8/8ths, Company may, in its
sole discretion, further reduce such
Overriding Royalty Interest set forth
in paragraph 9.2 with respect to such
Subsea Tieback Exploration Prospect
to a percentage (before and after
Payout, respectively) that, when
multiplied times Company's Working
Interest in such Subsea Tieback
Exploration Prospect, would equal the
Overriding Royalty Interest
percentage (before and after Payout,
respectively) set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths.
9.5.3 With respect to any Major Prospect, Company may in
its sole discretion elect to adjust the Overriding
Royalty Interest set forth in paragraph 9.2,
effective as of the date of Company's acquisition of
such Major Prospect, as follows:
Employee's before-Payout interest shall be reduced
by the following formula:
<TABLE>
<S> <C>
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
-
Y
</TABLE>
where "X" equals the total amount estimated by
Company for Exploration and Development Costs to be
incurred by Company Group in respect of such Major
Prospect through the end of the primary development
period for the field comprising such Major Prospect
(which period, solely for purposes of such adjustment
calculation, shall not exceed five (5) years), and
where "Y" equals $30 million.
Employee's after-Payout interest shall be increased
by adding thereto the full amount of the percentage
interest so deducted from Employee's before-Payout
interest until 2.5 times Payout is reached, at which
time Employee's after-Payout interest shall be
reduced by subtracting therefrom the same percentage
interest that was previously added thereto pursuant
to this sentence.
Such election may be made by Company whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been
Employment Agreement -- Michael W. Strickler
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reduced pursuant to paragraph 9.5.2. In the case of
any such prior reduction pursuant to paragraph 9.5.2,
the term "original before-Payout interest" as used
above in this paragraph shall refer to Employee's
before-Payout interest as previously reduced
pursuant to paragraph 9.5.2.
9.5.4 Notwithstanding anything contained herein to the
contrary, after an assignment is delivered to
Employee with respect to a Prospect pursuant to
paragraph 9.4, Company or its assigns may no longer
reduce or modify Employee's Overriding Royalty
Interest on any well in such Prospect without written
consent of Employee, except pursuant to paragraphs
9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3 in the
case only of assignments other than those delivered
pursuant to paragraphs 9.4.8(a), 9.4.8(b) and 9.4.9.
9.5.5 In no event may any party other than Company reduce
or modify Employee's Overriding Royalty Interest
without written consent of Employee.
9.5.6 Company shall give Employee written notice of any
adjustment made to Employee's Overriding Royalty
Interest pursuant to the provisions of paragraphs
9.5.1(b), 9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and
9.5.3 within one hundred twenty (120) days following
such adjustment.
9.5.7 Upon request by Company, Employee shall execute and
deliver to Company such reassignments, transfer
orders, division orders, releases and other documents
deemed by Company to be necessary or appropriate to
evidence any modification, reduction or other
adjustment pursuant to this paragraph 9.5.
9.6 Company's Preferential Right to Purchase.
If at any time during the term or extended term of this
Agreement, or if within one (1) year from the expiration of
this Agreement, Employee receives and desires to accept an
offer for the purchase of a part or all of Employee's
Overriding Royalty Interest assigned pursuant to this
paragraph 9 (the portion or all of such Overriding Royalty
Interest covered by such offer to purchase being herein
sometimes called the "Offered Interest"), from a prospective
third party purchaser who is ready, willing and able to
purchase the same, then Employee shall have the right to sell
such Offered Interest, but only after complying with the
following terms and provisions:
9.6.1 The offer shall first be reduced to writing and
signed by Employee and the offeror. Employee shall
give Company written notice of his receipt of, and
his desire to accept, such written offer, together
with a copy of such written offer signed by the
prospective third
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party purchaser and containing all of the terms and
conditions of such offer. The date such written
notice is given to Company is herein sometimes called
the "Original Date."
9.6.2 Company shall thereafter have an option to purchase
the Offered Interest upon the same terms set forth in
said offer, which option may be exercised by written
notice thereof given to Employee within ten (10) days
after the Original Date.
9.6.3 If the Offered Interest is not purchased by Company
pursuant to the foregoing provisions of this
paragraph, then Employee shall have the right to sell
the Offered Interest to the prospective third party
purchaser named in such offer, provided that such
sale is consummated within thirty (30) days from the
expiration date of the option of Company created
hereby and provided that such sale is made in strict
conformity with the terms of such offer.
9.6.4 If, however, such sale of the Offered Interest does
not occur within such thirty-day period for the price
and upon the terms set forth in such offer, then any
sale of part or all of such Offered Interest
thereafter shall again be subject to the option to
purchase granted to Company under this paragraph 9.6.
9.6.5 If Employee elects to take title to an Overriding
Royalty Interest in a legal entity other than himself
(which he may do only with Company's consent), such
entity shall take title subject to all of the terms
and conditions of this Agreement.
9.7 Additional Provisions Affecting Overriding Royalty
Interest.
In addition to the other provisions of this paragraph 9,
Employee's Overriding Royalty Interest shall be subject to the
following:
9.7.1 Notwithstanding anything to the contrary contained
herein, Employee shall not have the right to take in
kind or separately dispose of the production of oil
and gas attributable to his Overriding Royalty
Interest.
9.7.2 Employee's Overriding Royalty Interest shall also
apply to the production of oil and gas under the
terms and provisions of any renewal, extension or new
lease, to the extent such renewal, extension or new
lease covers all or any portion of any lands covered
by the expired lease which was subject to Employee's
Overriding Royalty Interest or is within the Prospect
plat, and provided, however, that any such renewal,
extension or new lease shall have been acquired by or
for the benefit of Company, either prior to or within
one (1) year after the expiration of the expired
lease.
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<PAGE> 36
9.7.3 Except as otherwise provided in this paragraph 9, in
no event shall Employee ever be liable or responsible
in any way for payment of any part of any
exploration, drilling or production costs or
liabilities incurred by Company or its assigns or
other lessees attributable to the lease or leases in
a Prospect or to the production therefrom, it being
the intent of the parties that Employee's Overriding
Royalty Interest shall constitute a non-participating
royalty interest for all purposes.
9.7.4 Company will conduct and carry on the development,
maintenance and operation of any lease subject to
Employee's Overriding Royalty Interest in a manner
which it deems in its sole judgment to be reasonable
and prudent and in accordance with good oil and gas
field practices, and it will drill such wells as it
deems proper in its sole judgment from time to time
in order to protect such lease from drainage;
provided, however, (a) nothing herein contained
shall obligate Company to conduct any drilling
operations whatsoever upon such lease, or to continue
to operate any well or to operate or maintain in
force or attempt to maintain in force such lease by
payment of delay rentals, compensatory royalties or
other payments or by the drilling of any wells upon
said lease, or in any other manner, and the extent
and duration of all operations, as well as the
preservation of each of such leases by delay rental
payments or otherwise, shall be solely at the will of
Company, and (b) Company shall have the right at any
time to surrender, abandon or otherwise terminate any
such lease in whole or in part without liability to
Employee.
9.7.5 Company shall have the right to sell all production
attributable to Employee's Overriding Royalty
Interest on the same basis upon which the production
attributable to Company's interest in the same
production is sold, and shall account to Employee on
that basis. In no event shall Employee be entitled
to receive payments for production attributable to
his Overriding Royalty Interest calculated on a basis
higher than that upon which Company's interest in the
same production is calculated or computed on a higher
price than that payable to Company on account of
production attributable to its interest, and in no
event shall Employee be entitled to receive payments
on amounts suspended by purchasers of the production
pending determination of the authorized price by
governmental entities. However, if Company sells any
such production to an affiliate of Company, the price
therefor shall not be less than would have been
reasonably obtainable in a sale to a non-affiliated
purchaser.
9.7.6 There shall be deducted from the production, before
Employee's Overriding Royalty Interest is computed,
any production lost in the production from the
leases, or any lands pooled therewith, or used
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<PAGE> 37
for drilling, operating, development or production or
in plant operations (including gas injection,
secondary recovery, pressure maintenance,
repressuring, cycling operations, plant fuel or
shrinkage) conducted for the purpose of producing or
processing production from lands covered by the leases
or from any lands pooled with the leases.
9.7.7 Company shall have the right and option, but not the
obligation, to process gas produced and saved from
the leases. If Company elects to process or have
processed, such gas in a gas processing plant or
other facility, whether or not owned by Company, then
in such event Employee shall be paid his percentage
share provided for herein of the proceeds of sale of
all gasoline or other liquid hydrocarbons or other
products manufactured or extracted from such gas as a
result of such processing (collectively, the
"Products"), less the costs of extraction or
manufacture (which may consist of a portion of the
Products). Company shall also pay to Employee the
same percentage share of the proceeds of sale of all
residue gas sold by Company, less expenses incurred
by Company in transporting any such gas to point of
delivery and for dehydration and/or compression of
gas at or prior to such delivery and other expenses
and fees typically borne by royalty owners (excluding
expenses or fees for capital projects funded by
Company to the extent such expenses or fees have been
included in the Payout calculation for the well from
which such gas is produced).
9.7.8 Employee's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing
and transporting production from the leases or from
any lands pooled therewith which are typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such production
is produced).
9.7.9 Employee's Overriding Royalty Interest shall also
bear its share of all ad valorem, production,
severance, sales, gathering and other taxes typically
borne by royalty owners (whether state, federal or
otherwise) assessed or levied on or in connection
with the Overriding Royalty Interest or the
production from the leases.
9.7.10 Company or its assigns shall have the right and
power, without any approval by Employee, to pool or
unitize any lease which is subject to Employee's
Overriding Royalty Interest, and to alter, change,
amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as
to all or any part of a Prospect, as to any one or
more of the formations or horizons thereunder, upon
such terms and provisions as Company shall in its
sole discretion determine. If and whenever through
the exercise
Employment Agreement -- Michael W. Strickler
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<PAGE> 38
of such right and power, or pursuant to any law now
existing or hereafter enacted, or any rule, regulation
or order of any governmental body now or hereafter
promulgated, any of the leases of Company are pooled
or unitized in any manner, Employee's Overriding
Royalty Interest shall also be pooled and unitized,
and in such event Employee's Overriding Royalty shall
only be paid on that portion of the production from
the unit or units so pooled, which is attributable
to said leases under and by virtue of the pooling and
unitization.
9.7.11 Company may withhold payment to Employee of any funds
attributable to Employee's Overriding Royalty
Interest which Company, in its sole discretion, deems
to be subject to a risk of refund or recoupment
pursuant to any rule, regulation or order of any
governmental authority or any adverse claims by third
parties. During such suspense period, Employee shall
not be entitled to interest on sums so withheld.
9.7.12 In the event Company's Working Interest in any lease
in which Employee is entitled to an Overriding
Royalty Interest covers less than all of the full and
entire undivided interest in and to the land
described therein, and in and to all the oil and gas
rights relating thereto, then in that event the
Overriding Royalty Interest as to that portion of the
leased premises in which Company's Working Interest
in such lease does not cover such full and entire
undivided interest shall be reduced proportionately
(i.e., in the proportion that the undivided interest
in and to said land and oil and gas rights covered by
such lease bears to such full and entire undivided
interest).
9.7.13 Notwithstanding anything contained in this paragraph
9 to the contrary, Employee's Overriding Royalty
Interest in any Net Profit Share Lease ("NPSL") shall
be reduced at the same time and in the same
percentage as Company's net revenue interest in said
NPSL is reduced pursuant to the provisions of said
NPSL.
9.7.14 Company and Employee further undertake and agree
promptly to execute and deliver, upon request of
either party, all assignments, reassignments,
transfer orders, division orders, releases and any
other documents as may be necessary to implement this
paragraph 9 or otherwise to more fully assure to each
party the rights and interests of such party provided
for in this paragraph 9.
10. Insurance.
10.1 Employee shall be eligible for participation in such
insurance programs as Company shall institute from
time to time covering medical and dental expenses and
such life and accidental death and
Employment Agreement -- Michael W. Strickler
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<PAGE> 39
dismemberment insurance programs as Company shall
institute from time to time. Payment of premiums for
such coverages shall be in accordance with Company
policy covering all employees as may be established
from time to time by Company. Employee shall also be
eligible for participation in such retirement,
pension, deferred compensation and other benefit
programs the Company shall initiate from time to
time.
11. Outside Activities.
During the term or extended term of this Agreement, Employee
shall devote all of his working time, energy and talents to
the due discharge and performance of his duties hereunder, at
the direction and subject to the control of Company, and shall
perform such services and duties as shall reasonably be
required from him from time to time by Company. Employee
agrees that he will not knowingly become involved in a
conflict of interest with Company or its subsidiaries, or upon
discovery thereof, allow such a conflict to continue.
Moreover, Employee agrees to provide Company a statement of
all other directorships Employee holds, with a brief
description of the business activities of each organization.
This statement shall be provided on or before December 31 of
each year. If, in the opinion of Company, a conflict of
interest exists between Company (and its affiliates) and the
organization in which the Employee holds a directorship,
Company can require Employee to resign the outside
directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed to
limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of the
issued and outstanding and publicly traded (on a recognized
national or regional securities exchange or in the
over-the-counter market) capital stock or other securities of
any corporation or other entity that conducts activities that
compete with the business of Company or any affiliate of
Company; or (ii) to invest, individually or with others, in
oil and gas prospects, subject, however, in the case of oil
and gas prospects to the following conditions:
12.1 Company must have first had the right and opportunity
to purchase all of the interest in any prospect made
available to Employee, even if this would preclude
Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made
available to Employee and have no desire to acquire
an additional interest, or declined to participate at
all in the prospect. If Company elects to
participate in less than the full interest made
available to Employee, Employee
Employment Agreement -- Michael W. Strickler
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<PAGE> 40
may invest in the portion of such interest not
acquired by Company.
12.3 Employee must purchase his interest in the oil and
gas prospect on terms which are no more favorable
than those made available to Company.
13. Disability During Employment.
If Employee shall become unable to perform his duties by
reason of disability, he shall be entitled to receive, in
addition to any insurance benefits he may receive, all of his
salary for the first one (1) month of his disability, and
one-half (1/2) of his salary for the next three (3) months of
disability. Periods of disability shall not be cumulative so
long as they are separated by at least ninety (90) days of
continuous service.
The term "disability" shall mean disability which, in the
opinion of a doctor satisfactory to Company, renders Employee
unable to perform his duties hereunder as evidenced by such
doctor's certificate. The date disability commences shall be
the date Employee first absents himself from work during a
continuous period of disability.
14. Merger or Acquisition.
In the event Company should be acquired by or merged into
another company, by signature of Company's authorized
representatives, Company hereby agrees that this Employment
Agreement shall be binding upon Company, its successors and
assigns, and shall be disclosed to any party considering
merger with, or acquisition of, Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this
Agreement and the dispute cannot be settled through
direct discussions, Company and Employee agree that
they shall first endeavor to settle the dispute in an
amicable fashion. If such efforts fail to resolve
the dispute, the dispute shall, except as otherwise
provided in paragraph 19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2 below,
any and all claims, demands, cause of action,
disputes, controversies, and other matters in
question arising out of or relating to this
Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, even though some or all of
such claims allegedly are extracontractual in
nature,
Employment Agreement -- Michael W. Strickler
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<PAGE> 41
whether such claims sound in contract, tort,
or otherwise, at law or in equity, under state
or federal law, whether provided by statute or
the common law, for damages or any other
relief, shall be resolved by binding
arbitration pursuant to the Federal
Arbitration Act in accordance with the
Commercial Arbitration Rules then in effect
with the American Arbitration Association (the
"AAA"). The arbitration proceeding shall be
conducted in Houston, Texas. The arbitration
may be initiated by either party by providing
to the other a written notice of arbitration
specifying the claims, and the parties shall
thereafter endeavor to agree on an arbitrator.
If within thirty (30) days of the notice of
initiation of the arbitration procedure, the
parties are unable to agree on an arbitrator,
the party requesting arbitration shall file a
request with the AAA that the Houston, Texas
office of the AAA provide a list of potential
arbitrators to both parties. The parties
shall thereafter have sixty (60) days to
select an arbitrator from such list, with such
selection to be by mutual agreement. If the
parties fail to select an arbitrator within
such time by mutual agreement, then either
party may request that the Chief Judge of the
U.S. District Court for the Southern District
of Texas appoint an arbitrator, and any such
appointment shall be binding. The arbitrator,
utilizing the Commercial Arbitration Rules of
the American Arbitration Association, shall
within 120 days of his or her selection,
resolve all disputes between the parties.
There shall be no transcript of the hearings
before the arbitrator. The arbitrator's
decision shall be in writing, but shall be as
brief as possible. The arbitrator shall not
assign the reasons for his or her decision.
The arbitrator's decision shall be final and
non-appealable to the maximum extent permitted
by law. Judgment upon any award rendered in
any such arbitration proceeding may be entered
by any federal or state court having
jurisdiction. This agreement to arbitrate
shall be enforceable in either federal or
state court. The enforcement of this
agreement to arbitrate and all procedural
aspects of this agreement to arbitrate,
including but not limited to, the construction
and interpretation of this agreement to
arbitrate, the issues subject to arbitration
(i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver,
delay or defenses to arbitrability, and the
rules governing the conduct of
Employment Agreement -- Michael W. Strickler
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<PAGE> 42
the arbitration, shall be governed by and
construed pursuant to the Federal Arbitration
Act and shall be decided by the arbitrator.
In deciding the substance of any such claims,
the arbitrator shall apply the substantive
laws of the State of Texas (excluding Texas
choice-of-law principles that might call for
the application of some other State's law);
provided, however, it is expressly agreed that
the arbitrator shall have no authority to
award treble, exemplary, or punitive damages
under any circumstances regardless of whether
such damages may be available under Texas law,
the parties hereby waiving their right, if
any, to recover treble, exemplary, or punitive
damages in connection with any such claims.
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the
event that either party wishes to seek a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief in connection with any or all such
claims, demands, cause of action, disputes,
controversies, and other matters in question
arising out of or relating to this Agreement,
any provision hereof, the alleged breach
thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, including disputes arising
out of a breach or alleged breach of
paragraph 4 or 16, even though some or all of
such claims allegedly are extra-contractual
in nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, each party shall
have the right to pursue such injunctive
relief in court, rather than by arbitration.
The parties agree that such action for a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief will be brought in the State or
federal courts residing in Houston, Harris
County, Texas.
15.2 The Company shall pay all costs and expenses of
Company and Employee (including, but not limited to,
attorneys' fees, the fees of the arbitrator and the
AAA and any other related costs) for any arbitration
proceeding or legal action; provided, however, that
if in any such arbitration proceeding or legal
action, the arbitrator or court, respectively,
determines that Employee has prosecuted or defended
any issue in such proceeding or action in bad faith,
the
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arbitrator or court, respectively, may allocate the
portion of such costs and expenses relating to such
issue between the parties in any other manner deemed
fair, equitable and reasonable by the arbitrator
or court, respectively.
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation and
benefits to be paid to Employee hereunder, and as an
additional incentive for Company to enter into this
Agreement, Company and Employee agree to the
non-competition obligations hereunder. Employee will
not, directly or indirectly for Employee or for
others:
16.1.1 in any geographic area or market where
Company or any of its subsidiaries are
conducting any business as of the date of
termination of the employment relationship or
have during the previous twelve months
conducted such business, engage in any
business competitive with any such business;
or
16.1.2 in any geographic area or market where
Employee knew Company contemplated entering
any business as of the date of termination of
the employment relationship, but only if
Company had, as of such date, invested
significant resources toward entering into
such business in such geographic area or
market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise
assist, any other person, association, or
entity who is engaged, directly or
indirectly, in any business competitive with
Company's business within the parameters
described in paragraphs 16.1.1 and 16.1.2
above with respect to such competitive
business; or
16.1.4 induce any employee of Company or any of its
subsidiaries to terminate his or her
employment with Company or its subsidiaries,
or hire or assist in the hiring of any such
employee by any person, association, or
entity not affiliated with Company.
These non-competition obligations shall commence upon
the date of execution of this Agreement and extend
until the earlier of (a) the expiration of the term
of this Agreement (or any extended term) or (b)
twelve (12) months after termination of the
employment relationship; provided, however, that
notwithstanding anything contained in this paragraph
16 to the contrary, such
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obligations shall only apply after the termination of
employment if the termination of employment results
from termination for Cause by Company under paragraph
3.5 or voluntary termination without Good Reason by
Employee (it being understood and agreed that
termination of this Agreement by Employee under
paragraph 3.1 shall not, for purposes of this
paragraph 16, constitute voluntary termination without
Good Reason by Employee).
16.2 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
businesses anywhere in the world during the period
provided for above, but acknowledges that Employee
will receive sufficiently high renumeration and other
benefits under this Agreement to justify such
restriction. Employee acknowledges that money
damages would not be sufficient remedy for any breach
of this Article by Employee, and Company shall be
entitled to enforce the provisions of this Agreement
and/or to specific performances and injunctive relief
as remedies for such breach or any threatened breach.
Such remedies shall not be deemed the exclusive
remedies for a breach of this Article, but shall be
in addition to all remedies available at law or in
equity to Company, including, without limitation, the
recovery of damages from Employee and Employee's
agents involved in such breach and remedies available
to Company pursuant to other agreements with
Employee.
16.3 It is expressly understood and agreed that Company
and Employee consider the restrictions contained in
this paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States
Foreign Corrupt Practices Act, generally codified in 15 USC 78
(FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo
contendere or admits civil or criminal liability under the
FCPA, or if a court finds that Employee committed an action
resulting in any Company entity having civil or criminal
liability or responsibility under the FCPA with knowledge of
the activities giving rise to such liability or knowledge of
facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were
likely to occur, such action or finding shall constitute Cause
for termination by Company under paragraph 3.5 of this
Agreement unless
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Company's Board of Directors determines that the actions found
to be in violation of the FCPA were taken in good faith
and in compliance with all applicable policies of Company.
18. Survival.
The provisions of paragraphs 4 and 16 shall survive any
termination of the employment relationship and/or of this
Agreement for the periods stated therein. The provisions of
paragraph 15 relating to arbitration shall survive any
termination of the employment relationship between Employee
and Company and the termination of this Agreement. Amounts,
compensation, rights and benefits which Employee is entitled
to receive or have accrued to Employee under this Agreement or
under any plan, program, arrangement, agreement or policy of
or with Company or any of its affiliates before, at or
subsequent to the termination of the employment relationship
between Employee and Company or the termination of this
Agreement shall not be superseded and shall survive any such
termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by Company or any of
its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions
being individually referred to herein as a "Payment,"
and any two or more of such payments or distributions
being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax,
and any interest in respect of such penalties,
additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"),
then Employee shall be entitled to receive an
additional payment or payments (individually referred
to herein as a "Gross-Up Payment" and any two or more
of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in
paragraph 19.11) imposed upon the Gross-Up Payment,
Employee retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
19.2 Subject to the provisions of paragraph 19.3 through
19.11, any determination (individually, a
"Determination") required to be made under this
paragraph 19, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment,
shall initially be made, at Company's expense, by
nationally recognized
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tax counsel mutually acceptable to Company and
Employee ("Tax Counsel"). Tax Counsel shall provide
detailed supporting legal authorities, calculations,
and documentation both to Company and Employee within
15 business days of the termination of Employee's
employment, if applicable, or such other time or times
as is reasonably requested by Company or Employee. If
Tax Counsel makes the initial Determination that no
Excise Tax is payable by Employee with respect to a
Payment or Payments, it shall furnish Employee with an
opinion reasonably acceptable to Employee that no
Excise Tax will be imposed with respect to any such
Payment or Payments. Employee shall have the right to
dispute any Determination (a "Dispute") within 15
business days after delivery of Tax Counsel's opinion
with respect to such Determination. The Gross-Up
Payment, if any, as determined pursuant to such
Determination shall be paid by Company to Employee
within five business days of Employee's receipt of
such Determination. The existence of a Dispute shall
not in any way affect Employee's right to receive the
Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such
Determination shall be binding, final and conclusive
upon Company and Employee, subject in all respects,
however, to the provisions of paragraph 19.3 through
19.11 below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it
is possible that Gross-Up Payments (or portions
thereof) which will not have been made by Company
should have been made ("Underpayment"), and if upon
any reasonable written request from Employee or
Company to Tax Counsel, or upon Tax Counsel's own
initiative, Tax Counsel, at Company's expense,
thereafter determines that Employee is required to
make a payment of any Excise Tax or any additional
Excise Tax, as the case may be, Tax Counsel shall, at
Company's expense, determine the amount of the
Underpayment that has occurred and any such
Underpayment shall be promptly paid by Company to
Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from
and against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of Employee resulting from any Final
Determination (as defined in paragraph 19.10) that
any Payment is subject to the Excise Tax.
19.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a claim
by Employee against Company
Employment Agreement -- Michael W. Strickler
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<PAGE> 47
under this paragraph 19 ("Claim"), including, but not
limited to, a claim for indemnification of Employee by
Company under paragraph 19.3, then such party shall
promptly notify the other party hereto in writing
of such Claim ("Tax Claim Notice").
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken
such action in connection with contesting such
Employee Claim as Company shall reasonably request in
writing from time to time, including the retention of
counsel and experts as are reasonably designated by
Company (it being understood and agreed by the
parties hereto that the terms of any such retention
shall expressly provide that Company shall be solely
responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and
the execution of powers of attorney, provided that:
19.5.1 within 30 calendar days after Company
receives or delivers, as the case may be, the
Tax Claim Notice relating to such Employee
Claim (or such earlier date that any payment
of the taxes claimed is due from Employee,
but in no event sooner than five calendar
days after Company receives or delivers such
Tax Claim Notice), Company shall have
notified Employee in writing ("Election
Notice") that Company does not dispute its
obligations (including, but not limited to,
its indemnity obligations) under this
Agreement and that Company elects to contest,
and to control the defense or prosecution of,
such Employee Claim at Company's sole risk
and sole cost and expense; and
19.5.2 Company shall have advanced to Employee on an
interest-free basis, the total amount of the
tax claimed in order for Employee, at
Company's request, to pay or cause to be paid
the tax claimed, file a claim for refund of
such tax and, subject to the provisions of
the last sentence of paragraph 19.7, sue for
a refund of such tax if such claim for refund
is disallowed by the appropriate taxing
authority (it being understood and agreed by
the parties hereto that Company shall only be
entitled to sue for a refund and Company
shall not be entitled to initiate any
proceeding in, for example, United States Tax
Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to
such advance or with respect to any imputed
income with respect to such advance; and
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<PAGE> 48
19.5.3 Company shall reimburse Employee for any and
all costs and expenses resulting from any
such request by Company and shall indemnify
and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute,
at the sole cost, expense and risk of Company, such
Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by Company to a Final Determination;
provided, however, that (i) Company shall not,
without Employee's prior written consent, enter into
any compromise or settlement of such Employee Claim
that would adversely affect Employee, (ii) any
request from Company to Employee regarding any
extension of the statute of limitations relating to
assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the
contested issues involved in, and amount of, the
Employee Claim relate is limited solely to such
contested issues and amount, and (iii) Company's
control of any contest or proceeding shall be limited
to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue
raised by the Internal Revenue Service or any other
taxing authority. So long as Company is diligently
defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to
Company any information reasonably requested by
Company that relates to such Employee Claim, and
shall otherwise cooperate with Company and its
representatives in good faith in order to contest
effectively such Employee Claim. Company shall keep
Employee informed of all developments and events
relating to any such Employee Claim (including,
without limitation, providing to Employee copies of
all written materials pertaining to any such Employee
Claim), and Employee or his authorized
representatives shall be entitled, at Employee's
expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of
a tax claimed (pursuant to an Employee Claim) that
has been advanced by Company pursuant to paragraph
19.5.2 hereof, the extent of the liability of Company
hereunder with respect to such tax claimed has been
established by a Final Determination, Employee shall
promptly pay or cause to be paid to Company any
refund actually received by, or actually credited to,
Employee with respect to such tax (together with any
interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such
taxing authority related thereto), except to the
extent that any amounts are then due and payable by
Company to Employee, whether under
Employment Agreement -- Michael W. Strickler
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<PAGE> 49
the provisions of this Agreement or otherwise. If,
after the receipt by Employee of an amount advanced by
Company pursuant to paragraph 19.5.2, a determination
is made by the Internal Revenue Service or other
appropriate taxing authority that Employee shall not
be entitled to any refund with respect to such tax
claimed and Company does not notify Employee in
writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the
amount of any Gross-Up Payments and other payments
required to be paid hereunder.
19.8 With respect to any Employee Claim, if Company fails
to deliver an Election Notice to Employee within the
period provided in paragraph 19.5.1 hereof or, after
delivery of such Election Notice, Company fails to
comply with the provisions of paragraph 19.5.2,
19.5.3 or 19.6 hereof, then Employee shall at any
time thereafter have the right (but not the
obligation), at his election and in his sole and
absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such Employee
Claim. Employee shall have full control of such
defense or prosecution and such proceedings,
including any settlement or compromise thereof. If
requested by Employee, Company shall cooperate, and
shall cause its affiliates to cooperate, in good
faith with Employee and his authorized
representatives in order to contest effectively such
Employee Claim. Company may attend, but not
participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph
19.8 and shall bear its own costs and expenses with
respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from
Company with respect to costs and expenses incurred
by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the
terms of this paragraph 19.9, Company shall pay, on a
fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such Employee Claim that have not
theretofore been paid by Company to Employee,
together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by
Company to Employee, within ten calendar days after
such Final Determination. In the case of any
Employee Claim not covered by the preceding sentence,
Company shall pay, on a fully grossed-up after tax
basis, to Employee in immediately available funds the
full amount of any
Employment Agreement -- Michael W. Strickler
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<PAGE> 50
taxes arising or resulting from or incurred in
connection with such Employee Claim at least ten
calendar days before the date payment of such taxes is
due from Employee, except where payment of such taxes
is sooner required under the provisions of this
paragraph 19.9, in which case payment of such taxes
(and payment, on a fully grossed-up after tax basis,
of any costs and expenses required to be paid under
this paragraph 19.9 shall be made within the time and
in the manner otherwise provided in this paragraph
19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim for
refund or credit in respect to an overpayment of tax
unless a suit is filed on a timely basis; or (D) any
final disposition by reason of the expiration of all
applicable statutes of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes), together
with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee
pursuant to this Agreement, whether by seeking other
employment or otherwise; nor shall the amount of any such
payment or other benefit be reduced on account of any
compensation earned by Employee as a result of employment by
another person or entity.
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended
except in writing and signed by Company and Employee.
This Agreement shall be binding upon the heirs,
administrators, or executors and the successors and
assigns of each party to this Agreement.
21.2 The rights and benefits of Employee under the
Agreement are personal to him and shall not be
assigned or transferred without the prior written
consent of Company. Subject to the foregoing, this
Agreement shall be binding upon and inure to the
benefit of
Employment Agreement -- Michael W. Strickler
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<PAGE> 51
the parties hereto and their respective heirs,
personal representatives, successors and assigns.
21.3 All titles or headings of sections or paragraphs or
other divisions of this Agreement are only for the
convenience of the parties and shall not be construed
to have any effect or meaning with respect to the
other content of such sections or paragraphs or other
divisions, such content being controlling as to the
agreement between the parties hereto.
21.4 This Agreement is made and will be performed under,
and shall be governed by and construed in accordance
with, the law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO THIS
AGREEMENT THAT HE HAS READ THIS AGREEMENT BEFORE
SIGNING IT AND THAT HE FULLY UNDERSTANDS ITS
PURPOSES, TERMS AND PROVISIONS, WHICH HE HEREBY
EXPRESSLY ACKNOWLEDGED TO BE REASONABLE IN ALL
RESPECTS. EMPLOYEE FURTHER ACKNOWLEDGES RECEIPT OF
ONE COPY OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
580 Westlake Boulevard, Suite 1300
Houston, Texas 77079
Attention: President and Chief Executive Officer
If to Employee:
Michael W. Strickler
5010 Huntwick Parc Ct.
Houston, Texas 77069
Company and Employee may change the above addresses
for notice purposes by notifying the other in
writing.
21.7 The Company may withhold from any amounts payable
under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
Employment Agreement -- Michael W. Strickler
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<PAGE> 52
21.8 Except as otherwise expressly provided herein,
nothing contained in this Agreement shall limit or
otherwise affect any rights or benefits which are
vested in, accrued to, or earned by Employee, or for
which Employee is entitled to, prior to the Effective
Date whether under the Employment Agreement or
otherwise.
21.9 ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL
AGREEMENT DATED EFFECTIVE AS OF FEBRUARY 12, 1996,
BETWEEN COMPANY AND EMPLOYEE SHALL TERMINATE AND BE
FROM THE EFFECTIVE DATE NULL, VOID AND OF NO FURTHER
FORCE OR EFFECT WHATSOEVER.
Executed as of the Effective Date in duplicate originals at Houston,
Texas.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ ROBERT E. HENDERSON
--------------------------------
Printed Name: Robert E. Henderson
------------------------
Printed Title: President and Chief
------------------------
Executive Officer
------------------------
EMPLOYEE:
/s/ MICHAEL W. STRICKLER
---------------------------------------
Michael W. Strickler
Employment Agreement -- Michael W. Strickler
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<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter called
this "Agreement") is entered into effective as of June 27, 1996 (the "Effective
Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy Oil & Gas
USA Inc.) (hereinafter called "Company") and James M. Fitzpatrick III
(hereinafter called "Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated March 31, 1987, which was thereafter amended on a number of
occasions (such Employment Agreement, as heretofore amended, being referred to
herein as the "Employment Agreement"); and
WHEREAS, Enron Capital & Trade Resources Corp., a Delaware
corporation, Mystery Acquisition, Inc., a Delaware corporation ("Parent"),
Robert E. Henderson, Richard R. Clark, Michael W. Strickler, and D. S. Huber,
have entered into that certain Stockholders' Agreement dated April 2, 1996 (the
"Stockholders Agreement"); and
WHEREAS, Section C.2(a) of the Stockholders Agreement provides that
the Employment Agreement will be amended and restated as set forth herein and
Company and Employee desire to so amend and restate the Employment Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as Vice President -
Land and Legal of Company. The permanent place of Employee's
employment shall be at a location within a 50-mile radius of
the central business district of the City of Houston, Texas;
provided, however, Employee shall be required to undertake
such ordinary and usual travel as is necessary to properly
discharge his duties and responsibilities hereunder. Employee
hereby accepts such employment, and agrees to serve Company
faithfully, diligently and in a good and workmanlike manner.
2. Term.
The term of employment shall be for a term of three (3) years
beginning on the Effective Date, subject, however, to the
provisions of paragraph 3.
3. Extension and Termination.
3.1 If either Employee or Company elects to terminate
this Agreement at the end of the term stated in
paragraph 2, or at the end of any
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 2
extended term hereof as hereinafter provided, notice
of the election to terminate shall be given to the
other party no later than six (6) months before the
end of this Agreement. If no notice is given by
either party, the term, or extended term, of this
Agreement shall be deemed to have been extended for
an additional six (6) months.
3.2 In the event Company elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary and
other benefits provided elsewhere in this
Agreement for Employee's services rendered to
Company hereunder through the end of such
term or extended term.
3.2.2 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment equal to six (6)
months' salary at Employee's monthly rate for
the month immediately preceding the month in
which Company elects to terminate this
Agreement.
3.2.3 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment for all (a) vacation
time carried forward from a previous year in
accordance with paragraph 8, and (b) all
earned and unused vacation time for the then
current year. Earned vacation time shall,
for the purpose of this paragraph, be
calculated by dividing the number of days in
the calendar year which have transpired by
365, and then multiplying the result by the
number of vacation days to which Employee is
entitled for that year pursuant to paragraph
8.
3.2.4 If Employee has a leased automobile, the
lease payments on which are guaranteed by
Company, Employee shall have the option, to
be exercised on or before the last day of his
employment hereunder, of assuming the
remaining lease payments and retaining the
automobile, or assigning the lease agreement
to Company in return for Company's agreement
to assume the remaining lease payments.
3.2.5 Interests vested in Employee under paragraph
9 of this Agreement shall be assigned in due
course in compliance with paragraph 9.4.
Company and Employee agree that the promises,
covenants and undertakings of paragraph 9
shall survive the termination of employment
of Employee and shall be binding on all
assigns of Company.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 3
3.3 In the event Employee elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the
term, or extended term hereof, unless waived
by Company.
3.3.2 The provisions of paragraphs 3.2.1, 3.2.3,
3.2.4, and 3.2.5 shall be applicable, but
Employee shall not be entitled to the payment
provided for in paragraph 3.2.2.
3.4 Company may at its option consent to a request by
Employee to terminate this Agreement at a time other
than that stated in paragraph 2, as extended, in
which case the date requested by Employee and agreed
to by Company will be the end of the term of this
Agreement and the provisions of paragraph 3.3 shall
be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon
written notice of such termination to Employee by
Company. Any termination of this Agreement by
Company for Cause shall be effective thirty (30) days
after written notice of termination for Cause is
given by Company to Employee. If Company terminates
this Agreement for Cause, Company shall have no
liability or obligation to Employee thereafter under
this Agreement except (i) for the payment of his
salary and other benefits through the month of
discharge, prorated in the case of salary for the
month of discharge on a daily basis to the date of
termination, and (ii) that the provisions of
paragraph 3.2.5 shall be applicable. As used in this
Agreement, the term "Cause" means (a) Employee is
found guilty of, admits in writing facts amounting
to, or is held civilly liable for fraud, embezzlement
or dishonesty, (b) Employee is convicted of a felony
involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in
good faith determines that the continued employment
of the Employee would be materially detrimental to
the Company (in any case which felony through lapse
of time or otherwise is not subject to appeal), (c)
Employee knowingly discloses trade secrets or
confidential Company matters to unauthorized persons,
(d) Employee willfully breaches or habitually
neglects any duties he is required to perform under
the terms of this Agreement and any such breach or
neglect is not cured within thirty (30) days after
Company has provided Employee with written notice of
such breach or neglect, (e) Employee materially
breaches any of the other material terms of this
Agreement and any such breach is not cured within
thirty (30) days after the Company has provided
Employee with written notice of such breach, and (f)
the occurrence of an action or finding
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 4
described in paragraph 17, except as otherwise
provided in paragraph 17. The waiver by Company of a
breach of any provision of this Agreement by Employee
shall not operate or be construed as a waiver of any
subsequent breach by Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in
paragraphs 3.1, 3.4 or 3.5 above, Employee shall be
entitled to receive on the date of such termination
or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the
month immediately preceding the month in
which such termination or discharge occurs,
for the unexpired portion of the term or
extended term hereof then in effect.
3.6.2 The payments and other benefits provided for
in paragraphs 3.2.2, 3.2.3, 3.2.4 and 3.2.5
hereof.
3.7 In the event Employee terminates this Agreement for
"Good Reason" (as defined in paragraph 3.9), and
prior to such termination Employee has not terminated
this Agreement under paragraph 3.1 hereof, Employee
shall be entitled to receive from Company on the date
of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in effect
at the effective time of such termination
(but prior to giving effect to any reduction
therein which precipitated such termination),
for the unexpired portion of the term or
extended term hereof then in effect.
3.7.2 A lump sum cash payment equal to six (6)
months' salary, at Employee's rate in effect
at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination).
3.7.3 The payments and other benefits provided for
in paragraphs 3.2.3, 3.2.4 and 3.2.5.
3.8 Any termination of this Agreement by Employee for
Good Reason shall be effective thirty (30) days after
written notice of termination for Good Reason is
given by Employee to Company
3.9 As used in this Agreement, the term "Good Reason"
means any one or more of the following events has
occurred:
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 5
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's
position (including office, title and
reporting requirements), authority, duties or
responsibilities with Company or any other
action that results in a material diminution
in, or interference with, such position,
authority, duties or responsibilities, and
any such assignment or action is not cured
within thirty (30) days after Employee has
provided Company with written notice of such
assignment or action;
3.9.2 The failure to continue to provide Employee
with office space, related facilities and
support personnel (including, but not limited
to, administrative and secretarial
assistance) (a) that are both commensurate
with Employee's responsibilities to and
position with Company and not materially
dissimilar to the office space, related
facilities and support personnel provided to
other employees of Company having comparable
responsibility to that of Employee or (b)
that are physically located at Company's
principal executive offices, and any such
failure is not cured within thirty (30) days
after Employee has provided Company with
written notice of such failure;
3.9.3 Any (a) reduction in Employee's monthly
salary as established in paragraph 5
(including subsequent increases), (b)
reduction in, discontinuance of, or failure
to allow or continue to allow Employee's
participation in, the incentive compensation
program provided under paragraph 9 hereof, or
(c) reduction in, or failure to allow or
continue Employee's participation in, any
employee benefit plan or program (except when
such benefit plan or program is replaced with
another benefit plan, program or arrangement
that provides Employee, in the aggregate,
with reasonably comparable benefits) in which
Employee is participating or is eligible to
participate prior to such reduction or
failure (other than as a result of the
expiration of such plan or program), and any
such reduction, discontinuance or failure is
not cured within thirty (30) days after
Employee has provided Company with written
notice of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of
Employee's performance of his duties and
responsibilities to a location more than 50
miles outside of the central business
district of the City of Houston, Texas; or
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 6
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2, 3.9.3,
and 3.9.4) which is not cured within thirty
(30) days after Employee has provided Company
with written notice of such breach.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of this
Agreement, and for a period of four (4) years from
the date of termination of his employment hereunder,
keep secret and confidential and not disclose to any
party not a party to this Agreement, land or lease
data, geological or geophysical data, well data or
any other information which he may receive as a
result of the performance of his duties hereunder,
except when disclosure is necessary for the
performance of his duties to Company hereunder. This
paragraph shall not apply to information that is in
the public domain through no action of Employee.
4.2 Upon termination of this employment hereunder,
Employee shall promptly deliver to Company all
written information and documents (whether
confidential or not), and all copies thereof,
relating to Company's business and activities and
which are in the possession of or under the control
of Employee.
5. Salary.
As compensation for his services rendered to Company
hereunder, Company shall pay to Employee a salary at the rate
of $10,000.00 per month. Employee's salary may be reviewed at
such times as may be determined by Company, and Company may at
its discretion increase this salary. Employee's salary shall
be paid in two equal monthly installments, payable on the
fifteenth and last days of each month (or on the first
business day of Company thereafter if any such payment date is
not a business day of Company), subject to any and all
necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $250.00
dollars per month to Employee. In addition to such monthly
allowance, Company shall pay, in accordance with Company
policy, for all gasoline, insurance and maintenance required
for use of the automobile.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 7
7. Business Expenses.
Employee is authorized to incur reasonable business expenses
in accordance with Company's policies as may be established
from time to time for promoting the business of Company,
including expenditures for entertainment and travel. Company
shall reimburse Employee from time to time for all such
business expenses in accordance with those policies adopted by
Company which include, but are not limited to, the requirement
that Employee timely present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom;
and
7.4 The name and occupation of the person or persons
entertained to establish the business relationship
with Company.
With respect to any reimbursable business expense contemplated
above exceeding twenty-five dollars ($25.00), Employee will
furnish documentary evidence of such expense to Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of
twenty (20) days per calendar year at full pay. The timing
and use of such vacation days shall be requested by Employee
and approved by Company in accordance with its policy. Up to
one week may be carried over from year to year. Employee
shall not be entitled to receive payment in lieu of unused
vacation time except as otherwise provided herein. With prior
approval, vacation may be deferred if business matters keep
Employee from taking his normal vacation.
9. Incentive Compensation.
9.1 Definitions.
An "AFFILIATE" of a specified person is any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with
that specified person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
Employment Agreement -- James M. Fitzpatrick III
-7-
<PAGE> 8
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated
persons (other than Joint Energy Development
Investments Limited Partnership ("JEDI") or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66 2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person,
if as a result any person (other than JEDI or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66-2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.), (y) any sale, lease, exchange or
other transfer of two-thirds or more of the
consolidated assets of Newco and its subsidiaries
taken as a whole in one transaction or a series of
related transactions whether by direct sale of
assets, sale of stock of a subsidiary or a merger
involving any subsidiary, or (z) the dissolution of
Newco; or
(iii) Recognizing that the events
described in this clause and the events described in
clause (ii) above may not necessarily be mutually
exclusive, any sale, exchange or other transfer of
two-thirds or more of the outstanding Voting Stock of
the Company or any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of the Company and its subsidiaries (if any)
taken as a whole in one transaction or a series of
related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of Company or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates,
Joint Energy Development Investments Limited Partnership or
any of its affiliates, Enron Capital & Trade Resources Corp.
or any of its affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development
Investments Limited Partnership or any of its affiliates or
Enron Capital
Employment Agreement -- James M. Fitzpatrick III
-8-
<PAGE> 9
& Trade Resources Corp. or any of its affiliates for access to
one or more Working Interests of Company.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in
such Prospect acquired by Company and, for purposes of this
paragraph 9, shall include each portion thereof that Company
may subsequently transfer to another member of Company Group
or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than
50 percent of the outstanding voting securities of a
non-individual person, (b) having the right, directly or
indirectly, to more than 50 percent of the profits of a
non-individual person, (c) having the right, directly or
indirectly, to more than 50 percent of the assets of a
non-individual person if it is dissolved or (d) having the
contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
"DEVELOPMENT ACREAGE" means the acreage within a Prospect
covering a known or inferred geologic structure upon which
Company and/or its joint working interest owners or a farmee
of Company's Working Interest in a Prospect have drilled a
well capable of commercial oil and/or gas production. Such
acreage shall be deemed to be Development Acreage from the
surface of the earth down through the deepest known productive
horizon. The committee described in paragraph 9.5.1(a),
below, shall designate acreage within a Prospect as
Development Acreage based upon the most current interpretation
available at the time of designation.
"EFFECTIVE DATE" means the effective date of this amended and
restated Employment Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct,
capital costs actually incurred by Company Group in connection
with exploration and development of such Prospect or
Prospects, including, without limitation, all costs incurred
in preparing for drilling, drilling, testing, completing,
equipping (including, without limitation, installation of
platforms, facilities and pipelines and dry hole costs) and
recompleting wells, all geological and geophysical costs, and
all leasehold costs (including bonus, delay rentals and all
other costs of acquiring and maintaining in force the leases,
or portions thereof or undivided interests therein, included
in such Prospects). Exploration and Development Costs shall
not include lease operating expenses or general and
administrative expenses of the Company Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect
which has not been designated by the committee described in
paragraph 9.5.1(a),
Employment Agreement -- James M. Fitzpatrick III
-9-
<PAGE> 10
below, as either Development Acreage or a Producing Property
Acquisition. Exploratory Acreage shall not be limited as to
depth (except to the extent, if any, to which Company's
Working Interest therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing
a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such hydrocarbon reservoir being economic, based
on commercially producible shows of hydrocarbons in a well
drilled within such reservoir, together with other geological
and geophysical data and interpretations, such that Company in
its reasonable judgment plans to develop such reservoir, and
(b) is reasonably expected by Company to be exploited and/or
developed by utilizing a floating production facility and/or a
tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than
an FPF/TLP Exploitation Prospect) with respect to which
Company reasonably expects to utilize a floating production
facility and/or a tension leg platform in connection with
operations to be conducted on such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first
well drilled on such Prospect in which Company participates as
a Working Interest owner or with respect to which Company
retains an overriding royalty or other interest in oil and gas
production from such well.
"MAJOR PROSPECT" means any FPF/TLP Exploration Prospect,
FPF/TLP Exploitation Prospect, Subsea Tieback Exploration
Prospect or Subsea Tieback Exploitation Prospect with respect
to which the total amount estimated by Company for Exploration
and Development Costs to be incurred by Company Group (i.e.,
net to Company Group's interest) through the end of the
primary development period for the field comprising such
Prospect exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which
provides for sharing between lessor and lessee of the net
profits or net proceeds, as defined in said lease, from the
sale of oil and/or gas produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation,
or its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross
production of oil and gas under each oil and gas lease (or
portion thereof) included within a Prospect, which interest
(except as herein otherwise provided) shall be free of all
costs of acquisition, exploration, drilling, completing,
equipping, operating and developing any oil and gas produced
from such lease.
Employment Agreement -- James M. Fitzpatrick III
-10-
<PAGE> 11
A "PARENT" of a specified person is another person that
controls such specified person directly or indirectly through
one or more intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue
to Company or its assigns from its interest in oil and gas
production from such well (after deduction of Company's or its
assigns' prorata part of the burden of (i) all landowners'
royalties, overriding royalties, net profits interests,
production payments or other burdens upon, measured by or
payable out of such production and (ii) all applicable ad
valorem, production, severance, sales, gathering, windfall
profits excise and similar taxes) equals the sum incurred by
or for the account of Company or its assigns (x) in preparing
for drilling, drilling, testing, completing, equipping
(including, without limitation, installation of platforms,
facilities and pipelines), operating, reworking and
recompleting the well, and marketing the production therefrom,
and (y) for such well's allocable share of geological and
geophysical costs, leasehold costs and other common costs.
"Leasehold costs" shall mean payments for bonus, delay
rentals, and all other costs of acquiring from the landowners
(or, in the case of an acquisition by Company (but not any
assignee of Company), from predecessors in title to such
leases) and maintaining in force the leases allocated to the
well. Leases "allocated" to a well shall mean the leases or
portions thereof or undivided interests therein to which
production from a well is attributed, whether on a lease or
unit basis. With respect to each such well, "common costs"
shall mean capital costs that are attributable to (a) such
Prospect as a whole or (b) such well and one or more other
wells (but not all wells) on such Prospect and shall include,
without limitation, costs of drilling, plugging and abandoning
non-productive wells on such Prospect. Each such well's
allocable share of common costs shall be determined by Company
in any manner it deems appropriate from time to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well
and each subsequent well drilled on a Prospect, the point in
time at which such revenue to Company or its assigns from its
interest in oil and gas production from such well, after such
deductions mentioned above, equals the product of 2.5 times
the sum incurred by or for the account of Company or its
assigns (x) in preparing for drilling, drilling, testing,
completing, equipping, operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for
such well's allocable share of geological and geophysical
costs, leasehold costs and other common costs as mentioned
above.
A "PERSON" is an individual, a corporation, a trust, a
partnership, a limited liability company, an association or
any other entity.
Employment Agreement -- James M. Fitzpatrick III
-11-
<PAGE> 12
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
Company during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves
considered proved under such lease or leases at the time of
acquisition. A Producing Property Acquisition shall include
acquisition of such leasehold interests even though Company
may have previously acquired interests in some or all of the
same leases as a Prospect acquisition (i.e., prior to the time
such leases were considered to contain proved oil and gas
reserves). Company may in its sole discretion designate a
Producing Property Acquisition in whole or in part as a
Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by Company within the
United States and its coastal waters while Employee is
employed by Company and during the term or extended term of
this Agreement covering lands which in the sole opinion of
Company may contain one or more hydrocarbon accumulations
capable of being commercially produced. For purposes of this
definition of Prospect, the acquisition of a lease or leases
shall mean the acquisition by Company of legal or beneficial
rights or interests in a lease or leases, including (without
limitation) contractual rights to acquire or earn a lease or
leases (whether by farmout agreement or otherwise, and whether
such contractual rights are subject to certain conditions such
as the drilling or completion of a commercial well, and
without regard to the results of the drilling or completion of
any such well under such contract). A Prospect shall not
include a prospect acquired by Company by merger or
consolidation of Company with or into another entity unless
such prospect is so designated by Company. A Prospect shall
not include a Producing Property Acquisition unless such
Prospect is so designated by Company, and shall not include
leases included in a Prospect under previous Employee
Incentive Compensation Plans. All Prospects shall be deemed
to be without depth limitation unless the Company designates
specified depths only at the time said Prospect is initially
acquired by Company. Notwithstanding the date or dates on
which leases in a Prospect are actually acquired by Company,
solely for purposes of determining the employees of Company
who are entitled to receive an Overriding Royalty Interest
therein, such leases, or portions thereof or undivided
interests therein, shall be deemed to have been acquired by
Company as of the date on which Company's management approved
such Prospect acquisition. In furtherance of the foregoing,
if any lease or leases, or portions thereof or undivided
interests therein, acquired by Company on or after April 18,
1996, but prior to the commencement of the term of this
Agreement, would constitute a "Prospect" under the foregoing
definition but for the fact that such lease or leases, or
portions thereof or undivided interests therein, were not
acquired by Company during the term of this Agreement, the
same shall, nevertheless, be
Employment Agreement -- James M. Fitzpatrick III
-12-
<PAGE> 13
deemed to have been acquired by Company as of the commencement
of the term of this Agreement and shall constitute a Prospect
for purposes of this paragraph 9.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a
sufficient likelihood of such hydrocarbon reservoir being
economic, based on commercially producible shows of
hydrocarbons in a well drilled within such reservoir, together
with other geological and geophysical data and
interpretations, such that Company in its reasonable judgment
plans to develop such reservoir, and (b) is reasonably
expected by Company to be exploited and/or developed by
utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect
(other than a Subsea Tieback Exploitation Prospect) with
respect to which Company reasonably expects to utilize a
subsea tieback system in connection with operations to be
conducted on such Prospect.
A "SUBSIDIARY" of a specified person is an entity controlled
by such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election
of directors thereof.
"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the
costs and expenses relating to the maintenance and development
of, and operations relating to, such lease and the well or
wells associated therewith.
9.2 Employee's Property Interest.
9.2.1 Subject to the other provisions of this paragraph 9,
Employee shall own, be immediately vested with, and
be entitled to receive the benefits of an Overriding
Royalty Interest equal to an undivided percentage of
Company's Working Interest, more specifically
described below, in each well on a Prospect and the
lease or leases allocated thereto, as follows:
Employment Agreement -- James M. Fitzpatrick III
-13-
<PAGE> 14
EMPLOYEE: James M. Fitzpatrick III
OVERRIDING ROYALTY INTEREST
IN
FPF/TLP EXPLORATION PROSPECTS,
FPF/TLP EXPLOITATION PROSPECTS,
SUBSEA TIEBACK EXPLORATION PROSPECTS
AND
SUBSEA TIEBACK EXPLOITATION PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.085937 0.343749
Group XV 5/16/96 and Thereafter 0.085937 0.343749
</TABLE>
OVERRIDING ROYALTY INTEREST
IN
ALL OTHER PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.09375 0.37500
Group XV 5/16/96 and Thereafter 0.09375 0.37500
</TABLE>
At 7:00 a.m. on the first day of the month following the month
in which Payout of such well occurs, the Overriding Royalty
Interest shall increase from the applicable before-Payout
percentage to the applicable after-Payout percentage. Except
as herein otherwise expressly provided, references in this
paragraph 9 to Employee's "Overriding Royalty Interest" with
respect to any Prospect shall mean the applicable
before-Payout and after-Payout percentages of Company's
Working Interest in such Prospect as set forth above.
9.2.2 Under previous Employee Incentive Compensation Plans, Employee
has received or is entitled to receive overriding royalty
interests ("Existing ORIs") in certain prospects (the
"Existing Prospects"). The Existing ORIs are equal to an
undivided percentage of Company's Working Interest, more
specifically described below by Group and Time Period during
which Company acquired such Existing Prospects, in each well
on an Existing Prospect and the lease or leases allocated
thereto, as follows:
Employment Agreement -- James M. Fitzpatrick III
-14-
<PAGE> 15
EMPLOYEE: James M. Fitzpatrick III
<TABLE>
<CAPTION>
EXISTING ORI
------------
GROUP DATES BEFORE PAYOUT After Payout
----- ----- ------------- ------------
<S> <C> <C> <C>
GROUP I 4/1/87-9/3/87 0.10000% 0.4000%
GROUP II 9/4/87-10/31/87 0.10000% 0.4000%
GROUP III 11/1/87-7/16/88 0.10000% 0.4000%
GROUP IV 7/17/88-12/15/88 0.10000% 0.4000%
GROUP V 12/16/88-3/31/89 0.12500% 0.5000%
GROUP VI 4/1/89-9/24/90 0.12500% 0.5000%
GROUP VII 9/25/90-6/30/91 0.12500% 0.5000%
GROUP VIII 7/1/91-9/30/91 0.10625% 0.4250%
GROUP IX 10/1/91-2/14/93 0.10625% 0.4250%
GROUP X 2/15/93-6/30/93 0.10625% 0.4250%
GROUP XI 7/1/93-4/29/94 0.10625% 0.4250%
GROUP XII 4/30/94-3/31/95 0.10625% 0.4250%
GROUP XIII 4/1/95-4/17/96 0.10625% 0.4250%
</TABLE>
The provisions of paragraphs 9.4, 9.5, 9.6 and 9.7 shall apply
to the Existing ORIs in the Existing Prospects as fully as
such provisions apply to any Overriding Royalty Interest in a
Prospect to which Employee is entitled under this Agreement.
Mention is made that, effective June 1, 1996, the Company has
repurchased certain of the Existing ORIs from Employee as
contemplated by the Stockholders' Agreement referred to in
paragraph 9.5.1(a).
9.3 Governmental Filings.
Company will assist Employee in Filing an 83b Election with
the Internal Revenue Service on each Prospect, on a prospect
by prospect or lease by lease basis, as the case may be,
denoting the transfer to Employee of the Overriding Royalty
Interest and stating the value of such interest for the
purposes at the time the interest is acquired.
Employment Agreement -- James M. Fitzpatrick III
-15-
<PAGE> 16
9.4 Assignment of Overriding Royalty Interest.
Except as otherwise expressly provided in paragraphs 9.4.8 and
9.4.9, Employee shall not be entitled to obtain recordable
assignments of his interest under this paragraph 9 until his
completion of three years of employment by Company and, except
as otherwise expressly provided herein, Employee shall forfeit
ownership of such interest if Employee's employment is
terminated by Company pursuant to paragraph 3.5 or by Employee
without Good Reason as defined in paragraph 3.9, prior to the
completion of such three years of employment. Upon completion
of three years of employment of Employee by Company,
Employee's ownership of interests theretofore or thereafter
transferred to him pursuant to this Agreement will no longer
be subject to forfeiture, and assignments will be made in
accordance with this paragraph 9.4. Subject to the other
provisions of this paragraph 9, Employee shall be entitled to
the revenue arising from his Overriding Royalty Interest
whether or not he is entitled to a recordable assignment.
Subject to the foregoing provisions of this paragraph 9.4 and
to the provisions of paragraph 9.5, as soon as practicable
after the end of each calendar quarter during the term or
extended term of this Agreement, Employee shall be entitled to
receive recordable assignments of his Overriding Royalty
Interest in a lease or leases (or portions thereof) acquired
by Company in a Prospect during such calendar quarter. If
Employee's employment is terminated by Company pursuant to
paragraph 3.5 or by Employee without Good Reason as defined in
paragraph 3.9, during any such calendar quarter, Employee
shall not be entitled to receive recordable assignments that
would otherwise have been due under this paragraph in respect
of any lease or leases (or portions thereof) acquired by
Company in a Prospect during such calendar quarter or
thereafter (and Employee shall not own, be vested with or be
entitled to receive the benefits of any Overriding Royalty
Interest that would have been granted by such recordable
assignments) unless the termination is at the end of the term
or extended term of this Agreement. As soon as practicable
after the end of each such calendar quarter, Company shall
provide Employee with the following:
(a) A recordable assignment of his Overriding
Royalty Interest in the leases (or portions
thereof) acquired by Company in each Prospect
during such calendar quarter.
(b) A plat outlining the geographical limits of
each such Prospect. Company shall review
each Prospect plat each calendar quarter in
light of drilling activity on or near the
Prospect, and expand the plat boundary if new
leases are acquired which Company believes to
contain a prospective hydrocarbon
accumulation that is located on the same
geological feature as such Prospect.
Employee shall be entitled to his Overriding
Royalty Interest in any lease
Employment Agreement -- James M. Fitzpatrick III
-16-
<PAGE> 17
acquired by Company within the Prospect plat
boundary (and, to the extent provided in
paragraph 9.7.2, in any renewal, extension or
new lease within the Prospect plat boundary)
for as long as such lease within the boundary
remains in effect.
9.4.1 Upon execution and delivery of such recordable
assignment to Employee, Company shall record the
assignment.
9.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, Company believes in good
faith that there is a substantial likelihood that it
may be necessary to exercise its discretion under
paragraph 9.5 with respect to adjustment of
Employee's Overriding Royalty Interest in leases
included within such Prospect, Company may defer
delivery of a recordable assignment of Employee's
Overriding Royalty Interest pending a determination
under paragraph 9.5.
9.4.3 Upon request by Company, Employee agrees to execute
and deliver any and all transfer orders, division
orders and other documents as may be necessary or
appropriate to cause all revenue attributable to his
interest in a well to be paid to Company on his
behalf until delivery by Company to Employee of a
recordable assignment of his interest in such well
pursuant to this paragraph 9. In such event, Company
agrees promptly to process such funds and pay all
funds due Employee at the same time third parties are
paid revenue distributions from such well by Company.
After an assignment is delivered to Employee, Company
shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct
payment to Employee of all revenue attributable to
his interest in such well.
9.4.4. Subject to the last sentence of this paragraph 9.4.4,
Company or its assigns shall quarterly perform Payout
calculations on each well which has not reached
Payout in every Prospect so that payments to Employee
may be made on a proper before payout/after payout
basis on each well in every Prospect. Company or its
assigns shall prepare a quarterly Payout statement
for each well within each Prospect and shall provide
Employee a copy of said quarterly Payout statements
within ninety (90) days following the end of the
quarter. If Company or its assigns fails to provide
said quarterly Payout statements for any such well(s)
to at least five (5) employees (whether or not such
employees include the Employee) who are entitled to
receive an Overriding Royalty Interest in such
well(s) pursuant to this Agreement and/or other
employment agreements with Company for a period of
four (4) consecutive quarters, any such employee
(including without limitation, the
Employment Agreement -- James M. Fitzpatrick III
-17-
<PAGE> 18
Employee) may give Company written notice of said
failure. If Company or its assigns does not provide
the overdue quarterly Payout statements to each
employee entitled to same within thirty (30) days
following receipt of such notice, all wells within
such Prospect which had previously been considered
before Payout pursuant to paragraph 9.2 shall be
deemed to be after Payout pursuant to paragraph 9.2
as of the first day of the month following the month
in which the earliest delinquent quarterly Payout
statement should have been provided. When Payout
status is reached on a well, Company or its assigns
shall deliver notice of such event to Employee, the
operator of such well and each purchaser of
production from such well and Company or its assigns
shall direct such operator or purchaser of production
(as appropriate) to disburse future revenues
attributable to Employee's and Company's respective
interests in such well on an after-Payout basis.
Notwithstanding the foregoing, if Employee's
Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph
9 so as to be the same percentage before and after
Payout of such well, then the provisions of this
paragraph 9.4.4 shall no longer apply from and after
the date of such adjustment.
9.4.5 Should Employee be married or divorced at such time
as Employee earns the right to have an Overriding
Royalty Interest assigned to him hereunder, Company
shall have no obligation to make assignments to
Employee's spouse/or former spouse. Any division of
community property shall be the responsibility of
Employee.
9.4.6 All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
(a) any joint operating agreement at any time
theretofore or thereafter entered into by Company or
its assigns with other Working Interest owners
covering any of the leases affected by the Overriding
Royalty Interest herein provided for, and (b) any
farm-out or other agreements under which Company
acquires or may acquire its interest in the leases;
including, particularly, by way of illustration and
not by way of limitation, (i) any provision of an
applicable farm-out agreement requiring reduction of
Company's interest in the leases after "payout" of an
earning well or wells thereunder, in which event
Employee's Overriding Royalty in such leases shall be
proportionately reduced, and (ii) any provision
requiring forfeiture of interest for
nonparticipation, recoupment of multiple recovery
costs and the like to the extent that Company would
forfeit its Working Interest for nonparticipation
either forever or until recoupment of drilling and/or
operating costs by the third parties electing to
participate, or such other like reason; and in the
event any such provisions come into effect,
Employee's Overriding
Employment Agreement -- James M. Fitzpatrick III
-18-
<PAGE> 19
Royalty in such leases shall be suspended until such
time, if ever, as such multiple recovery of costs by
the participating leasehold owners has been recovered
or such other cause for suspension is removed and
such Working Interest of Company is reinstated, at
which time Employee's Overriding Royalty shall be so
reinstated.
All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
the leases, any assignments and/or subleases thereof
theretofore made or agreed to be made by Company, and
any amendments or modifications of the leases,
theretofore or thereafter made, and Employee agrees
that any such amendments or modifications may be made
without the consent or joinder of Employee.
9.4.7 Company or its assigns shall not have the right to
sell, assign, farmout, convey or otherwise encumber
Employee's Overriding Royalty Interest, except as
otherwise provided in this paragraph 9.
9.4.8(a) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, there shall have been a
Change in Control, then Employee
shall be entitled to receive
recordable assignments of his
Overriding Royalty Interest,
adjusted in the manner described
hereinbelow, in any lease or leases
(or portions thereof or undivided
interests therein) theretofore
acquired by Company and not yet
assigned during the term or extended
term hereof and, upon subsequent
acquisition by Company, in any lease
or leases (or portions thereof or
undivided interests therein)
thereafter acquired by Company, in
all Prospects acquired by Company
prior to such Change in Control
(without regard to whether or not
Employee has then completed three
years of employment by Company).
Said Overriding Royalty Interest
shall be assigned in the following
manner:
Employee's after-Payout interest shall
be reduced to one-half of Employee's
after-Payout interest stated in
paragraph 9.2 (as such after-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9) and Employee's
before-Payout interest shall be
increased to twice Employee's
before-Payout
Employment Agreement -- James M. Fitzpatrick III
-19-
<PAGE> 20
interest stated in paragraph 9.2 (as
such before-Payout interest stated
in paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) with
the result that Employee's interests
before and after Payout shall be
equal.
9.4.8(b) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, the Company's Working
Interest in any Prospect is sold,
transferred or conveyed to the
holder of any indebtedness of the
Company or of Newco or of any parent
or subsidiary of the Company or
Newco, or to any unaffiliated third
party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing
such indebtedness or any part
thereof or by transfer or conveyance
in lieu of such foreclosure, then
Employee shall be entitled to
receive, prior to the consummation
of such sale, transfer or
conveyance, a recordable assignment
of his Overriding Royalty Interest,
adjusted in the manner described in
paragraph 9.4.8(a), in any lease or
leases (or portions thereof or
undivided interests therein)
theretofore acquired by Company and
not yet assigned during the term or
extended term hereof and, upon
subsequent acquisition by Company,
in any lease or leases (or portions
thereof or undivided interests
therein) thereafter acquired by
Company, in all Prospects acquired
by Company prior to such sale,
transfer or conveyance (without
regard to whether or not Employee
has then completed three years of
employment by Company).
9.4.9 Except as otherwise provided in the fifth sentence of
paragraph 9.4, and notwithstanding anything (other
than such fifth sentence of paragraph 9.4) contained
herein to the contrary, if, during the term or
extended term hereof, all or substantially all of the
Company's Working Interests in all or substantially
all Exploratory Acreage then owned by the Company are
sold, transferred or conveyed to an unaffiliated
third party, then Employee shall be entitled to
receive, prior to the consummation of such sale,
transfer or conveyance, recordable assignments of his
Overriding Royalty Interest, adjusted in the manner
described in paragraph 9.4.8(a), in all leases (or
portions thereof or undivided interests therein) that
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 21
cover and include such Exploratory Acreage not yet
assigned during the term or extended term hereof
(without regard to whether or not Employee has then
completed three years of employment by Company).
9.5 Retained Company Discretion
9.5.1 Employee and Company recognize that in instances
where all or a portion of Company's Working Interest
in a lease or leases will be sold or farmed out to
unaffiliated third parties, Employee's Overriding
Royalty Interest might in some circumstances have a
negative effect on the marketability of Company's
Working Interest to third parties. In such cases,
Company will in good faith attempt to transfer
Company's Working Interest subject to Employee's
Overriding Royalty Interest provided for in this
paragraph 9; provided, however, if, in Company's good
faith judgment, Company's Working Interest cannot be
sold or farmed out subject to Employee's Overriding
Royalty Interest, Company may elect to adjust
Employee's Overriding Royalty Interest as hereinafter
provided.
9.5.1(a) The Board of Directors of Company
shall designate a committee of not
less than three individual persons
employed by Company, at least half
of whom has been granted an employee
Overriding Royalty Interest by
Company, to exercise discretion on
behalf of Company in reducing or
modifying, pursuant to this
paragraph 9.5.1 only, the Overriding
Royalty Interests provided for in
this paragraph 9; provided, however,
that the Board of Directors of the
Company shall have the right to
designate a non-voting member of
such committee, who may be a
director of the Company or
otherwise, and such member shall
have the right to participate in all
meetings of such committee (and
shall receive reasonable advance
notice of any such meetings) and
shall be entitled to the same
information as is available to the
other members of the committee.
Such committee shall make all
decisions under this paragraph 9.5.1
subject to obtaining the approval of
the Board of Directors of Company
where such approval is required
under the provisions of this
paragraph 9.5.1. Any decision made
by the committee shall require the
approval of a majority of the
members of the committee. Any
change to this paragraph 9.5.1(a)
shall require the approval of the
Board of Directors of the Company
and a majority of the Management
Directors (as that
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 22
term is defined in the Stockholders'
Agreement dated April 2, 1996,
between Enron Capital & Trade
Resources Corp., Newco and certain
employees of and consultants to the
Company, as it may be amended from
time to time) who became
stockholders pursuant to Section B.1
of that agreement.
9.5.1(b) With respect to any Prospect on
which no initial Well has been
drilled and no assignments of
Overriding Royalty Interests have
been made to Employee, the committee
may modify or reduce the Overriding
Royalty Interest of Employee in
leases included within such Prospect
in any manner necessary in the good
faith judgment of the committee to
make an interest in such Prospect
saleable to any person not in
Company Group; provided, however, in
connection with any sale by Company
of an interest in such Prospect to
any such person, Employee's
Overriding Royalty Interest shall be
reduced to zero unless the committee
recommends a lesser reduction and
such recommendation is approved by
the Board of Directors of Company.
Such modification or reduction shall
apply only to the interest sold to
such a person, and shall not affect
the interest retained by the
Company. Any reduction or exercise
of discretion by Company under this
paragraph shall be applied
proportionately to all participants
who are entitled to receive from
Company an Overriding Royalty
Interest in leases included within
such Prospect.
9.5.1(c) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has not
been determined by Company to be
capable of producing oil and/or gas,
should Company desire to sell all or
any portion of its Working Interest
in such Prospect to unaffiliated
third parties, the committee may
adjust the Overriding Royalty
Interest of Employee in leases
included within such Prospect in the
following manner:
Employee's after-Payout interest shall
be reduced to one-half of Employee's
after-Payout interest stated in
paragraph 9.2 (as such after-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9) and Employee's
before-Payout interest shall be
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 23
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may
have previously been reduced pursuant to
other provisions of this paragraph 9),
with the result that Employee's
interests before and after Payout shall
be equal.
Such adjustment shall apply only to the
interest sold to unaffiliated third
parties, and shall not affect the
interest retained by Company. Any
exercise of discretion by Company
under this paragraph shall be
applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(c).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(c).
9.5.1(d) With respect to any Prospect which
has not been determined by Company
to be capable of producing oil
and/or gas, and regardless of
whether or not the Initial Well has
been drilled thereon, should Company
desire to farmout all or any portion
of its Working Interest in such
Prospect to unaffiliated third
parties, the committee shall (unless
the committee
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 24
recommends otherwise and the Board of
Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in leases included within
such Prospect in the following
manner:
Employee's Overriding Royalty Interest
shall be calculated by multiplying
Employee's percentage interests
stated in paragraph 9.2 above (as
such interests may have previously
been reduced pursuant to other
provisions of this paragraph 9) by
Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and during the period of time in
which Company receives such
overriding royalty interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph 9.2 above; provided,
however, if pursuant to such farmout
agreement, only a portion of
Company's overriding royalty
interest converts to a Working
Interest and Company retains,
following such conversion, some
overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest based
upon Company's Working Interest, an
interest equal to the percentage
stated in paragraph 9.2 above (as
such interest may have previously
been reduced pursuant to other
provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to the
interest farmed out to unaffiliated
third parties, and shall not affect
the interest retained by Company.
Any exercise of discretion by
Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 25
With respect to each well drilled on
the Prospect by a farmee of
Company's Working Interest and
solely for the purpose of this
paragraph 9.5.1 (d), Payout shall be
defined as the point in time at
which the revenue to Company from
its interest in oil and gas
production from such well (after
deduction of Company's prorata part
of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production
payments or other burdens upon,
measured by or payable out of such
production and (ii) all applicable
ad valorem, production, severance,
sales, gathering, windfall profits
excise and similar taxes) equals the
sum incurred by or for the account
of Company (x) in preparing for
drilling, drilling, testing,
completing, equipping (including,
without limitation, installation of
platforms, facilities and
pipelines), operating, reworking and
recompleting the well, and marketing
the production therefrom, and (y)
for such well's allocable share of
geological and geophysical costs,
leasehold costs, all other costs of
acquiring and maintaining in force
the leases allocated to the well and
other common costs. Leases
"allocated" to a well and "common
costs" shall have the respective
meanings ascribed thereto in the
definition of "Payout" set forth in
paragraph 9.1.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
has been a Change in Control, then
neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(d).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 26
make the adjustment described above in
this paragraph 9.5.1.(d).
9.5.1(e) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has been
determined by Company to be capable
of producing oil and/or gas, should
Company desire to sell or farmout
all or any portion of its Working
Interest in such Prospect to
unaffiliated third parties, the
committee shall categorize
geographical areas of the leases
comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the Company's
Working Interest in any such
Development Acreage will be made
subject to Employee's Overriding
Royalty Interest provided for in
paragraph 9.2 hereinabove (as such
interest may have previously been
adjusted pursuant to other
provisions of this paragraph 9);
provided, however, with respect to
each well drilled on the Prospect by
a purchaser or farmee or their
assigns of Company's Working
Interest, and solely for the purpose
of this paragraph 9.5.1(e), Payout
shall be defined as the point in
time at which the revenue to
purchaser or farmee or their assigns
from its or their interest purchased
or farmed in from Company in oil
and/or gas production from such well
(after deduction of purchaser's or
farmee's prorata part of the burden
of (i) all landowners' royalties,
overriding royalties, net profits
interests, production payments or
other burdens upon, measured by or
payable out of such production and
(ii) all applicable ad valorem,
production, severance, sales,
gathering, windfall profits excise
and similar taxes) equals the sum
incurred by or for the account of
purchaser or farmee or their assigns
in preparing for drilling, drilling,
testing, completing, equipping,
operating, reworking and
recompleting the well, and marketing
the production therefrom.
With respect to the Company's Working
Interest in Exploratory Acreage to
be sold by Company, the committee
may adjust the Overriding Royalty
Interest of Employee in the
following manner:
Employee's after-Payout interest shall
be reduced to one-half of Employee's
after-Payout
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 27
interest stated in paragraph 9.2 (as
such after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout interest
stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9),
with the result that Employee's
interests before and after Payout
shall be equal.
With respect to the Company's Working
Interest in Exploratory Acreage to
be farmed out by Company, the
committee shall (unless the
committee recommends otherwise and
the Board of Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in the following manner:
Employee's Overriding Royalty Interest
shall be calculated by multiplying
Employee's percentage interests
stated in paragraph 9.2 above (as
such interests stated in paragraph
9.2 may have previously been reduced
pursuant to other provisions of this
paragraph 9) by Company's overriding
royalty interest set forth in the
particular farmout agreement for
said Prospect, for and during the
period of time in which Company
receives such overriding royalty
interest.
To the extent, if any, that Company's
overriding royalty interest set
forth in such farmout agreement
converts to a Working Interest in
such Prospect (whether by election
of Company or otherwise), then, from
and after such conversion,
Employee's Overriding Royalty
Interest shall be based upon such
Working Interest of Company pursuant
to paragraph 9.2 above; provided,
however, if pursuant to such farmout
agreement, only a portion of
Company's overriding royalty
interest converts to a Working
Interest and Company retains,
following such conversion, some
overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 28
Royalty Interest and in addition to
such Overriding Royalty Interest
based upon Company's Working
Interest, an interest equal to the
percentage stated in paragraph 9.2
above (as such interest may have
previously been reduced pursuant to
other provisions of this paragraph
9) multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to the
interest sold or farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by Company. Any exercise
of discretion by Company under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in
leases included within such
Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(e).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(e).
If any of the events set forth in the
two immediately preceding sentences
hereof should occur, such that the
adjustment described above in this
paragraph 9.5.1(e) with respect to
the Overriding Royalty Interest of
Employee in leases in such
Exploratory Acreage is precluded
from occurring as provided above,
then, with respect to each well
drilled on such
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 29
Exploratory Acreage by a purchaser
or farmee or their assigns of
Company's Working Interest, and solely
for purposes of this paragraph 9.5.1(e),
Payout shall be defined as set forth
above in this paragraph 9.5.1(e).
9.5.2 Within sixty (60) days after the end of each fiscal
year of Company, Company may in its sole discretion
elect to reduce the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to Prospects
subject to this Agreement that were acquired by
Company during such fiscal year (which election, if
timely made as above provided, shall be effective as
of the beginning of such fiscal year) based on actual
Exploration and Development Costs incurred by Company
Group during such fiscal year in respect of all
Prospects subject to this Agreement, as follows (with
linear interpolation between indicated levels of
costs):
<TABLE>
<CAPTION>
TOTAL E & D
COSTS LEVEL PERMITTED REDUCTION
----------- -------------------
<S> <C>
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
</TABLE>
**Permitted Reduction shall be determined in the sole discretion of
Company.
The total Exploration and Development Costs levels
and resultant ranges and escalation increments
provided for above are "Base Year" figures for fiscal
year 1996-1997, and shall be adjusted annually on a
compound basis beginning with the fiscal year
commencing April 1, 1997, according to the then
current Council of Petroleum Accountants Societies'
(COPAS) adjustment rate (based upon the percentage
increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers as of
April 1 as published by the United States Department
of Labor, Bureau of Labor Statistics).
The "Permitted Reduction" shall mean the percentage
by which Employee's Overriding Royalty Interest (both
before and after Payout) may be adjusted downward.
Each such adjustment shall determine Employee's
Overriding Royalty Interest for the fiscal year in
question, and shall be uniform on Prospects acquired
during that period (subject to paragraphs 9.5.1 and
9.5.3). Without limiting the foregoing, a Permitted
Reduction shall apply to any
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 30
Major Prospect subject to this Agreement that was
acquired by Company during such fiscal year, whether
or not an adjustment of Employee's Overriding Royalty
Interest in such Major Prospect shall have been made
pursuant to paragraph 9.5.3.
All leases acquired in those Prospects, whether
during the same fiscal year or thereafter, shall be
subject to the same Employee's Overriding Royalty
Interest established at the time the Prospect was
acquired, subject, however, to adjustment as provided
for in this paragraph 9. A Permitted Reduction in
Employee's Overriding Royalty Interest for a
particular fiscal year, however, shall not operate to
reduce Employee's Overriding Royalty Interest stated
in paragraph 9.2 in respect of any Prospects acquired
by Company in any subsequent fiscal year during the
term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploitation Prospects acquired by
Company during a fiscal year of
Company for which Company's estimate
of Exploration and Development Costs
incurred or to be incurred by
Company Group in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal year exceeds
$30 million through the end of the
respective primary development
periods for the fields comprising
such FPF/TLP Exploitation Prospects
(which periods, solely for purposes
of the adjustment provided for in
this paragraph, shall not exceed
five (5) years), an alternative
calculation will be made prior to
determining the applicable
"Permitted Reduction" of Employee's
Overriding Royalty Interest with
respect to such FPF/TLP Exploitation
Prospects. Such alternative
calculation shall be based upon the
assumptions that the total
Exploration and Development Costs to
be incurred by Company Group in
respect of all such FPF/TLP
Exploitation Prospects will be
incurred over a two (2) year period
and that such Exploration and
Development Costs will be in
addition to a "base level" of $70
million in Exploration and
Development Costs to be incurred by
Company Group exclusive of the
identified FPF/TLP Exploitation
Prospects. Such alternative
Exploration and Development Costs
level (the "alternative E & D Costs
level") shall be determined as
follows:
The alternative E & D Costs level shall
be the sum of:
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 31
(i) One-half of Company's estimate
of Exploration and
Development Costs incurred or
to be incurred by Company
Group through the end of the
respective primary
development periods in
respect of all FPF/TLP
Exploitation Prospects
acquired in such fiscal year,
plus
(ii) $70 million.
The Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects (both before and after
Payout) may, in Company's sole
discretion, be reduced by the
greater of (x) the "Permitted
Reduction" percentage set forth in
the table above in this paragraph
for the actual "Total E & D Costs
Level" for such fiscal year and (y)
the "Permitted Reduction" percentage
set forth in the table above that
would be applicable if the "Total E
& D Costs Level" for such fiscal
year were equal to such "alternative
E & D Costs level".
If the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after
Payout, respectively) of such
Overriding Royalty Interest set
forth in paragraph 9.2. Further, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploitation
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such FPF/TLP
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploitation Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout,
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 32
respectively) set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths.
9.5.2(b) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploitation Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such Subsea Tieback
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such Subsea Tieback Exploitation
Prospect, would equal the Overriding
Royalty Interest percentage (before
and after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(c) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding
Royalty Interest set forth in
paragraph 9.2. Further, if the
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths,
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 33
Company may, in its sole discretion,
further reduce such Overriding
Royalty Interest set forth in
paragraph 9.2 with respect to such
FPF/TLP Exploration Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploration Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(d) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploration Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths, Company may, in its sole
discretion, further reduce such
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploration
Prospect to a percentage (before and
after Payout, respectively) that,
when multiplied times Company's
Working Interest in such Subsea
Tieback Exploration Prospect, would
equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.3 With respect to any Major Prospect, Company may in
its sole discretion elect to adjust the Overriding
Royalty Interest set forth in paragraph 9.2,
effective as of the date of Company's acquisition of
such Major Prospect, as follows:
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 34
Employee's before-Payout interest shall be reduced by the following formula:
<TABLE>
<S> <C>
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
-
Y
</TABLE>
where "X" equals the total amount estimated by
Company for Exploration and Development Costs to be
incurred by Company Group in respect of such Major
Prospect through the end of the primary development
period for the field comprising such Major Prospect
(which period, solely for purposes of such adjustment
calculation, shall not exceed five (5) years), and
where "Y" equals $30 million.
Employee's after-Payout interest shall be increased
by adding thereto the full amount of the percentage
interest so deducted from Employee's before-Payout
interest until 2.5 times Payout is reached, at which
time Employee's after-Payout interest shall be
reduced by subtracting therefrom the same percentage
interest that was previously added thereto pursuant
to this sentence.
Such election may be made by Company whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been reduced pursuant to
paragraph 9.5.2. In the case of any such prior
reduction pursuant to paragraph 9.5.2, the term
"original before-Payout interest" as used above in
this paragraph shall refer to Employee's
before-Payout interest as previously reduced pursuant
to paragraph 9.5.2.
9.5.4 Notwithstanding anything contained herein to the
contrary, after an assignment is delivered to
Employee with respect to a Prospect pursuant to
paragraph 9.4, Company or its assigns may no longer
reduce or modify Employee's Overriding Royalty
Interest on any well in such Prospect without written
consent of Employee, except pursuant to paragraphs
9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3 in the
case only of assignments other than those delivered
pursuant to paragraphs 9.4.8(a), 9.4.8(b) and 9.4.9.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 35
9.5.5 In no event may any party other than Company reduce
or modify Employee's Overriding Royalty Interest
without written consent of Employee.
9.5.6 Company shall give Employee written notice of any
adjustment made to Employee's Overriding Royalty
Interest pursuant to the provisions of paragraphs
9.5.1(b), 9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and
9.5.3 within one hundred twenty (120) days following
such adjustment.
9.5.7 Upon request by Company, Employee shall execute and
deliver to Company such reassignments, transfer
orders, division orders, releases and other documents
deemed by Company to be necessary or appropriate to
evidence any modification, reduction or other
adjustment pursuant to this paragraph 9.5.
9.6 Company's Preferential Right to Purchase.
If at any time during the term or extended term of this
Agreement, or if within one (1) year from the expiration of
this Agreement, Employee receives and desires to accept an
offer for the purchase of a part or all of Employee's
Overriding Royalty Interest assigned pursuant to this
paragraph 9 (the portion or all of such Overriding Royalty
Interest covered by such offer to purchase being herein
sometimes called the "Offered Interest"), from a prospective
third party purchaser who is ready, willing and able to
purchase the same, then Employee shall have the right to sell
such Offered Interest, but only after complying with the
following terms and provisions:
9.6.1 The offer shall first be reduced to writing and
signed by Employee and the offeror. Employee shall
give Company written notice of his receipt of, and
his desire to accept, such written offer, together
with a copy of such written offer signed by the
prospective third party purchaser and containing all
of the terms and conditions of such offer. The date
such written notice is given to Company is herein
sometimes called the "Original Date."
9.6.2 Company shall thereafter have an option to purchase
the Offered Interest upon the same terms set forth in
said offer, which option may be exercised by written
notice thereof given to Employee within ten (10) days
after the Original Date.
9.6.3 If the Offered Interest is not purchased by Company
pursuant to the foregoing provisions of this
paragraph, then Employee shall have the right to sell
the Offered Interest to the prospective third party
purchaser named in such offer, provided that such
sale is consummated within thirty (30) days from the
expiration date of
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 36
the option of Company created hereby and provided
that such sale is made in strict conformity with the
terms of such offer.
9.6.4 If, however, such sale of the Offered Interest does
not occur within such thirty-day period for the price
and upon the terms set forth in such offer, then any
sale of part or all of such Offered Interest
thereafter shall again be subject to the option to
purchase granted to Company under this paragraph 9.6.
9.6.5 If Employee elects to take title to an Overriding
Royalty Interest in a legal entity other than himself
(which he may do only with Company's consent), such
entity shall take title subject to all of the terms
and conditions of this Agreement.
9.7 Additional Provisions Affecting Overriding Royalty
Interest.
In addition to the other provisions of this paragraph 9,
Employee's Overriding Royalty Interest shall be subject to the
following:
9.7.1 Notwithstanding anything to the contrary contained
herein, Employee shall not have the right to take in
kind or separately dispose of the production of oil
and gas attributable to his Overriding Royalty
Interest.
9.7.2 Employee's Overriding Royalty Interest shall also
apply to the production of oil and gas under the
terms and provisions of any renewal, extension or new
lease, to the extent such renewal, extension or new
lease covers all or any portion of any lands covered
by the expired lease which was subject to Employee's
Overriding Royalty Interest or is within the Prospect
plat, and provided, however, that any such renewal,
extension or new lease shall have been acquired by or
for the benefit of Company, either prior to or within
one (1) year after the expiration of the expired
lease.
9.7.3 Except as otherwise provided in this paragraph 9, in
no event shall Employee ever be liable or responsible
in any way for payment of any part of any
exploration, drilling or production costs or
liabilities incurred by Company or its assigns or
other lessees attributable to the lease or leases in
a Prospect or to the production therefrom, it being
the intent of the parties that Employee's Overriding
Royalty Interest shall constitute a non-participating
royalty interest for all purposes.
9.7.4 Company will conduct and carry on the development,
maintenance and operation of any lease subject to
Employee's Overriding Royalty Interest in a manner
which it deems in its sole judgment
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 37
to be reasonable and prudent and in accordance with
good oil and gas field practices, and it will drill
such wells as it deems proper in its sole judgment
from time to time in order to protect such lease from
drainage; provided, however, (a) nothing herein
contained shall obligate Company to conduct any
drilling operations whatsoever upon such lease, or to
continue to operate any well or to operate or
maintain in force or attempt to maintain in force
such lease by payment of delay rentals, compensatory
royalties or other payments or by the drilling of any
wells upon said lease, or in any other manner, and
the extent and duration of all operations, as well as
the preservation of each of such leases by delay
rental payments or otherwise, shall be solely at the
will of Company, and (b) Company shall have the right
at any time to surrender, abandon or otherwise
terminate any such lease in whole or in part without
liability to Employee.
9.7.5 Company shall have the right to sell all production
attributable to Employee's Overriding Royalty
Interest on the same basis upon which the production
attributable to Company's interest in the same
production is sold, and shall account to Employee on
that basis. In no event shall Employee be entitled
to receive payments for production attributable to
his Overriding Royalty Interest calculated on a basis
higher than that upon which Company's interest in the
same production is calculated or computed on a higher
price than that payable to Company on account of
production attributable to its interest, and in no
event shall Employee be entitled to receive payments
on amounts suspended by purchasers of the production
pending determination of the authorized price by
governmental entities. However, if Company sells any
such production to an affiliate of Company, the price
therefor shall not be less than would have been
reasonably obtainable in a sale to a non-affiliated
purchaser.
9.7.6 There shall be deducted from the production, before
Employee's Overriding Royalty Interest is computed,
any production lost in the production from the
leases, or any lands pooled therewith, or used for
drilling, operating, development or production or in
plant operations (including gas injection, secondary
recovery, pressure maintenance, repressuring, cycling
operations, plant fuel or shrinkage) conducted for
the purpose of producing or processing production
from lands covered by the leases or from any lands
pooled with the leases.
9.7.7 Company shall have the right and option, but not the
obligation, to process gas produced and saved from
the leases. If Company elects to process or have
processed, such gas in a gas processing plant or
other facility, whether or not owned by Company, then
in such
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 38
event Employee shall be paid his percentage share
provided for herein of the proceeds of sale of all
gasoline or other liquid hydrocarbons or other
products manufactured or extracted from such gas as a
result of such processing (collectively, the
"Products"), less the costs of extraction or
manufacture (which may consist of a portion of the
Products). Company shall also pay to Employee the
same percentage share of the proceeds of sale of all
residue gas sold by Company, less expenses incurred
by Company in transporting any such gas to point of
delivery and for dehydration and/or compression of
gas at or prior to such delivery and other expenses
and fees typically borne by royalty owners (excluding
expenses or fees for capital projects funded by
Company to the extent such expenses or fees have been
included in the Payout calculation for the well from
which such gas is produced).
9.7.8 Employee's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing
and transporting production from the leases or from
any lands pooled therewith which are typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such production
is produced).
9.7.9 Employee's Overriding Royalty Interest shall also
bear its share of all ad valorem, production,
severance, sales, gathering and other taxes typically
borne by royalty owners (whether state, federal or
otherwise) assessed or levied on or in connection
with the Overriding Royalty Interest or the
production from the leases.
9.7.10 Company or its assigns shall have the right and
power, without any approval by Employee, to pool or
unitize any lease which is subject to Employee's
Overriding Royalty Interest, and to alter, change,
amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as
to all or any part of a Prospect, as to any one or
more of the formations or horizons thereunder, upon
such terms and provisions as Company shall in its
sole discretion determine. If and whenever through
the exercise of such right and power, or pursuant to
any law now existing or hereafter enacted, or any
rule, regulation or order of any governmental body
now or hereafter promulgated, any of the leases of
Company are pooled or unitized in any manner,
Employee's Overriding Royalty Interest shall also be
pooled and unitized, and in such event Employee's
Overriding Royalty shall only be paid on that portion
of the production from the unit or units so pooled,
which is attributable to said leases under and by
virtue of the pooling and unitization.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 39
9.7.11 Company may withhold payment to Employee of any funds
attributable to Employee's Overriding Royalty
Interest which Company, in its sole discretion, deems
to be subject to a risk of refund or recoupment
pursuant to any rule, regulation or order of any
governmental authority or any adverse claims by third
parties. During such suspense period, Employee shall
not be entitled to interest on sums so withheld.
9.7.12 In the event Company's Working Interest in any lease
in which Employee is entitled to an Overriding
Royalty Interest covers less than all of the full and
entire undivided interest in and to the land
described therein, and in and to all the oil and gas
rights relating thereto, then in that event the
Overriding Royalty Interest as to that portion of the
leased premises in which Company's Working Interest
in such lease does not cover such full and entire
undivided interest shall be reduced proportionately
(i.e., in the proportion that the undivided interest
in and to said land and oil and gas rights covered by
such lease bears to such full and entire undivided
interest).
9.7.13 Notwithstanding anything contained in this paragraph
9 to the contrary, Employee's Overriding Royalty
Interest in any Net Profit Share Lease ("NPSL") shall
be reduced at the same time and in the same
percentage as Company's net revenue interest in said
NPSL is reduced pursuant to the provisions of said
NPSL.
9.7.14 Company and Employee further undertake and agree
promptly to execute and deliver, upon request of
either party, all assignments, reassignments,
transfer orders, division orders, releases and any
other documents as may be necessary to implement this
paragraph 9 or otherwise to more fully assure to each
party the rights and interests of such party provided
for in this paragraph 9.
10. Insurance.
10.1 Employee shall be eligible for participation in such
insurance programs as Company shall institute from
time to time covering medical and dental expenses and
such life and accidental death and dismemberment
insurance programs as Company shall institute from
time to time. Payment of premiums for such coverages
shall be in accordance with Company policy covering
all employees as may be established from time to time
by Company. Employee shall also be eligible for
participation in such retirement, pension, deferred
compensation and other benefit programs the Company
shall initiate from time to time.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 40
11. Outside Activities.
During the term or extended term of this Agreement, Employee
shall devote all of his working time, energy and talents to
the due discharge and performance of his duties hereunder, at
the direction and subject to the control of Company, and shall
perform such services and duties as shall reasonably be
required from him from time to time by Company. Employee
agrees that he will not knowingly become involved in a
conflict of interest with Company or its subsidiaries, or upon
discovery thereof, allow such a conflict to continue.
Moreover, Employee agrees to provide Company a statement of
all other directorships Employee holds, with a brief
description of the business activities of each organization.
This statement shall be provided on or before December 31 of
each year. If, in the opinion of Company, a conflict of
interest exists between Company (and its affiliates) and the
organization in which the Employee holds a directorship,
Company can require Employee to resign the outside
directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed to
limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of the
issued and outstanding and publicly traded (on a recognized
national or regional securities exchange or in the
over-the-counter market) capital stock or other securities of
any corporation or other entity that conducts activities that
compete with the business of Company or any affiliate of
Company; or (ii) to invest, individually or with others, in
oil and gas prospects, subject, however, in the case of oil
and gas prospects to the following conditions:
12.1 Company must have first had the right and opportunity
to purchase all of the interest in any prospect made
available to Employee, even if this would preclude
Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made
available to Employee and have no desire to acquire
an additional interest, or declined to participate at
all in the prospect. If Company elects to
participate in less than the full interest made
available to Employee, Employee may invest in the
portion of such interest not acquired by Company.
12.3 Employee must purchase his interest in the oil and
gas prospect on terms which are no more favorable
than those made available to Company.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 41
13. Disability During Employment.
If Employee shall become unable to perform his duties by
reason of disability, he shall be entitled to receive, in
addition to any insurance benefits he may receive, all of his
salary for the first one (1) month of his disability, and
one-half (1/2) of his salary for the next three (3) months of
disability. Periods of disability shall not be cumulative so
long as they are separated by at least ninety (90) days of
continuous service.
The term "disability" shall mean disability which, in the
opinion of a doctor satisfactory to Company, renders Employee
unable to perform his duties hereunder as evidenced by such
doctor's certificate. The date disability commences shall be
the date Employee first absents himself from work during a
continuous period of disability.
14. Merger or Acquisition.
In the event Company should be acquired by or merged into
another company, by signature of Company's authorized
representatives, Company hereby agrees that this Employment
Agreement shall be binding upon Company, its successors and
assigns, and shall be disclosed to any party considering
merger with, or acquisition of, Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this
Agreement and the dispute cannot be settled through
direct discussions, Company and Employee agree that
they shall first endeavor to settle the dispute in an
amicable fashion. If such efforts fail to resolve
the dispute, the dispute shall, except as otherwise
provided in paragraph 19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2 below,
any and all claims, demands, cause of action,
disputes, controversies, and other matters in
question arising out of or relating to this
Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, even though some or all of
such claims allegedly are extracontractual in
nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, shall be
resolved by binding arbitration pursuant to
the Federal Arbitration Act in accordance
with the Commercial
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 42
Arbitration Rules then in effect with the
American Arbitration Association (the "AAA").
The arbitration proceeding shall be conducted
in Houston, Texas. The arbitration may be
initiated by either party by providing to the
other a written notice of arbitration
specifying the claims, and the parties shall
thereafter endeavor to agree on an
arbitrator. If within thirty (30) days of
the notice of initiation of the arbitration
procedure, the parties are unable to agree on
an arbitrator, the party requesting
arbitration shall file a request with the AAA
that the Houston, Texas office of the AAA
provide a list of potential arbitrators to
both parties. The parties shall thereafter
have sixty (60) days to select an arbitrator
from such list, with such selection to be by
mutual agreement. If the parties fail to
select an arbitrator within such time by
mutual agreement, then either party may
request that the Chief Judge of the U.S.
District Court for the Southern District of
Texas appoint an arbitrator, and any such
appointment shall be binding. The
arbitrator, utilizing the Commercial
Arbitration Rules of the American Arbitration
Association, shall within 120 days of his or
her selection, resolve all disputes between
the parties. There shall be no transcript of
the hearings before the arbitrator. The
arbitrator's decision shall be in writing,
but shall be as brief as possible. The
arbitrator shall not assign the reasons for
his or her decision. The arbitrator's
decision shall be final and non-appealable to
the maximum extent permitted by law.
Judgment upon any award rendered in any such
arbitration proceeding may be entered by any
federal or state court having jurisdiction.
This agreement to arbitrate shall be
enforceable in either federal or state court.
The enforcement of this agreement to
arbitrate and all procedural aspects of this
agreement to arbitrate, including but not
limited to, the construction and
interpretation of this agreement to
arbitrate, the issues subject to arbitration
(i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver,
delay or defenses to arbitrability, and the
rules governing the conduct of the
arbitration, shall be governed by and
construed pursuant to the Federal Arbitration
Act and shall be decided by the arbitrator.
In deciding the substance of any such claims,
the arbitrator shall apply the substantive
laws of the State of Texas (excluding
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 43
Texas choice-of-law principles that might
call for the application of some other
State's law); provided, however, it is
expressly agreed that the arbitrator shall
have no authority to award treble, exemplary,
or punitive damages under any circumstances
regardless of whether such damages may be
available under Texas law, the parties hereby
waiving their right, if any, to recover
treble, exemplary, or punitive damages in
connection with any such claims.
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the
event that either party wishes to seek a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief in connection with any or all such
claims, demands, cause of action, disputes,
controversies, and other matters in question
arising out of or relating to this Agreement,
any provision hereof, the alleged breach
thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, including disputes arising
out of a breach or alleged breach of
paragraph 4 or 16, even though some or all of
such claims allegedly are extra-contractual
in nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, each party shall
have the right to pursue such injunctive
relief in court, rather than by arbitration.
The parties agree that such action for a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief will be brought in the State or
federal courts residing in Houston, Harris
County, Texas.
15.2 The Company shall pay all costs and expenses of
Company and Employee (including, but not limited to,
attorneys' fees, the fees of the arbitrator and the
AAA and any other related costs) for any arbitration
proceeding or legal action; provided, however, that
if in any such arbitration proceeding or legal
action, the arbitrator or court, respectively,
determines that Employee has prosecuted or defended
any issue in such proceeding or action in bad faith,
the arbitrator or court, respectively, may allocate
the portion of such costs and expenses relating to
such issue between the parties in any other manner
deemed fair, equitable and reasonable by the
arbitrator or court, respectively.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 44
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation and
benefits to be paid to Employee hereunder, and as an
additional incentive for Company to enter into this
Agreement, Company and Employee agree to the
non-competition obligations hereunder. Employee will
not, directly or indirectly for Employee or for
others:
16.1.1 in any geographic area or market where
Company or any of its subsidiaries are
conducting any business as of the date of
termination of the employment relationship or
have during the previous twelve months
conducted such business, engage in any
business competitive with any such business;
or
16.1.2 in any geographic area or market where
Employee knew Company contemplated entering
any business as of the date of termination of
the employment relationship, but only if
Company had, as of such date, invested
significant resources toward entering into
such business in such geographic area or
market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise
assist, any other person, association, or
entity who is engaged, directly or
indirectly, in any business competitive with
Company's business within the parameters
described in paragraphs 16.1.1 and 16.1.2
above with respect to such competitive
business; or
16.1.4 induce any employee of Company or any of its
subsidiaries to terminate his or her
employment with Company or its subsidiaries,
or hire or assist in the hiring of any such
employee by any person, association, or
entity not affiliated with Company.
These non-competition obligations shall commence upon
the date of execution of this Agreement and extend
until the earlier of (a) the expiration of the term
of this Agreement (or any extended term) or (b) six
(6) months after termination of the employment
relationship; provided, however, that notwithstanding
anything contained in this paragraph 16 to the
contrary, such obligations shall only apply after the
termination of employment if the termination of
employment results from termination for Cause by
Company under paragraph 3.5 or voluntary termination
without Good Reason by Employee (it being understood
and agreed that
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 45
termination of this Agreement by Employee under
paragraph 3.1 shall not, for purposes of this
paragraph 16, constitute voluntary termination
without Good Reason by Employee).
16.2 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
businesses anywhere in the world during the period
provided for above, but acknowledges that Employee
will receive sufficiently high renumeration and other
benefits under this Agreement to justify such
restriction. Employee acknowledges that money
damages would not be sufficient remedy for any breach
of this Article by Employee, and Company shall be
entitled to enforce the provisions of this Agreement
and/or to specific performances and injunctive relief
as remedies for such breach or any threatened breach.
Such remedies shall not be deemed the exclusive
remedies for a breach of this Article, but shall be
in addition to all remedies available at law or in
equity to Company, including, without limitation, the
recovery of damages from Employee and Employee's
agents involved in such breach and remedies available
to Company pursuant to other agreements with
Employee.
16.3 It is expressly understood and agreed that Company
and Employee consider the restrictions contained in
this paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States
Foreign Corrupt Practices Act, generally codified in 15 USC 78
(FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo
contendere or admits civil or criminal liability under the
FCPA, or if a court finds that Employee committed an action
resulting in any Company entity having civil or criminal
liability or responsibility under the FCPA with knowledge of
the activities giving rise to such liability or knowledge of
facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were
likely to occur, such action or finding shall constitute Cause
for termination by Company under paragraph 3.5 of this
Agreement unless Company's Board of Directors determines that
the actions found to be in violation of the FCPA were taken in
good faith and in compliance with all applicable policies of
Company.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 46
18. Survival.
The provisions of paragraphs 4 and 16 shall survive any
termination of the employment relationship and/or of this
Agreement for the periods stated therein. The provisions of
paragraph 15 relating to arbitration shall survive any
termination of the employment relationship between Employee
and Company and the termination of this Agreement. Amounts,
compensation, rights and benefits which Employee is entitled
to receive or have accrued to Employee under this Agreement or
under any plan, program, arrangement, agreement or policy of
or with Company or any of its affiliates before, at or
subsequent to the termination of the employment relationship
between Employee and Company or the termination of this
Agreement shall not be superseded and shall survive any such
termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by Company or any of
its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions
being individually referred to herein as a "Payment,"
and any two or more of such payments or distributions
being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax,
and any interest in respect of such penalties,
additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"),
then Employee shall be entitled to receive an
additional payment or payments (individually referred
to herein as a "Gross-Up Payment" and any two or more
of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in
paragraph 19.11) imposed upon the Gross-Up Payment,
Employee retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
19.2 Subject to the provisions of paragraph 19.3 through
19.11, any determination (individually, a
"Determination") required to be made under this
paragraph 19, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment,
shall initially be made, at Company's expense, by
nationally recognized tax counsel mutually acceptable
to Company and Employee ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities,
calculations, and documentation both to Company and
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 47
Employee within 15 business days of the termination
of Employee's employment, if applicable, or such
other time or times as is reasonably requested by
Company or Employee. If Tax Counsel makes the
initial Determination that no Excise Tax is payable
by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably
acceptable to Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any
Determination (a "Dispute") within 15 business days
after delivery of Tax Counsel's opinion with respect
to such Determination. The Gross-Up Payment, if any,
as determined pursuant to such Determination shall be
paid by Company to Employee within five business days
of Employee's receipt of such Determination. The
existence of a Dispute shall not in any way affect
Employee's right to receive the Gross-Up Payment in
accordance with such Determination. If there is no
Dispute, such Determination shall be binding, final
and conclusive upon Company and Employee, subject in
all respects, however, to the provisions of paragraph
19.3 through 19.11 below. As a result of the
uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have
been made by Company should have been made
("Underpayment"), and if upon any reasonable written
request from Employee or Company to Tax Counsel, or
upon Tax Counsel's own initiative, Tax Counsel, at
Company's expense, thereafter determines that
Employee is required to make a payment of any Excise
Tax or any additional Excise Tax, as the case may be,
Tax Counsel shall, at Company's expense, determine
the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by
Company to Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from
and against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of Employee resulting from any Final
Determination (as defined in paragraph 19.10) that
any Payment is subject to the Excise Tax.
19.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a claim
by Employee against Company under this paragraph 19
("Claim"), including, but not limited to, a claim for
indemnification of Employee by Company under
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 48
paragraph 19.3, then such party shall promptly notify
the other party hereto in writing of such Claim ("Tax
Claim Notice").
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken
such action in connection with contesting such
Employee Claim as Company shall reasonably request in
writing from time to time, including the retention of
counsel and experts as are reasonably designated by
Company (it being understood and agreed by the
parties hereto that the terms of any such retention
shall expressly provide that Company shall be solely
responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and
the execution of powers of attorney, provided that:
19.5.1 within 30 calendar days after Company
receives or delivers, as the case may be, the
Tax Claim Notice relating to such Employee
Claim (or such earlier date that any payment
of the taxes claimed is due from Employee,
but in no event sooner than five calendar
days after Company receives or delivers such
Tax Claim Notice), Company shall have
notified Employee in writing ("Election
Notice") that Company does not dispute its
obligations (including, but not limited to,
its indemnity obligations) under this
Agreement and that Company elects to contest,
and to control the defense or prosecution of,
such Employee Claim at Company's sole risk
and sole cost and expense; and
19.5.2 Company shall have advanced to Employee on an
interest-free basis, the total amount of the
tax claimed in order for Employee, at
Company's request, to pay or cause to be paid
the tax claimed, file a claim for refund of
such tax and, subject to the provisions of
the last sentence of paragraph 19.7, sue for
a refund of such tax if such claim for refund
is disallowed by the appropriate taxing
authority (it being understood and agreed by
the parties hereto that Company shall only be
entitled to sue for a refund and Company
shall not be entitled to initiate any
proceeding in, for example, United States Tax
Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to
such advance or with respect to any imputed
income with respect to such advance; and
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 49
19.5.3 Company shall reimburse Employee for any and
all costs and expenses resulting from any
such request by Company and shall indemnify
and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute,
at the sole cost, expense and risk of Company, such
Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by Company to a Final Determination;
provided, however, that (i) Company shall not,
without Employee's prior written consent, enter into
any compromise or settlement of such Employee Claim
that would adversely affect Employee, (ii) any
request from Company to Employee regarding any
extension of the statute of limitations relating to
assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the
contested issues involved in, and amount of, the
Employee Claim relate is limited solely to such
contested issues and amount, and (iii) Company's
control of any contest or proceeding shall be limited
to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue
raised by the Internal Revenue Service or any other
taxing authority. So long as Company is diligently
defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to
Company any information reasonably requested by
Company that relates to such Employee Claim, and
shall otherwise cooperate with Company and its
representatives in good faith in order to contest
effectively such Employee Claim. Company shall keep
Employee informed of all developments and events
relating to any such Employee Claim (including,
without limitation, providing to Employee copies of
all written materials pertaining to any such Employee
Claim), and Employee or his authorized
representatives shall be entitled, at Employee's
expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of
a tax claimed (pursuant to an Employee Claim) that
has been advanced by Company pursuant to paragraph
19.5.2 hereof, the extent of the liability of Company
hereunder with respect to such tax claimed has been
established by a Final Determination, Employee shall
promptly pay or cause to be paid to Company any
refund actually received by, or actually credited to,
Employee with respect to such tax (together with any
interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such
taxing authority related thereto), except to the
extent that any amounts
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 50
are then due and payable by Company to Employee,
whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an
amount advanced by Company pursuant to paragraph
19.5.2, a determination is made by the Internal
Revenue Service or other appropriate taxing authority
that Employee shall not be entitled to any refund
with respect to such tax claimed and Company does not
notify Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30
days after such determination, then such advance
shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset,
to the extent thereof, the amount of any Gross-Up
Payments and other payments required to be paid
hereunder.
19.8 With respect to any Employee Claim, if Company fails
to deliver an Election Notice to Employee within the
period provided in paragraph 19.5.1 hereof or, after
delivery of such Election Notice, Company fails to
comply with the provisions of paragraph 19.5.2,
19.5.3 or 19.6 hereof, then Employee shall at any
time thereafter have the right (but not the
obligation), at his election and in his sole and
absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such Employee
Claim. Employee shall have full control of such
defense or prosecution and such proceedings,
including any settlement or compromise thereof. If
requested by Employee, Company shall cooperate, and
shall cause its affiliates to cooperate, in good
faith with Employee and his authorized
representatives in order to contest effectively such
Employee Claim. Company may attend, but not
participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph
19.8 and shall bear its own costs and expenses with
respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from
Company with respect to costs and expenses incurred
by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the
terms of this paragraph 19.9, Company shall pay, on a
fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such Employee Claim that have not
theretofore been paid by Company to Employee,
together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by
Company to Employee, within ten calendar days after
such Final Determination. In the case of any
Employee Claim not covered by the preceding sentence,
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 51
Company shall pay, on a fully grossed-up after tax
basis, to Employee in immediately available funds the
full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim at
least ten calendar days before the date payment of
such taxes is due from Employee, except where payment
of such taxes is sooner required under the provisions
of this paragraph 19.9, in which case payment of such
taxes (and payment, on a fully grossed-up after tax
basis, of any costs and expenses required to be paid
under this paragraph 19.9 shall be made within the
time and in the manner otherwise provided in this
paragraph 19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim for
refund or credit in respect to an overpayment of tax
unless a suit is filed on a timely basis; or (D) any
final disposition by reason of the expiration of all
applicable statutes of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes), together
with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee
pursuant to this Agreement, whether by seeking other
employment or otherwise; nor shall the amount of any such
payment or other benefit be reduced on account of any
compensation earned by Employee as a result of employment by
another person or entity.
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended
except in writing and signed by Company and Employee.
This Agreement shall be binding upon the heirs,
administrators, or executors and the successors and
assigns of each party to this Agreement.
21.2 The rights and benefits of Employee under the
Agreement are personal to him and shall not be
assigned or transferred without
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 52
the prior written consent of Company. Subject to the
foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
respective heirs, personal representatives,
successors and assigns.
21.3 All titles or headings of sections or paragraphs or
other divisions of this Agreement are only for the
convenience of the parties and shall not be construed
to have any effect or meaning with respect to the
other content of such sections or paragraphs or other
divisions, such content being controlling as to the
agreement between the parties hereto.
21.4 This Agreement is made and will be performed under,
and shall be governed by and construed in accordance
with, the law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO THIS
AGREEMENT THAT HE HAS READ THIS AGREEMENT BEFORE
SIGNING IT AND THAT HE FULLY UNDERSTANDS ITS
PURPOSES, TERMS AND PROVISIONS, WHICH HE HEREBY
EXPRESSLY ACKNOWLEDGED TO BE REASONABLE IN ALL
RESPECTS. EMPLOYEE FURTHER ACKNOWLEDGES RECEIPT OF
ONE COPY OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
580 Westlake Boulevard, Suite 1300
Houston, Texas 77079
Attention: President and Chief Executive Officer
If to Employee:
James M. Fitzpatrick III
4228 Amherst
Houston, Texas 77005
Company and Employee may change the above addresses
for notice purposes by notifying the other in writing.
Employment Agreement -- James M. Fitzpatrick III
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<PAGE> 53
21.7 The Company may withhold from any amounts payable
under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21.8 Except as otherwise expressly provided herein,
nothing contained in this Agreement shall limit or
otherwise affect any rights or benefits which are
vested in, accrued to, or earned by Employee, or for
which Employee is entitled to, prior to the Effective
Date whether under the Employment Agreement or
otherwise.
21.9 ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL
AGREEMENT DATED EFFECTIVE AS OF FEBRUARY 12, 1996,
BETWEEN COMPANY AND EMPLOYEE SHALL TERMINATE AND BE
FROM THE EFFECTIVE DATE NULL, VOID AND OF NO FURTHER
FORCE OR EFFECT WHATSOEVER.
Executed this the as of the Effective Date in duplicate originals at
Houston, Texas.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ ROBERT E. HENDERSON
--------------------------------
Printed Name: Robert E. Henderson
------------------------
Printed Title: President and Chief
------------------------
Executive Officer
------------------------
EMPLOYEE:
/s/ JAMES M. FITZPATRICK III
---------------------------------------
James M. Fitzpatrick III
Employment Agreement -- James M. Fitzpatrick III
-53-
<PAGE> 1
EXHIBIT 10.8
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter called
this "Agreement") is entered into effective as of June 27, 1996 (the "Effective
Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy Oil & Gas
USA Inc.) (hereinafter called "Company") and Gregory K. Harless (hereinafter
called "Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated March 1, 1989, which was thereafter amended on a number of
occasions (such Employment Agreement, as heretofore amended, being referred to
herein as the "Employment Agreement"); and
WHEREAS, Enron Capital & Trade Resources Corp., a Delaware
corporation, Mystery Acquisition, Inc., a Delaware corporation ("Parent"),
Robert E. Henderson, Richard R. Clark, Michael W. Strickler, and D. S. Huber,
have entered into that certain Stockholders' Agreement dated April 2, 1996 (the
"Stockholders Agreement"); and
WHEREAS, Section C.2(a) of the Stockholders Agreement provides that
the Employment Agreement will be amended and restated as set forth herein and
Company and Employee desire to so amend and restate the Employment Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as Vice President -
Oil and Gas Marketing of Company. The permanent place of
Employee's employment shall be at a location within a 50-mile
radius of the central business district of the City of
Houston, Texas; provided, however, Employee shall be required
to undertake such ordinary and usual travel as is necessary to
properly discharge his duties and responsibilities hereunder.
Employee hereby accepts such employment, and agrees to serve
Company faithfully, diligently and in a good and workmanlike
manner.
2. Term.
The term of employment shall be for the period beginning a
term of three (3) years beginning on the Effective Date,
subject, however, to the provisions of paragraph 3.
<PAGE> 2
3. Extension and Termination.
3.1 If either Employee or Company elects to terminate
this Agreement at the end of the term stated in
paragraph 2, or at the end of any extended term
hereof as hereinafter provided, notice of the
election to terminate shall be given to the other
party no later than six (6) months before the end of
this Agreement. If no notice is given by either
party, the term, or extended term, of this Agreement
shall be deemed to have been extended for an
additional three (3) months.
3.2 In the event Company elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary and
other benefits provided elsewhere in this
Agreement for Employee's services rendered to
Company hereunder through the end of such
term or extended term.
3.2.2 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment equal to six (6)
months' salary at Employee's monthly rate for
the month immediately preceding the month in
which Company elects to terminate this
Agreement.
3.2.3 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment for all (a) vacation
time carried forward from a previous year in
accordance with paragraph 8, and (b) all
earned and unused vacation time for the then
current year. Earned vacation time shall,
for the purpose of this paragraph, be
calculated by dividing the number of days in
the calendar year which have transpired by
365, and then multiplying the result by the
number of vacation days to which Employee is
entitled for that year pursuant to paragraph
8.
3.2.4 If Employee has a leased automobile, the
lease payments on which are guaranteed by
Company, Employee shall have the option, to
be exercised on or before the last day of his
employment hereunder, of assuming the
remaining lease payments and retaining the
automobile, or assigning the lease agreement
to Company in return for Company's agreement
to assume the remaining lease payments.
3.2.5 Interests vested in Employee under paragraph
9 of this Agreement shall be assigned in due
course in compliance with paragraph 9.4.
Company and Employee agree that the
Employment Agreement -- Gregory K. Harless
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<PAGE> 3
promises, covenants and undertakings of
paragraph 9 shall survive the termination of
employment of Employee and shall be binding
on all assigns of Company.
3.3 In the event Employee elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the
term, or extended term hereof, unless waived
by Company.
3.3.2 The provisions of paragraphs 3.2.1, 3.2.3,
3.2.4, and 3.2.5 shall be applicable, but
Employee shall not be entitled to the payment
provided for in paragraph 3.2.2.
3.4 Company may at its option consent to a request by
Employee to terminate this Agreement at a time other
than that stated in paragraph 2, as extended, in
which case the date requested by Employee and agreed
to by Company will be the end of the term of this
Agreement and the provisions of paragraph 3.3 shall
be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon
written notice of such termination to Employee by
Company. Any termination of this Agreement by
Company for Cause shall be effective thirty (30) days
after written notice of termination for Cause is
given by Company to Employee. If Company terminates
this Agreement for Cause, Company shall have no
liability or obligation to Employee thereafter under
this Agreement except (i) for the payment of his
salary and other benefits through the month of
discharge, prorated in the case of salary for the
month of discharge on a daily basis to the date of
termination, and (ii) that the provisions of
paragraph 3.2.5 shall be applicable. As used in this
Agreement, the term "Cause" means (a) Employee is
found guilty of, admits in writing facts amounting
to, or is held civilly liable for fraud, embezzlement
or dishonesty, (b) Employee is convicted of a felony
involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in
good faith determines that the continued employment
of the Employee would be materially detrimental to
the Company (in any case which felony through lapse
of time or otherwise is not subject to appeal), (c)
Employee knowingly discloses trade secrets or
confidential Company matters to unauthorized persons,
(d) Employee willfully breaches or habitually
neglects any duties he is required to perform under
the terms of this Agreement and any such breach or
neglect is not cured within thirty (30) days after
Company has provided Employee with written notice of
such breach or neglect, (e)
Employment Agreement -- Gregory K. Harless
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<PAGE> 4
Employee materially breaches any of the other
material terms of this Agreement and any such breach
is not cured within thirty (30) days after the
Company has provided Employee with written notice of
such breach, and (f) the occurrence of an action or
finding described in paragraph 17, except as
otherwise provided in paragraph 17. The waiver by
Company of a breach of any provision of this
Agreement by Employee shall not operate or be
construed as a waiver of any subsequent breach by
Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in
paragraphs 3.1, 3.4 or 3.5 above, Employee shall be
entitled to receive on the date of such termination
or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the
month immediately preceding the month in
which such termination or discharge occurs,
for the unexpired portion of the term or
extended term hereof then in effect.
3.6.2 The payments and other benefits provided for
in paragraphs 3.2.2, 3.2.3, 3.2.4 and 3.2.5
hereof.
3.7 In the event Employee terminates this Agreement for
"Good Reason" (as defined in paragraph 3.9), and
prior to such termination Employee has not terminated
this Agreement under paragraph 3.1 hereof, Employee
shall be entitled to receive from Company on the date
of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in effect
at the effective time of such termination
(but prior to giving effect to any reduction
therein which precipitated such termination),
for the unexpired portion of the term or
extended term hereof then in effect.
3.7.2 A lump sum cash payment equal to six (6)
months' salary, at Employee's rate in effect
at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination).
3.7.3 The payments and other benefits provided for
in paragraphs 3.2.3, 3.2.4 and 3.2.5.
3.8 Any termination of this Agreement by Employee for
Good Reason shall be effective thirty (30) days after
written notice of termination for Good Reason is
given by Employee to Company
Employment Agreement -- Gregory K. Harless
-4-
<PAGE> 5
3.9 As used in this Agreement, the term "Good Reason"
means any one or more of the following events has
occurred:
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's
position (including office, title and
reporting requirements), authority, duties or
responsibilities with Company or any other
action that results in a material diminution
in, or interference with, such position,
authority, duties or responsibilities, and
any such assignment or action is not cured
within thirty (30) days after Employee has
provided Company with written notice of such
assignment or action;
3.9.2 The failure to continue to provide Employee
with office space, related facilities and
support personnel (including, but not limited
to, administrative and secretarial
assistance) (a) that are both commensurate
with Employee's responsibilities to and
position with Company and not materially
dissimilar to the office space, related
facilities and support personnel provided to
other employees of Company having comparable
responsibility to that of Employee or (b)
that are physically located at Company's
principal executive offices, and any such
failure is not cured within thirty (30) days
after Employee has provided Company with
written notice of such failure;
3.9.3 Any (a) reduction in Employee's monthly
salary as established in paragraph 5
(including subsequent increases), (b)
reduction in, discontinuance of, or failure
to allow or continue to allow Employee's
participation in, the incentive compensation
program provided under paragraph 9 hereof, or
(c) reduction in, or failure to allow or
continue Employee's participation in, any
employee benefit plan or program (except when
such benefit plan or program is replaced with
another benefit plan, program or arrangement
that provides Employee, in the aggregate,
with reasonably comparable benefits) in which
Employee is participating or is eligible to
participate prior to such reduction or
failure (other than as a result of the
expiration of such plan or program), and any
such reduction, discontinuance or failure is
not cured within thirty (30) days after
Employee has provided Company with written
notice of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of
Employee's performance of his duties and
responsibilities to a location more than 50
miles outside
Employment Agreement -- Gregory K. Harless
-5-
<PAGE> 6
of the central business district of the City
of Houston, Texas; or
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2, 3.9.3,
and 3.9.4) which is not cured within thirty
(30) days after Employee has provided Company
with written notice of such breach.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of this
Agreement, and for a period of four (4) years from
the date of termination of his employment hereunder,
keep secret and confidential and not disclose to any
party not a party to this Agreement, land or lease
data, geological or geophysical data, well data or
any other information which he may receive as a
result of the performance of his duties hereunder,
except when disclosure is necessary for the
performance of his duties to Company hereunder. This
paragraph shall not apply to information that is in
the public domain through no action of Employee.
4.2 Upon termination of this employment hereunder,
Employee shall promptly deliver to Company all
written information and documents (whether
confidential or not), and all copies thereof,
relating to Company's business and activities and
which are in the possession of or under the control
of Employee.
5. Salary.
As compensation for his services rendered to Company
hereunder, Company shall pay to Employee a salary at the rate
of $10,083.33 per month. Employee's salary may be reviewed at
such times as may be determined by Company, and Company may at
its discretion increase this salary. Employee's salary shall
be paid in two equal monthly installments, payable on the
fifteenth and last days of each month (or on the first
business day of Company thereafter if any such payment date is
not a business day of Company), subject to any and all
necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $250.00
dollars per month to Employee. In addition to such monthly
allowance, Company shall pay, in accordance with Company
policy, for all gasoline, insurance and maintenance required
for use of the automobile.
Employment Agreement -- Gregory K. Harless
-6-
<PAGE> 7
7. Business Expenses.
Employee is authorized to incur reasonable business expenses
in accordance with Company's policies as may be established
from time to time for promoting the business of Company,
including expenditures for entertainment and travel. Company
shall reimburse Employee from time to time for all such
business expenses in accordance with those policies adopted by
Company which include, but are not limited to, the requirement
that Employee timely present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom;
and
7.4 The name and occupation of the person or persons
entertained to establish the business relationship
with Company.
With respect to any reimbursable business expense contemplated
above exceeding twenty-five dollars ($25.00), Employee will
furnish documentary evidence of such expense to Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of
twenty (20) days per calendar year at full pay. The timing
and use of such vacation days shall be requested by Employee
and approved by Company in accordance with its policy. Up to
one week may be carried over from year to year. Employee
shall not be entitled to receive payment in lieu of unused
vacation time except as otherwise provided herein. With prior
approval, vacation may be deferred if business matters keep
Employee from taking his normal vacation.
9. Incentive Compensation.
9.1 Definitions.
An "AFFILIATE" of a specified person is any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with
that specified person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
Employment Agreement -- Gregory K. Harless
-7-
<PAGE> 8
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated
persons (other than Joint Energy Development
Investments Limited Partnership ("JEDI") or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66 2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person,
if as a result any person (other than JEDI or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66-2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.), (y) any sale, lease, exchange or
other transfer of two-thirds or more of the
consolidated assets of Newco and its subsidiaries
taken as a whole in one transaction or a series of
related transactions whether by direct sale of
assets, sale of stock of a subsidiary or a merger
involving any subsidiary, or (z) the dissolution of
Newco; or
(iii) Recognizing that the events
described in this clause and the events described in
clause (ii) above may not necessarily be mutually
exclusive, any sale, exchange or other transfer of
two-thirds or more of the outstanding Voting Stock of
the Company or any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of the Company and its subsidiaries (if any)
taken as a whole in one transaction or a series of
related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of Company or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates,
Joint Energy Development Investments Limited Partnership or
any of its affiliates, Enron Capital & Trade Resources Corp.
or any of its affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development
Investments Limited Partnership or any of its affiliates or
Enron Capital
Employment Agreement -- Gregory K. Harless
-8-
<PAGE> 9
& Trade Resources Corp. or any of its affiliates for access to
one or more Working Interests of Company.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in
such Prospect acquired by Company and, for purposes of this
paragraph 9, shall include each portion thereof that Company
may subsequently transfer to another member of Company Group
or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than
50 percent of the outstanding voting securities of a
non-individual person, (b) having the right, directly or
indirectly, to more than 50 percent of the profits of a
non-individual person, (c) having the right, directly or
indirectly, to more than 50 percent of the assets of a
non-individual person if it is dissolved or (d) having the
contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
"DEVELOPMENT ACREAGE" means the acreage within a Prospect
covering a known or inferred geologic structure upon which
Company and/or its joint working interest owners or a farmee
of Company's Working Interest in a Prospect have drilled a
well capable of commercial oil and/or gas production. Such
acreage shall be deemed to be Development Acreage from the
surface of the earth down through the deepest known productive
horizon. The committee described in paragraph 9.5.1(a),
below, shall designate acreage within a Prospect as
Development Acreage based upon the most current interpretation
available at the time of designation.
"EFFECTIVE DATE" means the effective date of this amended and
restated Employment Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct,
capital costs actually incurred by Company Group in connection
with exploration and development of such Prospect or
Prospects, including, without limitation, all costs incurred
in preparing for drilling, drilling, testing, completing,
equipping (including, without limitation, installation of
platforms, facilities and pipelines and dry hole costs) and
recompleting wells, all geological and geophysical costs, and
all leasehold costs (including bonus, delay rentals and all
other costs of acquiring and maintaining in force the leases,
or portions thereof or undivided interests therein, included
in such Prospects). Exploration and Development Costs shall
not include lease operating expenses or general and
administrative expenses of the Company Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect
which has not been designated by the committee described in
paragraph 9.5.1(a),
Employment Agreement -- Gregory K. Harless
-9-
<PAGE> 10
below, as either Development Acreage or a Producing Property
Acquisition. Exploratory Acreage shall not be limited as to
depth (except to the extent, if any, to which Company's
Working Interest therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing
a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such hydrocarbon reservoir being economic, based
on commercially producible shows of hydrocarbons in a well
drilled within such reservoir, together with other geological
and geophysical data and interpretations, such that Company in
its reasonable judgment plans to develop such reservoir, and
(b) is reasonably expected by Company to be exploited and/or
developed by utilizing a floating production facility and/or a
tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than
an FPF/TLP Exploitation Prospect) with respect to which
Company reasonably expects to utilize a floating production
facility and/or a tension leg platform in connection with
operations to be conducted on such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first
well drilled on such Prospect in which Company participates as
a Working Interest owner or with respect to which Company
retains an overriding royalty or other interest in oil and gas
production from such well.
"MAJOR PROSPECT" means any FPF/TLP Exploration Prospect,
FPF/TLP Exploitation Prospect, Subsea Tieback Exploration
Prospect or Subsea Tieback Exploitation Prospect with respect
to which the total amount estimated by Company for Exploration
and Development Costs to be incurred by Company Group (i.e.,
net to Company Group's interest) through the end of the
primary development period for the field comprising such
Prospect exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which
provides for sharing between lessor and lessee of the net
profits or net proceeds, as defined in said lease, from the
sale of oil and/or gas produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation,
or its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross
production of oil and gas under each oil and gas lease (or
portion thereof) included within a Prospect, which interest
(except as herein otherwise provided) shall be free of all
costs of acquisition, exploration, drilling, completing,
equipping, operating and developing any oil and gas produced
from such lease.
Employment Agreement -- Gregory K. Harless
-10-
<PAGE> 11
A "PARENT" of a specified person is another person that
controls such specified person directly or indirectly through
one or more intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue
to Company or its assigns from its interest in oil and gas
production from such well (after deduction of Company's or its
assigns' prorata part of the burden of (i) all landowners'
royalties, overriding royalties, net profits interests,
production payments or other burdens upon, measured by or
payable out of such production and (ii) all applicable ad
valorem, production, severance, sales, gathering, windfall
profits excise and similar taxes) equals the sum incurred by
or for the account of Company or its assigns (x) in preparing
for drilling, drilling, testing, completing, equipping
(including, without limitation, installation of platforms,
facilities and pipelines), operating, reworking and
recompleting the well, and marketing the production therefrom,
and (y) for such well's allocable share of geological and
geophysical costs, leasehold costs and other common costs.
"Leasehold costs" shall mean payments for bonus, delay
rentals, and all other costs of acquiring from the landowners
(or, in the case of an acquisition by Company (but not any
assignee of Company), from predecessors in title to such
leases) and maintaining in force the leases allocated to the
well. Leases "allocated" to a well shall mean the leases or
portions thereof or undivided interests therein to which
production from a well is attributed, whether on a lease or
unit basis. With respect to each such well, "common costs"
shall mean capital costs that are attributable to (a) such
Prospect as a whole or (b) such well and one or more other
wells (but not all wells) on such Prospect and shall include,
without limitation, costs of drilling, plugging and abandoning
non- productive wells on such Prospect. Each such well's
allocable share of common costs shall be determined by Company
in any manner it deems appropriate from time to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well
and each subsequent well drilled on a Prospect, the point in
time at which such revenue to Company or its assigns from its
interest in oil and gas production from such well, after such
deductions mentioned above, equals the product of 2.5 times
the sum incurred by or for the account of Company or its
assigns (x) in preparing for drilling, drilling, testing,
completing, equipping, operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for
such well's allocable share of geological and geophysical
costs, leasehold costs and other common costs as mentioned
above.
A "PERSON" is an individual, a corporation, a trust, a
partnership, a limited liability company, an association or
any other entity.
Employment Agreement -- Gregory K. Harless
-11-
<PAGE> 12
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
Company during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves
considered proved under such lease or leases at the time of
acquisition. A Producing Property Acquisition shall include
acquisition of such leasehold interests even though Company
may have previously acquired interests in some or all of the
same leases as a Prospect acquisition (i.e., prior to the time
such leases were considered to contain proved oil and gas
reserves). Company may in its sole discretion designate a
Producing Property Acquisition in whole or in part as a
Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by Company within the
United States and its coastal waters while Employee is
employed by Company and during the term or extended term of
this Agreement covering lands which in the sole opinion of
Company may contain one or more hydrocarbon accumulations
capable of being commercially produced. For purposes of this
definition of Prospect, the acquisition of a lease or leases
shall mean the acquisition by Company of legal or beneficial
rights or interests in a lease or leases, including (without
limitation) contractual rights to acquire or earn a lease or
leases (whether by farmout agreement or otherwise, and whether
such contractual rights are subject to certain conditions such
as the drilling or completion of a commercial well, and
without regard to the results of the drilling or completion of
any such well under such contract). A Prospect shall not
include a prospect acquired by Company by merger or
consolidation of Company with or into another entity unless
such prospect is so designated by Company. A Prospect shall
not include a Producing Property Acquisition unless such
Prospect is so designated by Company, and shall not include
leases included in a Prospect under previous Employee
Incentive Compensation Plans. All Prospects shall be deemed
to be without depth limitation unless the Company designates
specified depths only at the time said Prospect is initially
acquired by Company. Notwithstanding the date or dates on
which leases in a Prospect are actually acquired by Company,
solely for purposes of determining the employees of Company
who are entitled to receive an Overriding Royalty Interest
therein, such leases, or portions thereof or undivided
interests therein, shall be deemed to have been acquired by
Company as of the date on which Company's management approved
such Prospect acquisition. In furtherance of the foregoing,
if any lease or leases, or portions thereof or undivided
interests therein, acquired by Company on or after April 18,
1996, but prior to the commencement of the term of this
Agreement, would constitute a "Prospect" under the foregoing
definition but for the fact that such lease or leases, or
portions thereof or undivided interests therein, were not
acquired by Company during the term of this Agreement, the
same shall, nevertheless, be
Employment Agreement -- Gregory K. Harless
-12-
<PAGE> 13
deemed to have been acquired by Company as of the commencement
of the term of this Agreement and shall constitute a Prospect
for purposes of this paragraph 9.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a
sufficient likelihood of such hydrocarbon reservoir being
economic, based on commercially producible shows of
hydrocarbons in a well drilled within such reservoir, together
with other geological and geophysical data and
interpretations, such that Company in its reasonable judgment
plans to develop such reservoir, and (b) is reasonably
expected by Company to be exploited and/or developed by
utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect
(other than a Subsea Tieback Exploitation Prospect) with
respect to which Company reasonably expects to utilize a
subsea tieback system in connection with operations to be
conducted on such Prospect.
A "SUBSIDIARY" of a specified person is an entity controlled
by such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election
of directors thereof.
"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the
costs and expenses relating to the maintenance and development
of, and operations relating to, such lease and the well or
wells associated therewith.
9.2 Employee's Property Interest.
9.2.1 Subject to the other provisions of this paragraph 9,
Employee shall own, be immediately vested with, and
be entitled to receive the benefits of an Overriding
Royalty Interest equal to an undivided percentage of
Company's Working Interest, more specifically
described below, in each well on a Prospect and the
lease or leases allocated thereto, as follows:
Employment Agreement -- Gregory K. Harless
-13-
<PAGE> 14
EMPLOYEE: Gregory K. Harless
OVERRIDING ROYALTY INTEREST
IN
FPF/TLP EXPLORATION PROSPECTS,
FPF/TLP EXPLOITATION PROSPECTS,
SUBSEA TIEBACK EXPLORATION PROSPECTS
AND
SUBSEA TIEBACK EXPLOITATION PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.085937 0.343749
Group XV 5/16/96 and Thereafter 0.085937 0.343749
</TABLE>
OVERRIDING ROYALTY INTEREST
IN
ALL OTHER PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.09375 0.37500
Group XV 5/16/96 and Thereafter 0.09375 0.37500
</TABLE>
At 7:00 a.m. on the first day of the month following the month
in which Payout of such well occurs, the Overriding Royalty
Interest shall increase from the applicable before-Payout
percentage to the applicable after-Payout percentage. Except
as herein otherwise expressly provided, references in this
paragraph 9 to Employee's "Overriding Royalty Interest" with
respect to any Prospect shall mean the applicable
before-Payout and after-Payout percentages of Company's
Working Interest in such Prospect as set forth above.
9.2.2 Under previous Employee Incentive Compensation Plans, Employee
has received or is entitled to receive overriding royalty
interests ("Existing ORIs") in certain prospects (the
"Existing Prospects"). The Existing ORIs are equal to an
undivided percentage of Company's Working Interest, more
specifically described below by Group and Time Period during
which Company acquired such Existing Prospects, in each well
on an Existing Prospect and the lease or leases allocated
thereto, as follows:
Employment Agreement -- Gregory K. Harless
-14-
<PAGE> 15
EMPLOYEE: Gregory K. Harless
<TABLE>
<CAPTION>
EXISTING ORI
------------
GROUP DATES BEFORE PAYOUT After Payout
----- ----- ------------- ------------
<S> <C> <C> <C>
GROUP I 4/1/87-9/3/87 -- --
GROUP II 9/4/87-10/31/87 -- --
GROUP III 11/1/87-7/16/88 -- --
GROUP IV 7/17/88-12/15/88 0.10000% 0.4000%
GROUP V 12/16/88-3/31/89 0.10000% 0.4000%
GROUP VI 4/1/89-9/24/90 0.10000% 0.4000%
GROUP VII 9/25/90-6/30/91 0.12500% 0.5000%
GROUP VIII 7/1/91-9/30/91 0.10625% 0.4250%
GROUP IX 10/1/91-2/14/93 0.10625% 0.4250%
GROUP X 2/15/93-6/30/93 0.10625% 0.4250%
GROUP XI 7/1/93-4/29/94 0.10625% 0.4250%
GROUP XII 4/30/94-3/31/95 0.10625% 0.4250%
GROUP XIII 4/1/95-4/17/96 0.10625% 0.4250%
</TABLE>
The provisions of paragraphs 9.4, 9.5, 9.6 and 9.7 shall apply
to the Existing ORIs in the Existing Prospects as fully as
such provisions apply to any Overriding Royalty Interest in a
Prospect to which Employee is entitled under this Agreement.
Mention is made that, effective June 1, 1996, the Company has
repurchased certain of the Existing ORIs from Employee as
contemplated by the Stockholders' Agreement referred to in
paragraph 9.5.1(a).
9.3 Governmental Filings.
Company will assist Employee in Filing an 83b Election with
the Internal Revenue Service on each Prospect, on a prospect
by prospect or lease by lease basis, as the case may be,
denoting the transfer to Employee of the Overriding Royalty
Interest and stating the value of such interest for the
purposes at the time the interest is acquired.
Employment Agreement -- Gregory K. Harless
-15-
<PAGE> 16
9.4 Assignment of Overriding Royalty Interest.
Except as otherwise expressly provided in paragraphs 9.4.8 and
9.4.9, Employee shall not be entitled to obtain recordable
assignments of his interest under this paragraph 9 until his
completion of three years of employment by Company and, except
as otherwise expressly provided herein, Employee shall forfeit
ownership of such interest if Employee's employment is
terminated by Company pursuant to paragraph 3.5 or by Employee
without Good Reason as defined in paragraph 3.9, prior to the
completion of such three years of employment. Upon completion
of three years of employment of Employee by Company,
Employee's ownership of interests theretofore or thereafter
transferred to him pursuant to this Agreement will no longer
be subject to forfeiture, and assignments will be made in
accordance with this paragraph 9.4. Subject to the other
provisions of this paragraph 9, Employee shall be entitled to
the revenue arising from his Overriding Royalty Interest
whether or not he is entitled to a recordable assignment.
Subject to the foregoing provisions of this paragraph 9.4 and
to the provisions of paragraph 9.5, as soon as practicable
after the end of each calendar quarter during the term or
extended term of this Agreement, Employee shall be entitled to
receive recordable assignments of his Overriding Royalty
Interest in a lease or leases (or portions thereof) acquired
by Company in a Prospect during such calendar quarter. If
Employee's employment is terminated by Company pursuant to
paragraph 3.5 or by Employee without Good Reason as defined in
paragraph 3.9, during any such calendar quarter, Employee
shall not be entitled to receive recordable assignments that
would otherwise have been due under this paragraph in respect
of any lease or leases (or portions thereof) acquired by
Company in a Prospect during such calendar quarter or
thereafter (and Employee shall not own, be vested with or be
entitled to receive the benefits of any Overriding Royalty
Interest that would have been granted by such recordable
assignments) unless the termination is at the end of the term
or extended term of this Agreement. As soon as practicable
after the end of each such calendar quarter, Company shall
provide Employee with the following:
(a) A recordable assignment of his Overriding
Royalty Interest in the leases (or portions
thereof) acquired by Company in each Prospect
during such calendar quarter.
(b) A plat outlining the geographical limits of
each such Prospect. Company shall review
each Prospect plat each calendar quarter in
light of drilling activity on or near the
Prospect, and expand the plat boundary if new
leases are acquired which Company believes to
contain a prospective hydrocarbon
accumulation that is located on the same
geological feature as such Prospect.
Employee shall be entitled to his Overriding
Royalty Interest in any lease
Employment Agreement -- Gregory K. Harless
-16-
<PAGE> 17
acquired by Company within the Prospect plat
boundary (and, to the extent provided in
paragraph 9.7.2, in any renewal, extension or
new lease within the Prospect plat boundary)
for as long as such lease within the boundary
remains in effect.
9.4.1 Upon execution and delivery of such recordable
assignment to Employee, Company shall record the
assignment.
9.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, Company believes in good
faith that there is a substantial likelihood that it
may be necessary to exercise its discretion under
paragraph 9.5 with respect to adjustment of
Employee's Overriding Royalty Interest in leases
included within such Prospect, Company may defer
delivery of a recordable assignment of Employee's
Overriding Royalty Interest pending a determination
under paragraph 9.5.
9.4.3 Upon request by Company, Employee agrees to execute
and deliver any and all transfer orders, division
orders and other documents as may be necessary or
appropriate to cause all revenue attributable to his
interest in a well to be paid to Company on his
behalf until delivery by Company to Employee of a
recordable assignment of his interest in such well
pursuant to this paragraph 9. In such event, Company
agrees promptly to process such funds and pay all
funds due Employee at the same time third parties are
paid revenue distributions from such well by Company.
After an assignment is delivered to Employee, Company
shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct
payment to Employee of all revenue attributable to
his interest in such well.
9.4.4. Subject to the last sentence of this paragraph 9.4.4,
Company or its assigns shall quarterly perform Payout
calculations on each well which has not reached
Payout in every Prospect so that payments to Employee
may be made on a proper before payout/after payout
basis on each well in every Prospect. Company or its
assigns shall prepare a quarterly Payout statement
for each well within each Prospect and shall provide
Employee a copy of said quarterly Payout statements
within ninety (90) days following the end of the
quarter. If Company or its assigns fails to provide
said quarterly Payout statements for any such well(s)
to at least five (5) employees (whether or not such
employees include the Employee) who are entitled to
receive an Overriding Royalty Interest in such
well(s) pursuant to this Agreement and/or other
employment agreements with Company for a period of
four (4) consecutive quarters, any such employee
(including without limitation, the
Employment Agreement -- Gregory K. Harless
-17-
<PAGE> 18
Employee) may give Company written notice of said
failure. If Company or its assigns does not provide
the overdue quarterly Payout statements to each
employee entitled to same within thirty (30) days
following receipt of such notice, all wells within
such Prospect which had previously been considered
before Payout pursuant to paragraph 9.2 shall be
deemed to be after Payout pursuant to paragraph 9.2
as of the first day of the month following the month
in which the earliest delinquent quarterly Payout
statement should have been provided. When Payout
status is reached on a well, Company or its assigns
shall deliver notice of such event to Employee, the
operator of such well and each purchaser of
production from such well and Company or its assigns
shall direct such operator or purchaser of production
(as appropriate) to disburse future revenues
attributable to Employee's and Company's respective
interests in such well on an after-Payout basis.
Notwithstanding the foregoing, if Employee's
Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph
9 so as to be the same percentage before and after
Payout of such well, then the provisions of this
paragraph 9.4.4 shall no longer apply from and after
the date of such adjustment.
9.4.5 Should Employee be married or divorced at such time
as Employee earns the right to have an Overriding
Royalty Interest assigned to him hereunder, Company
shall have no obligation to make assignments to
Employee's spouse/or former spouse. Any division of
community property shall be the responsibility of
Employee.
9.4.6 All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
(a) any joint operating agreement at any time
theretofore or thereafter entered into by Company or
its assigns with other Working Interest owners
covering any of the leases affected by the Overriding
Royalty Interest herein provided for, and (b) any
farm-out or other agreements under which Company
acquires or may acquire its interest in the leases;
including, particularly, by way of illustration and
not by way of limitation, (i) any provision of an
applicable farm-out agreement requiring reduction of
Company's interest in the leases after "payout" of an
earning well or wells thereunder, in which event
Employee's Overriding Royalty in such leases shall be
proportionately reduced, and (ii) any provision
requiring forfeiture of interest for
nonparticipation, recoupment of multiple recovery
costs and the like to the extent that Company would
forfeit its Working Interest for nonparticipation
either forever or until recoupment of drilling and/or
operating costs by the third parties electing to
participate, or such other like reason; and in the
event any such provisions come into effect,
Employee's Overriding
Employment Agreement -- Gregory K. Harless
-18-
<PAGE> 19
Royalty in such leases shall be suspended until such
time, if ever, as such multiple recovery of costs by
the participating leasehold owners has been recovered
or such other cause for suspension is removed and
such Working Interest of Company is reinstated, at
which time Employee's Overriding Royalty shall be so
reinstated.
All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
the leases, any assignments and/or subleases thereof
theretofore made or agreed to be made by Company, and
any amendments or modifications of the leases,
theretofore or thereafter made, and Employee agrees
that any such amendments or modifications may be made
without the consent or joinder of Employee.
9.4.7 Company or its assigns shall not have the right to
sell, assign, farmout, convey or otherwise encumber
Employee's Overriding Royalty Interest, except as
otherwise provided in this paragraph 9.
9.4.8(a) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, there shall have been a
Change in Control, then Employee
shall be entitled to receive
recordable assignments of his
Overriding Royalty Interest,
adjusted in the manner described
hereinbelow, in any lease or leases
(or portions thereof or undivided
interests therein) theretofore
acquired by Company and not yet
assigned during the term or extended
term hereof and, upon subsequent
acquisition by Company, in any lease
or leases (or portions thereof or
undivided interests therein)
thereafter acquired by Company, in
all Prospects acquired by Company
prior to such Change in Control
(without regard to whether or not
Employee has then completed three
years of employment by Company).
Said Overriding Royalty Interest
shall be assigned in the following
manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout
Employment Agreement -- Gregory K. Harless
-19-
<PAGE> 20
interest stated in paragraph 9.2 (as
such before-Payout interest stated
in paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) with
the result that Employee's interests
before and after Payout shall be
equal.
9.4.8(b) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, the Company's Working
Interest in any Prospect is sold,
transferred or conveyed to the
holder of any indebtedness of the
Company or of Newco or of any parent
or subsidiary of the Company or
Newco, or to any unaffiliated third
party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing
such indebtedness or any part
thereof or by transfer or conveyance
in lieu of such foreclosure, then
Employee shall be entitled to
receive, prior to the consummation
of such sale, transfer or
conveyance, a recordable assignment
of his Overriding Royalty Interest,
adjusted in the manner described in
paragraph 9.4.8(a), in any lease or
leases (or portions thereof or
undivided interests therein)
theretofore acquired by Company and
not yet assigned during the term or
extended term hereof and, upon
subsequent acquisition by Company,
in any lease or leases (or portions
thereof or undivided interests
therein) thereafter acquired by
Company, in all Prospects acquired
by Company prior to such sale,
transfer or conveyance (without
regard to whether or not Employee
has then completed three years of
employment by Company).
9.4.9 Except as otherwise provided in the fifth sentence of
paragraph 9.4, and notwithstanding anything (other
than such fifth sentence of paragraph 9.4) contained
herein to the contrary, if, during the term or
extended term hereof, all or substantially all of the
Company's Working Interests in all or substantially
all Exploratory Acreage then owned by the Company are
sold, transferred or conveyed to an unaffiliated
third party, then Employee shall be entitled to
receive, prior to the consummation of such sale,
transfer or conveyance, recordable assignments of his
Overriding Royalty Interest, adjusted in the manner
described in paragraph 9.4.8(a), in all leases (or
portions thereof or undivided interests therein) that
Employment Agreement -- Gregory K. Harless
-20-
<PAGE> 21
cover and include such Exploratory Acreage not yet
assigned during the term or extended term hereof
(without regard to whether or not Employee has then
completed three years of employment by Company).
9.5 Retained Company Discretion
9.5.1 Employee and Company recognize that in instances
where all or a portion of Company's Working Interest
in a lease or leases will be sold or farmed out to
unaffiliated third parties, Employee's Overriding
Royalty Interest might in some circumstances have a
negative effect on the marketability of Company's
Working Interest to third parties. In such cases,
Company will in good faith attempt to transfer
Company's Working Interest subject to Employee's
Overriding Royalty Interest provided for in this
paragraph 9; provided, however, if, in Company's good
faith judgment, Company's Working Interest cannot be
sold or farmed out subject to Employee's Overriding
Royalty Interest, Company may elect to adjust
Employee's Overriding Royalty Interest as hereinafter
provided.
9.5.1(a) The Board of Directors of Company
shall designate a committee of not
less than three individual persons
employed by Company, at least half
of whom has been granted an employee
Overriding Royalty Interest by
Company, to exercise discretion on
behalf of Company in reducing or
modifying, pursuant to this
paragraph 9.5.1 only, the Overriding
Royalty Interests provided for in
this paragraph 9; provided, however,
that the Board of Directors of the
Company shall have the right to
designate a non-voting member of
such committee, who may be a
director of the Company or
otherwise, and such member shall
have the right to participate in all
meetings of such committee (and
shall receive reasonable advance
notice of any such meetings) and
shall be entitled to the same
information as is available to the
other members of the committee.
Such committee shall make all
decisions under this paragraph 9.5.1
subject to obtaining the approval of
the Board of Directors of Company
where such approval is required
under the provisions of this
paragraph 9.5.1. Any decision made
by the committee shall require the
approval of a majority of the
members of the committee. Any
change to this paragraph 9.5.1(a)
shall require the approval of the
Board of Directors of the Company
and a majority of the Management
Directors (as that
Employment Agreement -- Gregory K. Harless
-21-
<PAGE> 22
term is defined in the Stockholders'
Agreement dated April 2, 1996,
between Enron Capital & Trade
Resources Corp., Newco and certain
employees of and consultants to the
Company, as it may be amended from
time to time) who became
stockholders pursuant to Section B.1
of that agreement.
9.5.1(b) With respect to any Prospect on
which no initial Well has been
drilled and no assignments of
Overriding Royalty Interests have
been made to Employee, the committee
may modify or reduce the Overriding
Royalty Interest of Employee in
leases included within such Prospect
in any manner necessary in the good
faith judgment of the committee to
make an interest in such Prospect
saleable to any person not in
Company Group; provided, however, in
connection with any sale by Company
of an interest in such Prospect to
any such person, Employee's
Overriding Royalty Interest shall be
reduced to zero unless the committee
recommends a lesser reduction and
such recommendation is approved by
the Board of Directors of Company.
Such modification or reduction shall
apply only to the interest sold to
such a person, and shall not affect
the interest retained by the
Company. Any reduction or exercise
of discretion by Company under this
paragraph shall be applied
proportionately to all participants
who are entitled to receive from
Company an Overriding Royalty
Interest in leases included within
such Prospect.
9.5.1(c) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has not
been determined by Company to be
capable of producing oil and/or gas,
should Company desire to sell all or
any portion of its Working Interest
in such Prospect to unaffiliated
third parties, the committee may
adjust the Overriding Royalty
Interest of Employee in leases
included within such Prospect in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be
Employment Agreement -- Gregory K. Harless
-22-
<PAGE> 23
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9), with the result that
Employee's interests before and
after Payout shall be equal.
Such adjustment shall apply only to
the interest sold to unaffiliated
third parties, and shall not affect
the interest retained by Company.
Any exercise of discretion by
Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(c).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(c).
9.5.1(d) With respect to any Prospect which
has not been determined by Company
to be capable of producing oil
and/or gas, and regardless of
whether or not the Initial Well has
been drilled thereon, should Company
desire to farmout all or any portion
of its Working Interest in such
Prospect to unaffiliated third
parties, the committee shall (unless
the committee
Employment Agreement -- Gregory K. Harless
-23-
<PAGE> 24
recommends otherwise and the Board of
Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in leases included within
such Prospect in the following
manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests may have
previously been reduced pursuant to
other provisions of this paragraph
9) by Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and during the period of time in
which Company receives such
overriding royalty interest.
To the extent, if any, that
Company's overriding royalty
interest set forth in such farmout
agreement converts to a Working
Interest in such Prospect (whether
by election of Company or
otherwise), then, from and after
such conversion, Employee's
Overriding Royalty Interest shall be
based upon such Working Interest of
Company pursuant to paragraph 9.2
above; provided, however, if
pursuant to such farmout agreement,
only a portion of Company's
overriding royalty interest converts
to a Working Interest and Company
retains, following such conversion,
some overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest based
upon Company's Working Interest, an
interest equal to the percentage
stated in paragraph 9.2 above (as
such interest may have previously
been reduced pursuant to other
provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by Company. Any exercise of
discretion by Company under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in
leases included within such Prospect.
Employment Agreement -- Gregory K. Harless
-24-
<PAGE> 25
With respect to each well drilled on
the Prospect by a farmee of
Company's Working Interest and
solely for the purpose of this
paragraph 9.5.1 (d), Payout shall be
defined as the point in time at
which the revenue to Company from
its interest in oil and gas
production from such well (after
deduction of Company's prorata part
of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production
payments or other burdens upon,
measured by or payable out of such
production and (ii) all applicable
ad valorem, production, severance,
sales, gathering, windfall profits
excise and similar taxes) equals the
sum incurred by or for the account
of Company (x) in preparing for
drilling, drilling, testing,
completing, equipping (including,
without limitation, installation of
platforms, facilities and
pipelines), operating, reworking and
recompleting the well, and marketing
the production therefrom, and (y)
for such well's allocable share of
geological and geophysical costs,
leasehold costs, all other costs of
acquiring and maintaining in force
the leases allocated to the well and
other common costs. Leases
"allocated" to a well and "common
costs" shall have the respective
meanings ascribed thereto in the
definition of "Payout" set forth in
paragraph 9.1.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
has been a Change in Control, then
neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(d).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to
Employment Agreement -- Gregory K. Harless
-25-
<PAGE> 26
make the adjustment described above
in this paragraph 9.5.1.(d).
9.5.1(e) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has been
determined by Company to be capable
of producing oil and/or gas, should
Company desire to sell or farmout
all or any portion of its Working
Interest in such Prospect to
unaffiliated third parties, the
committee shall categorize
geographical areas of the leases
comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the Company's
Working Interest in any such
Development Acreage will be made
subject to Employee's Overriding
Royalty Interest provided for in
paragraph 9.2 hereinabove (as such
interest may have previously been
adjusted pursuant to other
provisions of this paragraph 9);
provided, however, with respect to
each well drilled on the Prospect by
a purchaser or farmee or their
assigns of Company's Working
Interest, and solely for the purpose
of this paragraph 9.5.1(e), Payout
shall be defined as the point in
time at which the revenue to
purchaser or farmee or their assigns
from its or their interest purchased
or farmed in from Company in oil
and/or gas production from such well
(after deduction of purchaser's or
farmee's prorata part of the burden
of (i) all landowners' royalties,
overriding royalties, net profits
interests, production payments or
other burdens upon, measured by or
payable out of such production and
(ii) all applicable ad valorem,
production, severance, sales,
gathering, windfall profits excise
and similar taxes) equals the sum
incurred by or for the account of
purchaser or farmee or their assigns
in preparing for drilling, drilling,
testing, completing, equipping,
operating, reworking and
recompleting the well, and marketing
the production therefrom.
With respect to the Company's Working
Interest in Exploratory Acreage to
be sold by Company, the committee
may adjust the Overriding Royalty
Interest of Employee in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout
Employment Agreement -- Gregory K. Harless
-26-
<PAGE> 27
interest stated in paragraph 9.2 (as
such after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout interest
stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9),
with the result that Employee's
interests before and after Payout
shall be equal.
With respect to the Company's Working
Interest in Exploratory Acreage to
be farmed out by Company, the
committee shall (unless the
committee recommends otherwise and
the Board of Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in the following manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) by
Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and during the period of time in
which Company receives such
overriding royalty interest.
To the extent, if any, that
Company's overriding royalty
interest set forth in such farmout
agreement converts to a Working
Interest in such Prospect (whether
by election of Company or
otherwise), then, from and after
such conversion, Employee's
Overriding Royalty Interest shall be
based upon such Working Interest of
Company pursuant to paragraph 9.2
above; provided, however, if
pursuant to such farmout agreement,
only a portion of Company's
overriding royalty interest converts
to a Working Interest and Company
retains, following such conversion,
some overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding
Employment Agreement -- Gregory K. Harless
-27-
<PAGE> 28
Royalty Interest and in addition to
such Overriding Royalty Interest
based upon Company's Working
Interest, an interest equal to the
percentage stated in paragraph 9.2
above (as such interest may have
previously been reduced pursuant to
other provisions of this paragraph
9) multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest sold or farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by Company. Any exercise
of discretion by Company under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in
leases included within such
Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(e).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(e).
If any of the events set forth in the
two immediately preceding sentences
hereof should occur, such that the
adjustment described above in this
paragraph 9.5.1(e) with respect to
the Overriding Royalty Interest of
Employee in leases in such
Exploratory Acreage is precluded
from occurring as provided above,
then, with respect to each well
drilled on such
Employment Agreement -- Gregory K. Harless
-28-
<PAGE> 29
Exploratory Acreage by a purchaser or
farmee or their assigns of Company's
Working Interest, and solely for
purposes of this paragraph 9.5.1(e),
Payout shall be defined as set forth
above in this paragraph 9.5.1(e).
9.5.2 Within sixty (60) days after the end of each fiscal
year of Company, Company may in its sole discretion
elect to reduce the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to Prospects
subject to this Agreement that were acquired by
Company during such fiscal year (which election, if
timely made as above provided, shall be effective as
of the beginning of such fiscal year) based on actual
Exploration and Development Costs incurred by Company
Group during such fiscal year in respect of all
Prospects subject to this Agreement, as follows (with
linear interpolation between indicated levels of
costs):
<TABLE>
<CAPTION>
Total E & D
Costs Level Permitted Reduction
----------- -------------------
<S> <C>
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
</TABLE>
**Permitted Reduction shall be determined in the sole discretion of
Company.
The total Exploration and Development Costs levels
and resultant ranges and escalation increments
provided for above are "Base Year" figures for fiscal
year 1996-1997, and shall be adjusted annually on a
compound basis beginning with the fiscal year
commencing April 1, 1997, according to the then
current Council of Petroleum Accountants Societies'
(COPAS) adjustment rate (based upon the percentage
increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers as of
April 1 as published by the United States Department
of Labor, Bureau of Labor Statistics).
The "Permitted Reduction" shall mean the percentage
by which Employee's Overriding Royalty Interest (both
before and after Payout) may be adjusted downward.
Each such adjustment shall determine Employee's
Overriding Royalty Interest for the fiscal year in
question, and shall be uniform on Prospects acquired
during that period (subject to paragraphs 9.5.1 and
9.5.3). Without limiting the foregoing, a Permitted
Reduction shall apply to any
Employment Agreement -- Gregory K. Harless
-29-
<PAGE> 30
Major Prospect subject to this Agreement that was
acquired by Company during such fiscal year, whether
or not an adjustment of Employee's Overriding Royalty
Interest in such Major Prospect shall have been made
pursuant to paragraph 9.5.3.
All leases acquired in those Prospects, whether
during the same fiscal year or thereafter, shall be
subject to the same Employee's Overriding Royalty
Interest established at the time the Prospect was
acquired, subject, however, to adjustment as provided
for in this paragraph 9. A Permitted Reduction in
Employee's Overriding Royalty Interest for a
particular fiscal year, however, shall not operate to
reduce Employee's Overriding Royalty Interest stated
in paragraph 9.2 in respect of any Prospects acquired
by Company in any subsequent fiscal year during the
term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploitation Prospects acquired by
Company during a fiscal year of
Company for which Company's estimate
of Exploration and Development Costs
incurred or to be incurred by
Company Group in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal year exceeds
$30 million through the end of the
respective primary development
periods for the fields comprising
such FPF/TLP Exploitation Prospects
(which periods, solely for purposes
of the adjustment provided for in
this paragraph, shall not exceed
five (5) years), an alternative
calculation will be made prior to
determining the applicable
"Permitted Reduction" of Employee's
Overriding Royalty Interest with
respect to such FPF/TLP Exploitation
Prospects. Such alternative
calculation shall be based upon the
assumptions that the total
Exploration and Development Costs to
be incurred by Company Group in
respect of all such FPF/TLP
Exploitation Prospects will be
incurred over a two (2) year period
and that such Exploration and
Development Costs will be in
addition to a "base level" of $70
million in Exploration and
Development Costs to be incurred by
Company Group exclusive of the
identified FPF/TLP Exploitation
Prospects. Such alternative
Exploration and Development Costs
level (the "alternative E & D Costs
level") shall be determined as
follows:
The alternative E & D Costs level
shall be the sum of:
Employment Agreement -- Gregory K. Harless
-30-
<PAGE> 31
(i) One-half of Company's estimate
of Exploration and
Development Costs incurred or
to be incurred by Company
Group through the end of the
respective primary
development periods in
respect of all FPF/TLP
Exploitation Prospects
acquired in such fiscal year,
plus
(ii) $70 million.
The Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects (both before and after
Payout) may, in Company's sole
discretion, be reduced by the
greater of (x) the "Permitted
Reduction" percentage set forth in
the table above in this paragraph
for the actual "Total E & D Costs
Level" for such fiscal year and (y)
the "Permitted Reduction" percentage
set forth in the table above that
would be applicable if the "Total E
& D Costs Level" for such fiscal
year were equal to such "alternative
E & D Costs level".
If the Overriding Royalty Interest
set forth in paragraph 9.2 with
respect to such FPF/TLP Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two- thirds (before and after
Payout, respectively) of such
Overriding Royalty Interest set
forth in paragraph 9.2. Further, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploitation
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such FPF/TLP
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploitation Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout,
Employment Agreement -- Gregory K. Harless
-31-
<PAGE> 32
respectively) set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths.
9.5.2(b) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploitation Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such Subsea Tieback
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such Subsea Tieback Exploitation
Prospect, would equal the Overriding
Royalty Interest percentage (before
and after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(c) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding
Royalty Interest set forth in
paragraph 9.2. Further, if the
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths,
Employment Agreement -- Gregory K. Harless
-32-
<PAGE> 33
Company may, in its sole discretion,
further reduce such Overriding
Royalty Interest set forth in
paragraph 9.2 with respect to such
FPF/TLP Exploration Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploration Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(d) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploration Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths, Company may, in its sole
discretion, further reduce such
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploration
Prospect to a percentage (before and
after Payout, respectively) that,
when multiplied times Company's
Working Interest in such Subsea
Tieback Exploration Prospect, would
equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.3 With respect to any Major Prospect, Company may in
its sole discretion elect to adjust the Overriding
Royalty Interest set forth in paragraph 9.2,
effective as of the date of Company's acquisition of
such Major Prospect, as follows:
Employee's before-Payout interest shall be reduced
by the following formula:
<TABLE>
<C> <S>
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
-
Y
</TABLE>
Employment Agreement -- Gregory K. Harless
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<PAGE> 34
where "X" equals the total amount estimated by
Company for Exploration and Development Costs to be
incurred by Company Group in respect of such Major
Prospect through the end of the primary development
period for the field comprising such Major Prospect
(which period, solely for purposes of such adjustment
calculation, shall not exceed five (5) years), and
where "Y" equals $30 million.
Employee's after-Payout interest shall be increased
by adding thereto the full amount of the percentage
interest so deducted from Employee's before-Payout
interest until 2.5 times Payout is reached, at which
time Employee's after-Payout interest shall be
reduced by subtracting therefrom the same percentage
interest that was previously added thereto pursuant
to this sentence.
Such election may be made by Company whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been reduced pursuant to
paragraph 9.5.2. In the case of any such prior
reduction pursuant to paragraph 9.5.2, the term
"original before-Payout interest" as used above in
this paragraph shall refer to Employee's
before-Payout interest as previously reduced pursuant
to paragraph 9.5.2.
9.5.4 Notwithstanding anything contained herein to the
contrary, after an assignment is delivered to
Employee with respect to a Prospect pursuant to
paragraph 9.4, Company or its assigns may no longer
reduce or modify Employee's Overriding Royalty
Interest on any well in such Prospect without written
consent of Employee, except pursuant to paragraphs
9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3 in the
case only of assignments other than those delivered
pursuant to paragraphs 9.4.8(a), 9.4.8(b) and 9.4.9.
9.5.5 In no event may any party other than Company reduce
or modify Employee's Overriding Royalty Interest
without written consent of Employee.
9.5.6 Company shall give Employee written notice of any
adjustment made to Employee's Overriding Royalty
Interest pursuant to the provisions of paragraphs
9.5.1(b), 9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and
9.5.3 within one hundred twenty (120) days following
such adjustment.
Employment Agreement -- Gregory K. Harless
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9.5.7 Upon request by Company, Employee shall execute and
deliver to Company such reassignments, transfer
orders, division orders, releases and other documents
deemed by Company to be necessary or appropriate to
evidence any modification, reduction or other
adjustment pursuant to this paragraph 9.5.
9.6 Company's Preferential Right to Purchase.
If at any time during the term or extended term of this
Agreement, or if within one (1) year from the expiration of
this Agreement, Employee receives and desires to accept an
offer for the purchase of a part or all of Employee's
Overriding Royalty Interest assigned pursuant to this
paragraph 9 (the portion or all of such Overriding Royalty
Interest covered by such offer to purchase being herein
sometimes called the "Offered Interest"), from a prospective
third party purchaser who is ready, willing and able to
purchase the same, then Employee shall have the right to sell
such Offered Interest, but only after complying with the
following terms and provisions:
9.6.1 The offer shall first be reduced to writing and
signed by Employee and the offeror. Employee shall
give Company written notice of his receipt of, and
his desire to accept, such written offer, together
with a copy of such written offer signed by the
prospective third party purchaser and containing all
of the terms and conditions of such offer. The date
such written notice is given to Company is herein
sometimes called the "Original Date."
9.6.2 Company shall thereafter have an option to purchase
the Offered Interest upon the same terms set forth in
said offer, which option may be exercised by written
notice thereof given to Employee within ten (10) days
after the Original Date.
9.6.3 If the Offered Interest is not purchased by Company
pursuant to the foregoing provisions of this
paragraph, then Employee shall have the right to sell
the Offered Interest to the prospective third party
purchaser named in such offer, provided that such
sale is consummated within thirty (30) days from the
expiration date of the option of Company created
hereby and provided that such sale is made in strict
conformity with the terms of such offer.
9.6.4 If, however, such sale of the Offered Interest does
not occur within such thirty-day period for the price
and upon the terms set forth in such offer, then any
sale of part or all of such Offered Interest
thereafter shall again be subject to the option to
purchase granted to Company under this paragraph 9.6.
Employment Agreement -- Gregory K. Harless
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9.6.5 If Employee elects to take title to an Overriding
Royalty Interest in a legal entity other than himself
(which he may do only with Company's consent), such
entity shall take title subject to all of the terms
and conditions of this Agreement.
9.7 Additional Provisions Affecting Overriding Royalty
Interest.
In addition to the other provisions of this paragraph 9,
Employee's Overriding Royalty Interest shall be subject to the
following:
9.7.1 Notwithstanding anything to the contrary contained
herein, Employee shall not have the right to take in
kind or separately dispose of the production of oil
and gas attributable to his Overriding Royalty
Interest.
9.7.2 Employee's Overriding Royalty Interest shall also
apply to the production of oil and gas under the
terms and provisions of any renewal, extension or new
lease, to the extent such renewal, extension or new
lease covers all or any portion of any lands covered
by the expired lease which was subject to Employee's
Overriding Royalty Interest or is within the Prospect
plat, and provided, however, that any such renewal,
extension or new lease shall have been acquired by or
for the benefit of Company, either prior to or within
one (1) year after the expiration of the expired
lease.
9.7.3 Except as otherwise provided in this paragraph 9, in
no event shall Employee ever be liable or responsible
in any way for payment of any part of any
exploration, drilling or production costs or
liabilities incurred by Company or its assigns or
other lessees attributable to the lease or leases in
a Prospect or to the production therefrom, it being
the intent of the parties that Employee's Overriding
Royalty Interest shall constitute a non-participating
royalty interest for all purposes.
9.7.4 Company will conduct and carry on the development,
maintenance and operation of any lease subject to
Employee's Overriding Royalty Interest in a manner
which it deems in its sole judgment to be reasonable
and prudent and in accordance with good oil and gas
field practices, and it will drill such wells as it
deems proper in its sole judgment from time to time
in order to protect such lease from drainage;
provided, however, (a) nothing herein contained
shall obligate Company to conduct any drilling
operations whatsoever upon such lease, or to continue
to operate any well or to operate or maintain in
force or attempt to maintain in force such lease by
payment of delay rentals, compensatory royalties or
other payments or by the drilling of any wells upon
said lease, or in any
Employment Agreement -- Gregory K. Harless
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<PAGE> 37
other manner, and the extent and duration of all
operations, as well as the preservation of each of
such leases by delay rental payments or otherwise,
shall be solely at the will of Company, and (b)
Company shall have the right at any time to
surrender, abandon or otherwise terminate any such
lease in whole or in part without liability to
Employee.
9.7.5 Company shall have the right to sell all production
attributable to Employee's Overriding Royalty
Interest on the same basis upon which the production
attributable to Company's interest in the same
production is sold, and shall account to Employee on
that basis. In no event shall Employee be entitled
to receive payments for production attributable to
his Overriding Royalty Interest calculated on a basis
higher than that upon which Company's interest in the
same production is calculated or computed on a higher
price than that payable to Company on account of
production attributable to its interest, and in no
event shall Employee be entitled to receive payments
on amounts suspended by purchasers of the production
pending determination of the authorized price by
governmental entities. However, if Company sells any
such production to an affiliate of Company, the price
therefor shall not be less than would have been
reasonably obtainable in a sale to a non-affiliated
purchaser.
9.7.6 There shall be deducted from the production, before
Employee's Overriding Royalty Interest is computed,
any production lost in the production from the
leases, or any lands pooled therewith, or used for
drilling, operating, development or production or in
plant operations (including gas injection, secondary
recovery, pressure maintenance, repressuring, cycling
operations, plant fuel or shrinkage) conducted for
the purpose of producing or processing production
from lands covered by the leases or from any lands
pooled with the leases.
9.7.7 Company shall have the right and option, but not the
obligation, to process gas produced and saved from
the leases. If Company elects to process or have
processed, such gas in a gas processing plant or
other facility, whether or not owned by Company, then
in such event Employee shall be paid his percentage
share provided for herein of the proceeds of sale of
all gasoline or other liquid hydrocarbons or other
products manufactured or extracted from such gas as a
result of such processing (collectively, the
"Products"), less the costs of extraction or
manufacture (which may consist of a portion of the
Products). Company shall also pay to Employee the
same percentage share of the proceeds of sale of all
residue gas sold by Company, less expenses incurred
by Company in transporting any such gas to point of
delivery and for dehydration
Employment Agreement -- Gregory K. Harless
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and/or compression of gas at or prior to such
delivery and other expenses and fees typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such gas is
produced).
9.7.8 Employee's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing
and transporting production from the leases or from
any lands pooled therewith which are typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such production
is produced).
9.7.9 Employee's Overriding Royalty Interest shall also
bear its share of all ad valorem, production,
severance, sales, gathering and other taxes typically
borne by royalty owners (whether state, federal or
otherwise) assessed or levied on or in connection
with the Overriding Royalty Interest or the
production from the leases.
9.7.10 Company or its assigns shall have the right and
power, without any approval by Employee, to pool or
unitize any lease which is subject to Employee's
Overriding Royalty Interest, and to alter, change,
amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as
to all or any part of a Prospect, as to any one or
more of the formations or horizons thereunder, upon
such terms and provisions as Company shall in its
sole discretion determine. If and whenever through
the exercise of such right and power, or pursuant to
any law now existing or hereafter enacted, or any
rule, regulation or order of any governmental body
now or hereafter promulgated, any of the leases of
Company are pooled or unitized in any manner,
Employee's Overriding Royalty Interest shall also be
pooled and unitized, and in such event Employee's
Overriding Royalty shall only be paid on that portion
of the production from the unit or units so pooled,
which is attributable to said leases under and by
virtue of the pooling and unitization.
9.7.11 Company may withhold payment to Employee of any funds
attributable to Employee's Overriding Royalty
Interest which Company, in its sole discretion, deems
to be subject to a risk of refund or recoupment
pursuant to any rule, regulation or order of any
governmental authority or any adverse claims by third
parties. During such suspense period, Employee shall
not be entitled to interest on sums so withheld.
Employment Agreement -- Gregory K. Harless
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<PAGE> 39
9.7.12 In the event Company's Working Interest in any lease
in which Employee is entitled to an Overriding
Royalty Interest covers less than all of the full and
entire undivided interest in and to the land
described therein, and in and to all the oil and gas
rights relating thereto, then in that event the
Overriding Royalty Interest as to that portion of the
leased premises in which Company's Working Interest
in such lease does not cover such full and entire
undivided interest shall be reduced proportionately
(i.e., in the proportion that the undivided interest
in and to said land and oil and gas rights covered by
such lease bears to such full and entire undivided
interest).
9.7.13 Notwithstanding anything contained in this paragraph
9 to the contrary, Employee's Overriding Royalty
Interest in any Net Profit Share Lease ("NPSL") shall
be reduced at the same time and in the same
percentage as Company's net revenue interest in said
NPSL is reduced pursuant to the provisions of said
NPSL.
9.7.14 Company and Employee further undertake and agree
promptly to execute and deliver, upon request of
either party, all assignments, reassignments,
transfer orders, division orders, releases and any
other documents as may be necessary to implement this
paragraph 9 or otherwise to more fully assure to each
party the rights and interests of such party provided
for in this paragraph 9.
10. Insurance.
10.1 Employee shall be eligible for participation in such
insurance programs as Company shall institute from
time to time covering medical and dental expenses and
such life and accidental death and dismemberment
insurance programs as Company shall institute from
time to time. Payment of premiums for such coverages
shall be in accordance with Company policy covering
all employees as may be established from time to time
by Company. Employee shall also be eligible for
participation in such retirement, pension, deferred
compensation and other benefit programs the Company
shall initiate from time to time.
11. Outside Activities.
During the term or extended term of this Agreement, Employee
shall devote all of his working time, energy and talents to
the due discharge and performance of his duties hereunder, at
the direction and subject to the control of Company, and shall
perform such services and duties as shall reasonably be
required from him from time to time by Company.
Employment Agreement -- Gregory K. Harless
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<PAGE> 40
Employee agrees that he will not knowingly become involved in
a conflict of interest with Company or its subsidiaries, or
upon discovery thereof, allow such a conflict to continue.
Moreover, Employee agrees to provide Company a statement of
all other directorships Employee holds, with a brief
description of the business activities of each organization.
This statement shall be provided on or before December 31 of
each year. If, in the opinion of Company, a conflict of
interest exists between Company (and its affiliates) and the
organization in which the Employee holds a directorship,
Company can require Employee to resign the outside
directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed to
limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of the
issued and outstanding and publicly traded (on a recognized
national or regional securities exchange or in the
over-the-counter market) capital stock or other securities of
any corporation or other entity that conducts activities that
compete with the business of Company or any affiliate of
Company; or (ii) to invest, individually or with others, in
oil and gas prospects, subject, however, in the case of oil
and gas prospects to the following conditions:
12.1 Company must have first had the right and opportunity
to purchase all of the interest in any prospect made
available to Employee, even if this would preclude
Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made
available to Employee and have no desire to acquire
an additional interest, or declined to participate at
all in the prospect. If Company elects to
participate in less than the full interest made
available to Employee, Employee may invest in the
portion of such interest not acquired by Company.
12.3 Employee must purchase his interest in the oil and
gas prospect on terms which are no more favorable
than those made available to Company.
13. Disability During Employment.
If Employee shall become unable to perform his duties by
reason of disability, he shall be entitled to receive, in
addition to any insurance benefits he may receive, all of his
salary for the first one (1) month of his disability, and
one-half (1/2) of his salary for the next three (3) months of
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<PAGE> 41
disability. Periods of disability shall not be cumulative so
long as they are separated by at least ninety (90) days of
continuous service.
The term "disability" shall mean disability which, in the
opinion of a doctor satisfactory to Company, renders Employee
unable to perform his duties hereunder as evidenced by such
doctor's certificate. The date disability commences shall be
the date Employee first absents himself from work during a
continuous period of disability.
14. Merger or Acquisition.
In the event Company should be acquired by or merged into
another company, by signature of Company's authorized
representatives, Company hereby agrees that this Employment
Agreement shall be binding upon Company, its successors and
assigns, and shall be disclosed to any party considering
merger with, or acquisition of, Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this
Agreement and the dispute cannot be settled through
direct discussions, Company and Employee agree that
they shall first endeavor to settle the dispute in an
amicable fashion. If such efforts fail to resolve
the dispute, the dispute shall, except as otherwise
provided in paragraph 19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2 below,
any and all claims, demands, cause of action,
disputes, controversies, and other matters in
question arising out of or relating to this
Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, even though some or all of
such claims allegedly are extracontractual in
nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, shall be
resolved by binding arbitration pursuant to
the Federal Arbitration Act in accordance
with the Commercial Arbitration Rules then in
effect with the American Arbitration
Association (the "AAA"). The arbitration
proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by
either party by providing to the other a
written notice of arbitration specifying the
claims, and the parties shall thereafter
Employment Agreement -- Gregory K. Harless
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endeavor to agree on an arbitrator. If
within thirty (30) days of the notice of
initiation of the arbitration procedure, the
parties are unable to agree on an arbitrator,
the party requesting arbitration shall file a
request with the AAA that the Houston, Texas
office of the AAA provide a list of potential
arbitrators to both parties. The parties
shall thereafter have sixty (60) days to
select an arbitrator from such list, with
such selection to be by mutual agreement. If
the parties fail to select an arbitrator
within such time by mutual agreement, then
either party may request that the Chief Judge
of the U.S. District Court for the Southern
District of Texas appoint an arbitrator, and
any such appointment shall be binding. The
arbitrator, utilizing the Commercial
Arbitration Rules of the American Arbitration
Association, shall within 120 days of his or
her selection, resolve all disputes between
the parties. There shall be no transcript of
the hearings before the arbitrator. The
arbitrator's decision shall be in writing,
but shall be as brief as possible. The
arbitrator shall not assign the reasons for
his or her decision. The arbitrator's
decision shall be final and non-appealable to
the maximum extent permitted by law.
Judgment upon any award rendered in any such
arbitration proceeding may be entered by any
federal or state court having jurisdiction.
This agreement to arbitrate shall be
enforceable in either federal or state court.
The enforcement of this agreement to
arbitrate and all procedural aspects of this
agreement to arbitrate, including but not
limited to, the construction and
interpretation of this agreement to
arbitrate, the issues subject to arbitration
(i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver,
delay or defenses to arbitrability, and the
rules governing the conduct of the
arbitration, shall be governed by and
construed pursuant to the Federal Arbitration
Act and shall be decided by the arbitrator.
In deciding the substance of any such claims,
the arbitrator shall apply the substantive
laws of the State of Texas (excluding Texas
choice-of-law principles that might call for
the application of some other State's law);
provided, however, it is expressly agreed
that the arbitrator shall have no authority
to award treble, exemplary, or punitive
damages under any circumstances regardless of
whether such damages may be available under
Employment Agreement -- Gregory K. Harless
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Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary,
or punitive damages in connection with any
such claims.
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the
event that either party wishes to seek a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief in connection with any or all such
claims, demands, cause of action, disputes,
controversies, and other matters in question
arising out of or relating to this Agreement,
any provision hereof, the alleged breach
thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, including disputes arising
out of a breach or alleged breach of
paragraph 4 or 16, even though some or all of
such claims allegedly are extra-contractual
in nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, each party shall
have the right to pursue such injunctive
relief in court, rather than by arbitration.
The parties agree that such action for a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief will be brought in the State or
federal courts residing in Houston, Harris
County, Texas.
15.2 The Company shall pay all costs and expenses of
Company and Employee (including, but not limited to,
attorneys' fees, the fees of the arbitrator and the
AAA and any other related costs) for any arbitration
proceeding or legal action; provided, however, that
if in any such arbitration proceeding or legal
action, the arbitrator or court, respectively,
determines that Employee has prosecuted or defended
any issue in such proceeding or action in bad faith,
the arbitrator or court, respectively, may allocate
the portion of such costs and expenses relating to
such issue between the parties in any other manner
deemed fair, equitable and reasonable by the
arbitrator or court, respectively.
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation and
benefits to be paid to Employee hereunder, and as an
additional incentive for Company to enter into this
Agreement, Company and Employee
Employment Agreement -- Gregory K. Harless
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agree to the non-competition obligations hereunder.
Employee will not, directly or indirectly for
Employee or for others:
16.1.1 in any geographic area or market where
Company or any of its subsidiaries are
conducting any business as of the date of
termination of the employment relationship or
have during the previous twelve months
conducted such business, engage in any
business competitive with any such business;
or
16.1.2 in any geographic area or market where
Employee knew Company contemplated entering
any business as of the date of termination of
the employment relationship, but only if
Company had, as of such date, invested
significant resources toward entering into
such business in such geographic area or
market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise
assist, any other person, association, or
entity who is engaged, directly or
indirectly, in any business competitive with
Company's business within the parameters
described in paragraphs 16.1.1 and 16.1.2
above with respect to such competitive
business; or
16.1.4 induce any employee of Company or any of its
subsidiaries to terminate his or her
employment with Company or its subsidiaries,
or hire or assist in the hiring of any such
employee by any person, association, or
entity not affiliated with Company.
These non-competition obligations shall commence upon
the date of execution of this Agreement and extend
until the earlier of (a) the expiration of the term
of this Agreement (or any extended term) or (b) six
(6) months after termination of the employment
relationship; provided, however, that notwithstanding
anything contained in this paragraph 16 to the
contrary, such obligations shall only apply after the
termination of employment if the termination of
employment results from termination for Cause by
Company under paragraph 3.5 or voluntary termination
without Good Reason by Employee (it being understood
and agreed that termination of this Agreement by
Employee under paragraph 3.1 shall not, for purposes
of this paragraph 16, constitute voluntary
termination without Good Reason by Employee).
Employment Agreement -- Gregory K. Harless
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16.2 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
businesses anywhere in the world during the period
provided for above, but acknowledges that Employee
will receive sufficiently high renumeration and other
benefits under this Agreement to justify such
restriction. Employee acknowledges that money
damages would not be sufficient remedy for any breach
of this Article by Employee, and Company shall be
entitled to enforce the provisions of this Agreement
and/or to specific performances and injunctive relief
as remedies for such breach or any threatened breach.
Such remedies shall not be deemed the exclusive
remedies for a breach of this Article, but shall be
in addition to all remedies available at law or in
equity to Company, including, without limitation, the
recovery of damages from Employee and Employee's
agents involved in such breach and remedies available
to Company pursuant to other agreements with
Employee.
16.3 It is expressly understood and agreed that Company
and Employee consider the restrictions contained in
this paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States
Foreign Corrupt Practices Act, generally codified in 15 USC 78
(FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo
contendere or admits civil or criminal liability under the
FCPA, or if a court finds that Employee committed an action
resulting in any Company entity having civil or criminal
liability or responsibility under the FCPA with knowledge of
the activities giving rise to such liability or knowledge of
facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were
likely to occur, such action or finding shall constitute Cause
for termination by Company under paragraph 3.5 of this
Agreement unless Company's Board of Directors determines that
the actions found to be in violation of the FCPA were taken in
good faith and in compliance with all applicable policies of
Company.
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18. Survival.
The provisions of paragraphs 4 and 16 shall survive any
termination of the employment relationship and/or of this
Agreement for the periods stated therein. The provisions of
paragraph 15 relating to arbitration shall survive any
termination of the employment relationship between Employee
and Company and the termination of this Agreement. Amounts,
compensation, rights and benefits which Employee is entitled
to receive or have accrued to Employee under this Agreement or
under any plan, program, arrangement, agreement or policy of
or with Company or any of its affiliates before, at or
subsequent to the termination of the employment relationship
between Employee and Company or the termination of this
Agreement shall not be superseded and shall survive any such
termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by Company or any of
its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions
being individually referred to herein as a "Payment,"
and any two or more of such payments or distributions
being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax,
and any interest in respect of such penalties,
additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"),
then Employee shall be entitled to receive an
additional payment or payments (individually referred
to herein as a "Gross-Up Payment" and any two or more
of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in
paragraph 19.11) imposed upon the Gross-Up Payment,
Employee retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
19.2 Subject to the provisions of paragraph 19.3 through
19.11, any determination (individually, a
"Determination") required to be made under this
paragraph 19, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment,
shall initially be made, at Company's expense, by
nationally recognized tax counsel mutually acceptable
to Company and Employee ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities,
calculations, and documentation both to Company and
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Employee within 15 business days of the termination
of Employee's employment, if applicable, or such
other time or times as is reasonably requested by
Company or Employee. If Tax Counsel makes the
initial Determination that no Excise Tax is payable
by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably
acceptable to Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any
Determination (a "Dispute") within 15 business days
after delivery of Tax Counsel's opinion with respect
to such Determination. The Gross-Up Payment, if any,
as determined pursuant to such Determination shall be
paid by Company to Employee within five business days
of Employee's receipt of such Determination. The
existence of a Dispute shall not in any way affect
Employee's right to receive the Gross-Up Payment in
accordance with such Determination. If there is no
Dispute, such Determination shall be binding, final
and conclusive upon Company and Employee, subject in
all respects, however, to the provisions of paragraph
19.3 through 19.11 below. As a result of the
uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have
been made by Company should have been made
("Underpayment"), and if upon any reasonable written
request from Employee or Company to Tax Counsel, or
upon Tax Counsel's own initiative, Tax Counsel, at
Company's expense, thereafter determines that
Employee is required to make a payment of any Excise
Tax or any additional Excise Tax, as the case may be,
Tax Counsel shall, at Company's expense, determine
the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by
Company to Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from
and against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of Employee resulting from any Final
Determination (as defined in paragraph 19.10) that
any Payment is subject to the Excise Tax.
19.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a claim
by Employee against Company under this paragraph 19
("Claim"), including, but not limited to, a claim for
indemnification of Employee by Company under
Employment Agreement -- Gregory K. Harless
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<PAGE> 48
paragraph 19.3, then such party shall promptly notify
the other party hereto in writing of such Claim ("Tax
Claim Notice").
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken
such action in connection with contesting such
Employee Claim as Company shall reasonably request in
writing from time to time, including the retention of
counsel and experts as are reasonably designated by
Company (it being understood and agreed by the
parties hereto that the terms of any such retention
shall expressly provide that Company shall be solely
responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and
the execution of powers of attorney, provided that:
19.5.1 within 30 calendar days after Company
receives or delivers, as the case may be, the
Tax Claim Notice relating to such Employee
Claim (or such earlier date that any payment
of the taxes claimed is due from Employee,
but in no event sooner than five calendar
days after Company receives or delivers such
Tax Claim Notice), Company shall have
notified Employee in writing ("Election
Notice") that Company does not dispute its
obligations (including, but not limited to,
its indemnity obligations) under this
Agreement and that Company elects to contest,
and to control the defense or prosecution of,
such Employee Claim at Company's sole risk
and sole cost and expense; and
19.5.2 Company shall have advanced to Employee on an
interest-free basis, the total amount of the
tax claimed in order for Employee, at
Company's request, to pay or cause to be paid
the tax claimed, file a claim for refund of
such tax and, subject to the provisions of
the last sentence of paragraph 19.7, sue for
a refund of such tax if such claim for refund
is disallowed by the appropriate taxing
authority (it being understood and agreed by
the parties hereto that Company shall only be
entitled to sue for a refund and Company
shall not be entitled to initiate any
proceeding in, for example, United States Tax
Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to
such advance or with respect to any imputed
income with respect to such advance; and
Employment Agreement -- Gregory K. Harless
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<PAGE> 49
19.5.3 Company shall reimburse Employee for any and
all costs and expenses resulting from any
such request by Company and shall indemnify
and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute,
at the sole cost, expense and risk of Company, such
Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by Company to a Final Determination;
provided, however, that (i) Company shall not,
without Employee's prior written consent, enter into
any compromise or settlement of such Employee Claim
that would adversely affect Employee, (ii) any
request from Company to Employee regarding any
extension of the statute of limitations relating to
assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the
contested issues involved in, and amount of, the
Employee Claim relate is limited solely to such
contested issues and amount, and (iii) Company's
control of any contest or proceeding shall be limited
to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue
raised by the Internal Revenue Service or any other
taxing authority. So long as Company is diligently
defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to
Company any information reasonably requested by
Company that relates to such Employee Claim, and
shall otherwise cooperate with Company and its
representatives in good faith in order to contest
effectively such Employee Claim. Company shall keep
Employee informed of all developments and events
relating to any such Employee Claim (including,
without limitation, providing to Employee copies of
all written materials pertaining to any such Employee
Claim), and Employee or his authorized
representatives shall be entitled, at Employee's
expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of
a tax claimed (pursuant to an Employee Claim) that
has been advanced by Company pursuant to paragraph
19.5.2 hereof, the extent of the liability of Company
hereunder with respect to such tax claimed has been
established by a Final Determination, Employee shall
promptly pay or cause to be paid to Company any
refund actually received by, or actually credited to,
Employee with respect to such tax (together with any
interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such
taxing authority related thereto), except to the
extent that any amounts
Employment Agreement -- Gregory K. Harless
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<PAGE> 50
are then due and payable by Company to Employee,
whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an
amount advanced by Company pursuant to paragraph
19.5.2, a determination is made by the Internal
Revenue Service or other appropriate taxing authority
that Employee shall not be entitled to any refund
with respect to such tax claimed and Company does not
notify Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30
days after such determination, then such advance
shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset,
to the extent thereof, the amount of any Gross-Up
Payments and other payments required to be paid
hereunder.
19.8 With respect to any Employee Claim, if Company fails
to deliver an Election Notice to Employee within the
period provided in paragraph 19.5.1 hereof or, after
delivery of such Election Notice, Company fails to
comply with the provisions of paragraph 19.5.2,
19.5.3 or 19.6 hereof, then Employee shall at any
time thereafter have the right (but not the
obligation), at his election and in his sole and
absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such Employee
Claim. Employee shall have full control of such
defense or prosecution and such proceedings,
including any settlement or compromise thereof. If
requested by Employee, Company shall cooperate, and
shall cause its affiliates to cooperate, in good
faith with Employee and his authorized
representatives in order to contest effectively such
Employee Claim. Company may attend, but not
participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph
19.8 and shall bear its own costs and expenses with
respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from
Company with respect to costs and expenses incurred
by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the
terms of this paragraph 19.9, Company shall pay, on a
fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such Employee Claim that have not
theretofore been paid by Company to Employee,
together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by
Company to Employee, within ten calendar days after
such Final Determination. In the case of any
Employee Claim not covered by the preceding sentence,
Employment Agreement -- Gregory K. Harless
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<PAGE> 51
Company shall pay, on a fully grossed-up after tax
basis, to Employee in immediately available funds the
full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim at
least ten calendar days before the date payment of
such taxes is due from Employee, except where payment
of such taxes is sooner required under the provisions
of this paragraph 19.9, in which case payment of such
taxes (and payment, on a fully grossed-up after tax
basis, of any costs and expenses required to be paid
under this paragraph 19.9 shall be made within the
time and in the manner otherwise provided in this
paragraph 19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim for
refund or credit in respect to an overpayment of tax
unless a suit is filed on a timely basis; or (D) any
final disposition by reason of the expiration of all
applicable statutes of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes), together
with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee
pursuant to this Agreement, whether by seeking other
employment or otherwise; nor shall the amount of any such
payment or other benefit be reduced on account of any
compensation earned by Employee as a result of employment by
another person or entity.
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended
except in writing and signed by Company and Employee.
This Agreement shall be binding upon the heirs,
administrators, or executors and the successors and
assigns of each party to this Agreement.
21.2 The rights and benefits of Employee under the
Agreement are personal to him and shall not be
assigned or transferred without
Employment Agreement -- Gregory K. Harless
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<PAGE> 52
the prior written consent of Company. Subject to the
foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
respective heirs, personal representatives,
successors and assigns.
21.3 All titles or headings of sections or paragraphs or
other divisions of this Agreement are only for the
convenience of the parties and shall not be construed
to have any effect or meaning with respect to the
other content of such sections or paragraphs or other
divisions, such content being controlling as to the
agreement between the parties hereto.
21.4 This Agreement is made and will be performed under,
and shall be governed by and construed in accordance
with, the law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO THIS
AGREEMENT THAT HE HAS READ THIS AGREEMENT BEFORE
SIGNING IT AND THAT HE FULLY UNDERSTANDS ITS
PURPOSES, TERMS AND PROVISIONS, WHICH HE HEREBY
EXPRESSLY ACKNOWLEDGED TO BE REASONABLE IN ALL
RESPECTS. EMPLOYEE FURTHER ACKNOWLEDGES RECEIPT OF
ONE COPY OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
580 Westlake Boulevard, Suite 1300
Houston, Texas 77079
Attention: President and Chief Executive Officer
If to Employee:
Gregory K. Harless
8019 Forest Breeze
Spring, Texas 77379
Company and Employee may change the above addresses
for notice purposes by notifying the other in
writing.
Employment Agreement -- Gregory K. Harless
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<PAGE> 53
21.7 The Company may withhold from any amounts payable
under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21.8 Except as otherwise expressly provided herein,
nothing contained in this Agreement shall limit or
otherwise affect any rights or benefits which are
vested in, accrued to, or earned by Employee, or for
which Employee is entitled to, prior to the Effective
Date whether under the Employment Agreement or
otherwise.
21.9 ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL
AGREEMENT DATED EFFECTIVE AS OF FEBRUARY 12, 1996,
BETWEEN COMPANY AND EMPLOYEE SHALL TERMINATE AND BE
FROM THE EFFECTIVE DATE NULL, VOID AND OF NO FURTHER
FORCE OR EFFECT WHATSOEVER.
Executed as of the Effective Date in duplicate originals at Houston,
Texas.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ ROBERT E. HENDERSON
--------------------------------
Printed Name: Robert E. Henderson
------------------------
Printed Title: President and Chief
------------------------
Executive Officer
------------------------
EMPLOYEE:
/s/ GREGORY K. HARLESS
---------------------------------------
Gregory K. Harless
Employment Agreement -- Gregory K. Harless
-53-
<PAGE> 1
EXHIBIT 10.8
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter called
this "Agreement") is entered into effective as of June 27, 1996 (the "Effective
Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy Oil & Gas
USA Inc.) (hereinafter called "Company") and Gregory K. Harless (hereinafter
called "Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated March 1, 1989, which was thereafter amended on a number of
occasions (such Employment Agreement, as heretofore amended, being referred to
herein as the "Employment Agreement"); and
WHEREAS, Enron Capital & Trade Resources Corp., a Delaware
corporation, Mystery Acquisition, Inc., a Delaware corporation ("Parent"),
Robert E. Henderson, Richard R. Clark, Michael W. Strickler, and D. S. Huber,
have entered into that certain Stockholders' Agreement dated April 2, 1996 (the
"Stockholders Agreement"); and
WHEREAS, Section C.2(a) of the Stockholders Agreement provides that
the Employment Agreement will be amended and restated as set forth herein and
Company and Employee desire to so amend and restate the Employment Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as Vice President -
Oil and Gas Marketing of Company. The permanent place of
Employee's employment shall be at a location within a 50-mile
radius of the central business district of the City of
Houston, Texas; provided, however, Employee shall be required
to undertake such ordinary and usual travel as is necessary to
properly discharge his duties and responsibilities hereunder.
Employee hereby accepts such employment, and agrees to serve
Company faithfully, diligently and in a good and workmanlike
manner.
2. Term.
The term of employment shall be for the period beginning a
term of three (3) years beginning on the Effective Date,
subject, however, to the provisions of paragraph 3.
<PAGE> 2
3. Extension and Termination.
3.1 If either Employee or Company elects to terminate
this Agreement at the end of the term stated in
paragraph 2, or at the end of any extended term
hereof as hereinafter provided, notice of the
election to terminate shall be given to the other
party no later than six (6) months before the end of
this Agreement. If no notice is given by either
party, the term, or extended term, of this Agreement
shall be deemed to have been extended for an
additional three (3) months.
3.2 In the event Company elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary and
other benefits provided elsewhere in this
Agreement for Employee's services rendered to
Company hereunder through the end of such
term or extended term.
3.2.2 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment equal to six (6)
months' salary at Employee's monthly rate for
the month immediately preceding the month in
which Company elects to terminate this
Agreement.
3.2.3 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment for all (a) vacation
time carried forward from a previous year in
accordance with paragraph 8, and (b) all
earned and unused vacation time for the then
current year. Earned vacation time shall,
for the purpose of this paragraph, be
calculated by dividing the number of days in
the calendar year which have transpired by
365, and then multiplying the result by the
number of vacation days to which Employee is
entitled for that year pursuant to paragraph
8.
3.2.4 If Employee has a leased automobile, the
lease payments on which are guaranteed by
Company, Employee shall have the option, to
be exercised on or before the last day of his
employment hereunder, of assuming the
remaining lease payments and retaining the
automobile, or assigning the lease agreement
to Company in return for Company's agreement
to assume the remaining lease payments.
3.2.5 Interests vested in Employee under paragraph
9 of this Agreement shall be assigned in due
course in compliance with paragraph 9.4.
Company and Employee agree that the
Employment Agreement -- Gregory K. Harless
-2-
<PAGE> 3
promises, covenants and undertakings of
paragraph 9 shall survive the termination of
employment of Employee and shall be binding
on all assigns of Company.
3.3 In the event Employee elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the
term, or extended term hereof, unless waived
by Company.
3.3.2 The provisions of paragraphs 3.2.1, 3.2.3,
3.2.4, and 3.2.5 shall be applicable, but
Employee shall not be entitled to the payment
provided for in paragraph 3.2.2.
3.4 Company may at its option consent to a request by
Employee to terminate this Agreement at a time other
than that stated in paragraph 2, as extended, in
which case the date requested by Employee and agreed
to by Company will be the end of the term of this
Agreement and the provisions of paragraph 3.3 shall
be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon
written notice of such termination to Employee by
Company. Any termination of this Agreement by
Company for Cause shall be effective thirty (30) days
after written notice of termination for Cause is
given by Company to Employee. If Company terminates
this Agreement for Cause, Company shall have no
liability or obligation to Employee thereafter under
this Agreement except (i) for the payment of his
salary and other benefits through the month of
discharge, prorated in the case of salary for the
month of discharge on a daily basis to the date of
termination, and (ii) that the provisions of
paragraph 3.2.5 shall be applicable. As used in this
Agreement, the term "Cause" means (a) Employee is
found guilty of, admits in writing facts amounting
to, or is held civilly liable for fraud, embezzlement
or dishonesty, (b) Employee is convicted of a felony
involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in
good faith determines that the continued employment
of the Employee would be materially detrimental to
the Company (in any case which felony through lapse
of time or otherwise is not subject to appeal), (c)
Employee knowingly discloses trade secrets or
confidential Company matters to unauthorized persons,
(d) Employee willfully breaches or habitually
neglects any duties he is required to perform under
the terms of this Agreement and any such breach or
neglect is not cured within thirty (30) days after
Company has provided Employee with written notice of
such breach or neglect, (e)
Employment Agreement -- Gregory K. Harless
-3-
<PAGE> 4
Employee materially breaches any of the other
material terms of this Agreement and any such breach
is not cured within thirty (30) days after the
Company has provided Employee with written notice of
such breach, and (f) the occurrence of an action or
finding described in paragraph 17, except as
otherwise provided in paragraph 17. The waiver by
Company of a breach of any provision of this
Agreement by Employee shall not operate or be
construed as a waiver of any subsequent breach by
Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in
paragraphs 3.1, 3.4 or 3.5 above, Employee shall be
entitled to receive on the date of such termination
or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the
month immediately preceding the month in
which such termination or discharge occurs,
for the unexpired portion of the term or
extended term hereof then in effect.
3.6.2 The payments and other benefits provided for
in paragraphs 3.2.2, 3.2.3, 3.2.4 and 3.2.5
hereof.
3.7 In the event Employee terminates this Agreement for
"Good Reason" (as defined in paragraph 3.9), and
prior to such termination Employee has not terminated
this Agreement under paragraph 3.1 hereof, Employee
shall be entitled to receive from Company on the date
of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in effect
at the effective time of such termination
(but prior to giving effect to any reduction
therein which precipitated such termination),
for the unexpired portion of the term or
extended term hereof then in effect.
3.7.2 A lump sum cash payment equal to six (6)
months' salary, at Employee's rate in effect
at the time of such termination (but prior to
giving effect to any reduction therein which
precipitated such termination).
3.7.3 The payments and other benefits provided for
in paragraphs 3.2.3, 3.2.4 and 3.2.5.
3.8 Any termination of this Agreement by Employee for
Good Reason shall be effective thirty (30) days after
written notice of termination for Good Reason is
given by Employee to Company
Employment Agreement -- Gregory K. Harless
-4-
<PAGE> 5
3.9 As used in this Agreement, the term "Good Reason"
means any one or more of the following events has
occurred:
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's
position (including office, title and
reporting requirements), authority, duties or
responsibilities with Company or any other
action that results in a material diminution
in, or interference with, such position,
authority, duties or responsibilities, and
any such assignment or action is not cured
within thirty (30) days after Employee has
provided Company with written notice of such
assignment or action;
3.9.2 The failure to continue to provide Employee
with office space, related facilities and
support personnel (including, but not limited
to, administrative and secretarial
assistance) (a) that are both commensurate
with Employee's responsibilities to and
position with Company and not materially
dissimilar to the office space, related
facilities and support personnel provided to
other employees of Company having comparable
responsibility to that of Employee or (b)
that are physically located at Company's
principal executive offices, and any such
failure is not cured within thirty (30) days
after Employee has provided Company with
written notice of such failure;
3.9.3 Any (a) reduction in Employee's monthly
salary as established in paragraph 5
(including subsequent increases), (b)
reduction in, discontinuance of, or failure
to allow or continue to allow Employee's
participation in, the incentive compensation
program provided under paragraph 9 hereof, or
(c) reduction in, or failure to allow or
continue Employee's participation in, any
employee benefit plan or program (except when
such benefit plan or program is replaced with
another benefit plan, program or arrangement
that provides Employee, in the aggregate,
with reasonably comparable benefits) in which
Employee is participating or is eligible to
participate prior to such reduction or
failure (other than as a result of the
expiration of such plan or program), and any
such reduction, discontinuance or failure is
not cured within thirty (30) days after
Employee has provided Company with written
notice of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of
Employee's performance of his duties and
responsibilities to a location more than 50
miles outside
Employment Agreement -- Gregory K. Harless
-5-
<PAGE> 6
of the central business district of the City
of Houston, Texas; or
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2, 3.9.3,
and 3.9.4) which is not cured within thirty
(30) days after Employee has provided Company
with written notice of such breach.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of this
Agreement, and for a period of four (4) years from
the date of termination of his employment hereunder,
keep secret and confidential and not disclose to any
party not a party to this Agreement, land or lease
data, geological or geophysical data, well data or
any other information which he may receive as a
result of the performance of his duties hereunder,
except when disclosure is necessary for the
performance of his duties to Company hereunder. This
paragraph shall not apply to information that is in
the public domain through no action of Employee.
4.2 Upon termination of this employment hereunder,
Employee shall promptly deliver to Company all
written information and documents (whether
confidential or not), and all copies thereof,
relating to Company's business and activities and
which are in the possession of or under the control
of Employee.
5. Salary.
As compensation for his services rendered to Company
hereunder, Company shall pay to Employee a salary at the rate
of $10,083.33 per month. Employee's salary may be reviewed at
such times as may be determined by Company, and Company may at
its discretion increase this salary. Employee's salary shall
be paid in two equal monthly installments, payable on the
fifteenth and last days of each month (or on the first
business day of Company thereafter if any such payment date is
not a business day of Company), subject to any and all
necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $250.00
dollars per month to Employee. In addition to such monthly
allowance, Company shall pay, in accordance with Company
policy, for all gasoline, insurance and maintenance required
for use of the automobile.
Employment Agreement -- Gregory K. Harless
-6-
<PAGE> 7
7. Business Expenses.
Employee is authorized to incur reasonable business expenses
in accordance with Company's policies as may be established
from time to time for promoting the business of Company,
including expenditures for entertainment and travel. Company
shall reimburse Employee from time to time for all such
business expenses in accordance with those policies adopted by
Company which include, but are not limited to, the requirement
that Employee timely present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom;
and
7.4 The name and occupation of the person or persons
entertained to establish the business relationship
with Company.
With respect to any reimbursable business expense contemplated
above exceeding twenty-five dollars ($25.00), Employee will
furnish documentary evidence of such expense to Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of
twenty (20) days per calendar year at full pay. The timing
and use of such vacation days shall be requested by Employee
and approved by Company in accordance with its policy. Up to
one week may be carried over from year to year. Employee
shall not be entitled to receive payment in lieu of unused
vacation time except as otherwise provided herein. With prior
approval, vacation may be deferred if business matters keep
Employee from taking his normal vacation.
9. Incentive Compensation.
9.1 Definitions.
An "AFFILIATE" of a specified person is any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with
that specified person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
Employment Agreement -- Gregory K. Harless
-7-
<PAGE> 8
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated
persons (other than Joint Energy Development
Investments Limited Partnership ("JEDI") or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66 2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person,
if as a result any person (other than JEDI or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66-2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.), (y) any sale, lease, exchange or
other transfer of two-thirds or more of the
consolidated assets of Newco and its subsidiaries
taken as a whole in one transaction or a series of
related transactions whether by direct sale of
assets, sale of stock of a subsidiary or a merger
involving any subsidiary, or (z) the dissolution of
Newco; or
(iii) Recognizing that the events
described in this clause and the events described in
clause (ii) above may not necessarily be mutually
exclusive, any sale, exchange or other transfer of
two-thirds or more of the outstanding Voting Stock of
the Company or any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of the Company and its subsidiaries (if any)
taken as a whole in one transaction or a series of
related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of Company or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates,
Joint Energy Development Investments Limited Partnership or
any of its affiliates, Enron Capital & Trade Resources Corp.
or any of its affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development
Investments Limited Partnership or any of its affiliates or
Enron Capital
Employment Agreement -- Gregory K. Harless
-8-
<PAGE> 9
& Trade Resources Corp. or any of its affiliates for access to
one or more Working Interests of Company.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in
such Prospect acquired by Company and, for purposes of this
paragraph 9, shall include each portion thereof that Company
may subsequently transfer to another member of Company Group
or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than
50 percent of the outstanding voting securities of a
non-individual person, (b) having the right, directly or
indirectly, to more than 50 percent of the profits of a
non-individual person, (c) having the right, directly or
indirectly, to more than 50 percent of the assets of a
non-individual person if it is dissolved or (d) having the
contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
"DEVELOPMENT ACREAGE" means the acreage within a Prospect
covering a known or inferred geologic structure upon which
Company and/or its joint working interest owners or a farmee
of Company's Working Interest in a Prospect have drilled a
well capable of commercial oil and/or gas production. Such
acreage shall be deemed to be Development Acreage from the
surface of the earth down through the deepest known productive
horizon. The committee described in paragraph 9.5.1(a),
below, shall designate acreage within a Prospect as
Development Acreage based upon the most current interpretation
available at the time of designation.
"EFFECTIVE DATE" means the effective date of this amended and
restated Employment Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct,
capital costs actually incurred by Company Group in connection
with exploration and development of such Prospect or
Prospects, including, without limitation, all costs incurred
in preparing for drilling, drilling, testing, completing,
equipping (including, without limitation, installation of
platforms, facilities and pipelines and dry hole costs) and
recompleting wells, all geological and geophysical costs, and
all leasehold costs (including bonus, delay rentals and all
other costs of acquiring and maintaining in force the leases,
or portions thereof or undivided interests therein, included
in such Prospects). Exploration and Development Costs shall
not include lease operating expenses or general and
administrative expenses of the Company Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect
which has not been designated by the committee described in
paragraph 9.5.1(a),
Employment Agreement -- Gregory K. Harless
-9-
<PAGE> 10
below, as either Development Acreage or a Producing Property
Acquisition. Exploratory Acreage shall not be limited as to
depth (except to the extent, if any, to which Company's
Working Interest therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing
a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such hydrocarbon reservoir being economic, based
on commercially producible shows of hydrocarbons in a well
drilled within such reservoir, together with other geological
and geophysical data and interpretations, such that Company in
its reasonable judgment plans to develop such reservoir, and
(b) is reasonably expected by Company to be exploited and/or
developed by utilizing a floating production facility and/or a
tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than
an FPF/TLP Exploitation Prospect) with respect to which
Company reasonably expects to utilize a floating production
facility and/or a tension leg platform in connection with
operations to be conducted on such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first
well drilled on such Prospect in which Company participates as
a Working Interest owner or with respect to which Company
retains an overriding royalty or other interest in oil and gas
production from such well.
"MAJOR PROSPECT" means any FPF/TLP Exploration Prospect,
FPF/TLP Exploitation Prospect, Subsea Tieback Exploration
Prospect or Subsea Tieback Exploitation Prospect with respect
to which the total amount estimated by Company for Exploration
and Development Costs to be incurred by Company Group (i.e.,
net to Company Group's interest) through the end of the
primary development period for the field comprising such
Prospect exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which
provides for sharing between lessor and lessee of the net
profits or net proceeds, as defined in said lease, from the
sale of oil and/or gas produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation,
or its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross
production of oil and gas under each oil and gas lease (or
portion thereof) included within a Prospect, which interest
(except as herein otherwise provided) shall be free of all
costs of acquisition, exploration, drilling, completing,
equipping, operating and developing any oil and gas produced
from such lease.
Employment Agreement -- Gregory K. Harless
-10-
<PAGE> 11
A "PARENT" of a specified person is another person that
controls such specified person directly or indirectly through
one or more intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue
to Company or its assigns from its interest in oil and gas
production from such well (after deduction of Company's or its
assigns' prorata part of the burden of (i) all landowners'
royalties, overriding royalties, net profits interests,
production payments or other burdens upon, measured by or
payable out of such production and (ii) all applicable ad
valorem, production, severance, sales, gathering, windfall
profits excise and similar taxes) equals the sum incurred by
or for the account of Company or its assigns (x) in preparing
for drilling, drilling, testing, completing, equipping
(including, without limitation, installation of platforms,
facilities and pipelines), operating, reworking and
recompleting the well, and marketing the production therefrom,
and (y) for such well's allocable share of geological and
geophysical costs, leasehold costs and other common costs.
"Leasehold costs" shall mean payments for bonus, delay
rentals, and all other costs of acquiring from the landowners
(or, in the case of an acquisition by Company (but not any
assignee of Company), from predecessors in title to such
leases) and maintaining in force the leases allocated to the
well. Leases "allocated" to a well shall mean the leases or
portions thereof or undivided interests therein to which
production from a well is attributed, whether on a lease or
unit basis. With respect to each such well, "common costs"
shall mean capital costs that are attributable to (a) such
Prospect as a whole or (b) such well and one or more other
wells (but not all wells) on such Prospect and shall include,
without limitation, costs of drilling, plugging and abandoning
non- productive wells on such Prospect. Each such well's
allocable share of common costs shall be determined by Company
in any manner it deems appropriate from time to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well
and each subsequent well drilled on a Prospect, the point in
time at which such revenue to Company or its assigns from its
interest in oil and gas production from such well, after such
deductions mentioned above, equals the product of 2.5 times
the sum incurred by or for the account of Company or its
assigns (x) in preparing for drilling, drilling, testing,
completing, equipping, operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for
such well's allocable share of geological and geophysical
costs, leasehold costs and other common costs as mentioned
above.
A "PERSON" is an individual, a corporation, a trust, a
partnership, a limited liability company, an association or
any other entity.
Employment Agreement -- Gregory K. Harless
-11-
<PAGE> 12
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
Company during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves
considered proved under such lease or leases at the time of
acquisition. A Producing Property Acquisition shall include
acquisition of such leasehold interests even though Company
may have previously acquired interests in some or all of the
same leases as a Prospect acquisition (i.e., prior to the time
such leases were considered to contain proved oil and gas
reserves). Company may in its sole discretion designate a
Producing Property Acquisition in whole or in part as a
Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by Company within the
United States and its coastal waters while Employee is
employed by Company and during the term or extended term of
this Agreement covering lands which in the sole opinion of
Company may contain one or more hydrocarbon accumulations
capable of being commercially produced. For purposes of this
definition of Prospect, the acquisition of a lease or leases
shall mean the acquisition by Company of legal or beneficial
rights or interests in a lease or leases, including (without
limitation) contractual rights to acquire or earn a lease or
leases (whether by farmout agreement or otherwise, and whether
such contractual rights are subject to certain conditions such
as the drilling or completion of a commercial well, and
without regard to the results of the drilling or completion of
any such well under such contract). A Prospect shall not
include a prospect acquired by Company by merger or
consolidation of Company with or into another entity unless
such prospect is so designated by Company. A Prospect shall
not include a Producing Property Acquisition unless such
Prospect is so designated by Company, and shall not include
leases included in a Prospect under previous Employee
Incentive Compensation Plans. All Prospects shall be deemed
to be without depth limitation unless the Company designates
specified depths only at the time said Prospect is initially
acquired by Company. Notwithstanding the date or dates on
which leases in a Prospect are actually acquired by Company,
solely for purposes of determining the employees of Company
who are entitled to receive an Overriding Royalty Interest
therein, such leases, or portions thereof or undivided
interests therein, shall be deemed to have been acquired by
Company as of the date on which Company's management approved
such Prospect acquisition. In furtherance of the foregoing,
if any lease or leases, or portions thereof or undivided
interests therein, acquired by Company on or after April 18,
1996, but prior to the commencement of the term of this
Agreement, would constitute a "Prospect" under the foregoing
definition but for the fact that such lease or leases, or
portions thereof or undivided interests therein, were not
acquired by Company during the term of this Agreement, the
same shall, nevertheless, be
Employment Agreement -- Gregory K. Harless
-12-
<PAGE> 13
deemed to have been acquired by Company as of the commencement
of the term of this Agreement and shall constitute a Prospect
for purposes of this paragraph 9.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a
sufficient likelihood of such hydrocarbon reservoir being
economic, based on commercially producible shows of
hydrocarbons in a well drilled within such reservoir, together
with other geological and geophysical data and
interpretations, such that Company in its reasonable judgment
plans to develop such reservoir, and (b) is reasonably
expected by Company to be exploited and/or developed by
utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect
(other than a Subsea Tieback Exploitation Prospect) with
respect to which Company reasonably expects to utilize a
subsea tieback system in connection with operations to be
conducted on such Prospect.
A "SUBSIDIARY" of a specified person is an entity controlled
by such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election
of directors thereof.
"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the
costs and expenses relating to the maintenance and development
of, and operations relating to, such lease and the well or
wells associated therewith.
9.2 Employee's Property Interest.
9.2.1 Subject to the other provisions of this paragraph 9,
Employee shall own, be immediately vested with, and
be entitled to receive the benefits of an Overriding
Royalty Interest equal to an undivided percentage of
Company's Working Interest, more specifically
described below, in each well on a Prospect and the
lease or leases allocated thereto, as follows:
Employment Agreement -- Gregory K. Harless
-13-
<PAGE> 14
EMPLOYEE: Gregory K. Harless
OVERRIDING ROYALTY INTEREST
IN
FPF/TLP EXPLORATION PROSPECTS,
FPF/TLP EXPLOITATION PROSPECTS,
SUBSEA TIEBACK EXPLORATION PROSPECTS
AND
SUBSEA TIEBACK EXPLOITATION PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.085937 0.343749
Group XV 5/16/96 and Thereafter 0.085937 0.343749
</TABLE>
OVERRIDING ROYALTY INTEREST
IN
ALL OTHER PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.09375 0.37500
Group XV 5/16/96 and Thereafter 0.09375 0.37500
</TABLE>
At 7:00 a.m. on the first day of the month following the month
in which Payout of such well occurs, the Overriding Royalty
Interest shall increase from the applicable before-Payout
percentage to the applicable after-Payout percentage. Except
as herein otherwise expressly provided, references in this
paragraph 9 to Employee's "Overriding Royalty Interest" with
respect to any Prospect shall mean the applicable
before-Payout and after-Payout percentages of Company's
Working Interest in such Prospect as set forth above.
9.2.2 Under previous Employee Incentive Compensation Plans, Employee
has received or is entitled to receive overriding royalty
interests ("Existing ORIs") in certain prospects (the
"Existing Prospects"). The Existing ORIs are equal to an
undivided percentage of Company's Working Interest, more
specifically described below by Group and Time Period during
which Company acquired such Existing Prospects, in each well
on an Existing Prospect and the lease or leases allocated
thereto, as follows:
Employment Agreement -- Gregory K. Harless
-14-
<PAGE> 15
EMPLOYEE: Gregory K. Harless
<TABLE>
<CAPTION>
EXISTING ORI
------------
GROUP DATES BEFORE PAYOUT After Payout
----- ----- ------------- ------------
<S> <C> <C> <C>
GROUP I 4/1/87-9/3/87 -- --
GROUP II 9/4/87-10/31/87 -- --
GROUP III 11/1/87-7/16/88 -- --
GROUP IV 7/17/88-12/15/88 0.10000% 0.4000%
GROUP V 12/16/88-3/31/89 0.10000% 0.4000%
GROUP VI 4/1/89-9/24/90 0.10000% 0.4000%
GROUP VII 9/25/90-6/30/91 0.12500% 0.5000%
GROUP VIII 7/1/91-9/30/91 0.10625% 0.4250%
GROUP IX 10/1/91-2/14/93 0.10625% 0.4250%
GROUP X 2/15/93-6/30/93 0.10625% 0.4250%
GROUP XI 7/1/93-4/29/94 0.10625% 0.4250%
GROUP XII 4/30/94-3/31/95 0.10625% 0.4250%
GROUP XIII 4/1/95-4/17/96 0.10625% 0.4250%
</TABLE>
The provisions of paragraphs 9.4, 9.5, 9.6 and 9.7 shall apply
to the Existing ORIs in the Existing Prospects as fully as
such provisions apply to any Overriding Royalty Interest in a
Prospect to which Employee is entitled under this Agreement.
Mention is made that, effective June 1, 1996, the Company has
repurchased certain of the Existing ORIs from Employee as
contemplated by the Stockholders' Agreement referred to in
paragraph 9.5.1(a).
9.3 Governmental Filings.
Company will assist Employee in Filing an 83b Election with
the Internal Revenue Service on each Prospect, on a prospect
by prospect or lease by lease basis, as the case may be,
denoting the transfer to Employee of the Overriding Royalty
Interest and stating the value of such interest for the
purposes at the time the interest is acquired.
Employment Agreement -- Gregory K. Harless
-15-
<PAGE> 16
9.4 Assignment of Overriding Royalty Interest.
Except as otherwise expressly provided in paragraphs 9.4.8 and
9.4.9, Employee shall not be entitled to obtain recordable
assignments of his interest under this paragraph 9 until his
completion of three years of employment by Company and, except
as otherwise expressly provided herein, Employee shall forfeit
ownership of such interest if Employee's employment is
terminated by Company pursuant to paragraph 3.5 or by Employee
without Good Reason as defined in paragraph 3.9, prior to the
completion of such three years of employment. Upon completion
of three years of employment of Employee by Company,
Employee's ownership of interests theretofore or thereafter
transferred to him pursuant to this Agreement will no longer
be subject to forfeiture, and assignments will be made in
accordance with this paragraph 9.4. Subject to the other
provisions of this paragraph 9, Employee shall be entitled to
the revenue arising from his Overriding Royalty Interest
whether or not he is entitled to a recordable assignment.
Subject to the foregoing provisions of this paragraph 9.4 and
to the provisions of paragraph 9.5, as soon as practicable
after the end of each calendar quarter during the term or
extended term of this Agreement, Employee shall be entitled to
receive recordable assignments of his Overriding Royalty
Interest in a lease or leases (or portions thereof) acquired
by Company in a Prospect during such calendar quarter. If
Employee's employment is terminated by Company pursuant to
paragraph 3.5 or by Employee without Good Reason as defined in
paragraph 3.9, during any such calendar quarter, Employee
shall not be entitled to receive recordable assignments that
would otherwise have been due under this paragraph in respect
of any lease or leases (or portions thereof) acquired by
Company in a Prospect during such calendar quarter or
thereafter (and Employee shall not own, be vested with or be
entitled to receive the benefits of any Overriding Royalty
Interest that would have been granted by such recordable
assignments) unless the termination is at the end of the term
or extended term of this Agreement. As soon as practicable
after the end of each such calendar quarter, Company shall
provide Employee with the following:
(a) A recordable assignment of his Overriding
Royalty Interest in the leases (or portions
thereof) acquired by Company in each Prospect
during such calendar quarter.
(b) A plat outlining the geographical limits of
each such Prospect. Company shall review
each Prospect plat each calendar quarter in
light of drilling activity on or near the
Prospect, and expand the plat boundary if new
leases are acquired which Company believes to
contain a prospective hydrocarbon
accumulation that is located on the same
geological feature as such Prospect.
Employee shall be entitled to his Overriding
Royalty Interest in any lease
Employment Agreement -- Gregory K. Harless
-16-
<PAGE> 17
acquired by Company within the Prospect plat
boundary (and, to the extent provided in
paragraph 9.7.2, in any renewal, extension or
new lease within the Prospect plat boundary)
for as long as such lease within the boundary
remains in effect.
9.4.1 Upon execution and delivery of such recordable
assignment to Employee, Company shall record the
assignment.
9.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, Company believes in good
faith that there is a substantial likelihood that it
may be necessary to exercise its discretion under
paragraph 9.5 with respect to adjustment of
Employee's Overriding Royalty Interest in leases
included within such Prospect, Company may defer
delivery of a recordable assignment of Employee's
Overriding Royalty Interest pending a determination
under paragraph 9.5.
9.4.3 Upon request by Company, Employee agrees to execute
and deliver any and all transfer orders, division
orders and other documents as may be necessary or
appropriate to cause all revenue attributable to his
interest in a well to be paid to Company on his
behalf until delivery by Company to Employee of a
recordable assignment of his interest in such well
pursuant to this paragraph 9. In such event, Company
agrees promptly to process such funds and pay all
funds due Employee at the same time third parties are
paid revenue distributions from such well by Company.
After an assignment is delivered to Employee, Company
shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct
payment to Employee of all revenue attributable to
his interest in such well.
9.4.4. Subject to the last sentence of this paragraph 9.4.4,
Company or its assigns shall quarterly perform Payout
calculations on each well which has not reached
Payout in every Prospect so that payments to Employee
may be made on a proper before payout/after payout
basis on each well in every Prospect. Company or its
assigns shall prepare a quarterly Payout statement
for each well within each Prospect and shall provide
Employee a copy of said quarterly Payout statements
within ninety (90) days following the end of the
quarter. If Company or its assigns fails to provide
said quarterly Payout statements for any such well(s)
to at least five (5) employees (whether or not such
employees include the Employee) who are entitled to
receive an Overriding Royalty Interest in such
well(s) pursuant to this Agreement and/or other
employment agreements with Company for a period of
four (4) consecutive quarters, any such employee
(including without limitation, the
Employment Agreement -- Gregory K. Harless
-17-
<PAGE> 18
Employee) may give Company written notice of said
failure. If Company or its assigns does not provide
the overdue quarterly Payout statements to each
employee entitled to same within thirty (30) days
following receipt of such notice, all wells within
such Prospect which had previously been considered
before Payout pursuant to paragraph 9.2 shall be
deemed to be after Payout pursuant to paragraph 9.2
as of the first day of the month following the month
in which the earliest delinquent quarterly Payout
statement should have been provided. When Payout
status is reached on a well, Company or its assigns
shall deliver notice of such event to Employee, the
operator of such well and each purchaser of
production from such well and Company or its assigns
shall direct such operator or purchaser of production
(as appropriate) to disburse future revenues
attributable to Employee's and Company's respective
interests in such well on an after-Payout basis.
Notwithstanding the foregoing, if Employee's
Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph
9 so as to be the same percentage before and after
Payout of such well, then the provisions of this
paragraph 9.4.4 shall no longer apply from and after
the date of such adjustment.
9.4.5 Should Employee be married or divorced at such time
as Employee earns the right to have an Overriding
Royalty Interest assigned to him hereunder, Company
shall have no obligation to make assignments to
Employee's spouse/or former spouse. Any division of
community property shall be the responsibility of
Employee.
9.4.6 All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
(a) any joint operating agreement at any time
theretofore or thereafter entered into by Company or
its assigns with other Working Interest owners
covering any of the leases affected by the Overriding
Royalty Interest herein provided for, and (b) any
farm-out or other agreements under which Company
acquires or may acquire its interest in the leases;
including, particularly, by way of illustration and
not by way of limitation, (i) any provision of an
applicable farm-out agreement requiring reduction of
Company's interest in the leases after "payout" of an
earning well or wells thereunder, in which event
Employee's Overriding Royalty in such leases shall be
proportionately reduced, and (ii) any provision
requiring forfeiture of interest for
nonparticipation, recoupment of multiple recovery
costs and the like to the extent that Company would
forfeit its Working Interest for nonparticipation
either forever or until recoupment of drilling and/or
operating costs by the third parties electing to
participate, or such other like reason; and in the
event any such provisions come into effect,
Employee's Overriding
Employment Agreement -- Gregory K. Harless
-18-
<PAGE> 19
Royalty in such leases shall be suspended until such
time, if ever, as such multiple recovery of costs by
the participating leasehold owners has been recovered
or such other cause for suspension is removed and
such Working Interest of Company is reinstated, at
which time Employee's Overriding Royalty shall be so
reinstated.
All interests assigned by Company to Employee shall
be subject to the terms, conditions and provisions of
the leases, any assignments and/or subleases thereof
theretofore made or agreed to be made by Company, and
any amendments or modifications of the leases,
theretofore or thereafter made, and Employee agrees
that any such amendments or modifications may be made
without the consent or joinder of Employee.
9.4.7 Company or its assigns shall not have the right to
sell, assign, farmout, convey or otherwise encumber
Employee's Overriding Royalty Interest, except as
otherwise provided in this paragraph 9.
9.4.8(a) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, there shall have been a
Change in Control, then Employee
shall be entitled to receive
recordable assignments of his
Overriding Royalty Interest,
adjusted in the manner described
hereinbelow, in any lease or leases
(or portions thereof or undivided
interests therein) theretofore
acquired by Company and not yet
assigned during the term or extended
term hereof and, upon subsequent
acquisition by Company, in any lease
or leases (or portions thereof or
undivided interests therein)
thereafter acquired by Company, in
all Prospects acquired by Company
prior to such Change in Control
(without regard to whether or not
Employee has then completed three
years of employment by Company).
Said Overriding Royalty Interest
shall be assigned in the following
manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout
Employment Agreement -- Gregory K. Harless
-19-
<PAGE> 20
interest stated in paragraph 9.2 (as
such before-Payout interest stated
in paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) with
the result that Employee's interests
before and after Payout shall be
equal.
9.4.8(b) Except as otherwise provided in the
fifth sentence of paragraph 9.4, and
notwithstanding anything (other than
such fifth sentence of paragraph
9.4) contained herein to the
contrary, if, after the Effective
Date and during the term or extended
term hereof, the Company's Working
Interest in any Prospect is sold,
transferred or conveyed to the
holder of any indebtedness of the
Company or of Newco or of any parent
or subsidiary of the Company or
Newco, or to any unaffiliated third
party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing
such indebtedness or any part
thereof or by transfer or conveyance
in lieu of such foreclosure, then
Employee shall be entitled to
receive, prior to the consummation
of such sale, transfer or
conveyance, a recordable assignment
of his Overriding Royalty Interest,
adjusted in the manner described in
paragraph 9.4.8(a), in any lease or
leases (or portions thereof or
undivided interests therein)
theretofore acquired by Company and
not yet assigned during the term or
extended term hereof and, upon
subsequent acquisition by Company,
in any lease or leases (or portions
thereof or undivided interests
therein) thereafter acquired by
Company, in all Prospects acquired
by Company prior to such sale,
transfer or conveyance (without
regard to whether or not Employee
has then completed three years of
employment by Company).
9.4.9 Except as otherwise provided in the fifth sentence of
paragraph 9.4, and notwithstanding anything (other
than such fifth sentence of paragraph 9.4) contained
herein to the contrary, if, during the term or
extended term hereof, all or substantially all of the
Company's Working Interests in all or substantially
all Exploratory Acreage then owned by the Company are
sold, transferred or conveyed to an unaffiliated
third party, then Employee shall be entitled to
receive, prior to the consummation of such sale,
transfer or conveyance, recordable assignments of his
Overriding Royalty Interest, adjusted in the manner
described in paragraph 9.4.8(a), in all leases (or
portions thereof or undivided interests therein) that
Employment Agreement -- Gregory K. Harless
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<PAGE> 21
cover and include such Exploratory Acreage not yet
assigned during the term or extended term hereof
(without regard to whether or not Employee has then
completed three years of employment by Company).
9.5 Retained Company Discretion
9.5.1 Employee and Company recognize that in instances
where all or a portion of Company's Working Interest
in a lease or leases will be sold or farmed out to
unaffiliated third parties, Employee's Overriding
Royalty Interest might in some circumstances have a
negative effect on the marketability of Company's
Working Interest to third parties. In such cases,
Company will in good faith attempt to transfer
Company's Working Interest subject to Employee's
Overriding Royalty Interest provided for in this
paragraph 9; provided, however, if, in Company's good
faith judgment, Company's Working Interest cannot be
sold or farmed out subject to Employee's Overriding
Royalty Interest, Company may elect to adjust
Employee's Overriding Royalty Interest as hereinafter
provided.
9.5.1(a) The Board of Directors of Company
shall designate a committee of not
less than three individual persons
employed by Company, at least half
of whom has been granted an employee
Overriding Royalty Interest by
Company, to exercise discretion on
behalf of Company in reducing or
modifying, pursuant to this
paragraph 9.5.1 only, the Overriding
Royalty Interests provided for in
this paragraph 9; provided, however,
that the Board of Directors of the
Company shall have the right to
designate a non-voting member of
such committee, who may be a
director of the Company or
otherwise, and such member shall
have the right to participate in all
meetings of such committee (and
shall receive reasonable advance
notice of any such meetings) and
shall be entitled to the same
information as is available to the
other members of the committee.
Such committee shall make all
decisions under this paragraph 9.5.1
subject to obtaining the approval of
the Board of Directors of Company
where such approval is required
under the provisions of this
paragraph 9.5.1. Any decision made
by the committee shall require the
approval of a majority of the
members of the committee. Any
change to this paragraph 9.5.1(a)
shall require the approval of the
Board of Directors of the Company
and a majority of the Management
Directors (as that
Employment Agreement -- Gregory K. Harless
-21-
<PAGE> 22
term is defined in the Stockholders'
Agreement dated April 2, 1996,
between Enron Capital & Trade
Resources Corp., Newco and certain
employees of and consultants to the
Company, as it may be amended from
time to time) who became
stockholders pursuant to Section B.1
of that agreement.
9.5.1(b) With respect to any Prospect on
which no initial Well has been
drilled and no assignments of
Overriding Royalty Interests have
been made to Employee, the committee
may modify or reduce the Overriding
Royalty Interest of Employee in
leases included within such Prospect
in any manner necessary in the good
faith judgment of the committee to
make an interest in such Prospect
saleable to any person not in
Company Group; provided, however, in
connection with any sale by Company
of an interest in such Prospect to
any such person, Employee's
Overriding Royalty Interest shall be
reduced to zero unless the committee
recommends a lesser reduction and
such recommendation is approved by
the Board of Directors of Company.
Such modification or reduction shall
apply only to the interest sold to
such a person, and shall not affect
the interest retained by the
Company. Any reduction or exercise
of discretion by Company under this
paragraph shall be applied
proportionately to all participants
who are entitled to receive from
Company an Overriding Royalty
Interest in leases included within
such Prospect.
9.5.1(c) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has not
been determined by Company to be
capable of producing oil and/or gas,
should Company desire to sell all or
any portion of its Working Interest
in such Prospect to unaffiliated
third parties, the committee may
adjust the Overriding Royalty
Interest of Employee in leases
included within such Prospect in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout interest
stated in paragraph 9.2 (as such
after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be
Employment Agreement -- Gregory K. Harless
-22-
<PAGE> 23
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 9), with the result that
Employee's interests before and
after Payout shall be equal.
Such adjustment shall apply only to
the interest sold to unaffiliated
third parties, and shall not affect
the interest retained by Company.
Any exercise of discretion by
Company under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from Company an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(c).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(c).
9.5.1(d) With respect to any Prospect which
has not been determined by Company
to be capable of producing oil
and/or gas, and regardless of
whether or not the Initial Well has
been drilled thereon, should Company
desire to farmout all or any portion
of its Working Interest in such
Prospect to unaffiliated third
parties, the committee shall (unless
the committee
Employment Agreement -- Gregory K. Harless
-23-
<PAGE> 24
recommends otherwise and the Board of
Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in leases included within
such Prospect in the following
manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests may have
previously been reduced pursuant to
other provisions of this paragraph
9) by Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and during the period of time in
which Company receives such
overriding royalty interest.
To the extent, if any, that
Company's overriding royalty
interest set forth in such farmout
agreement converts to a Working
Interest in such Prospect (whether
by election of Company or
otherwise), then, from and after
such conversion, Employee's
Overriding Royalty Interest shall be
based upon such Working Interest of
Company pursuant to paragraph 9.2
above; provided, however, if
pursuant to such farmout agreement,
only a portion of Company's
overriding royalty interest converts
to a Working Interest and Company
retains, following such conversion,
some overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding Royalty Interest based
upon Company's Working Interest, an
interest equal to the percentage
stated in paragraph 9.2 above (as
such interest may have previously
been reduced pursuant to other
provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by Company. Any exercise of
discretion by Company under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in
leases included within such Prospect.
Employment Agreement -- Gregory K. Harless
-24-
<PAGE> 25
With respect to each well drilled on
the Prospect by a farmee of
Company's Working Interest and
solely for the purpose of this
paragraph 9.5.1 (d), Payout shall be
defined as the point in time at
which the revenue to Company from
its interest in oil and gas
production from such well (after
deduction of Company's prorata part
of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production
payments or other burdens upon,
measured by or payable out of such
production and (ii) all applicable
ad valorem, production, severance,
sales, gathering, windfall profits
excise and similar taxes) equals the
sum incurred by or for the account
of Company (x) in preparing for
drilling, drilling, testing,
completing, equipping (including,
without limitation, installation of
platforms, facilities and
pipelines), operating, reworking and
recompleting the well, and marketing
the production therefrom, and (y)
for such well's allocable share of
geological and geophysical costs,
leasehold costs, all other costs of
acquiring and maintaining in force
the leases allocated to the well and
other common costs. Leases
"allocated" to a well and "common
costs" shall have the respective
meanings ascribed thereto in the
definition of "Payout" set forth in
paragraph 9.1.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
has been a Change in Control, then
neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(d).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to
Employment Agreement -- Gregory K. Harless
-25-
<PAGE> 26
make the adjustment described above
in this paragraph 9.5.1.(d).
9.5.1(e) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has been
determined by Company to be capable
of producing oil and/or gas, should
Company desire to sell or farmout
all or any portion of its Working
Interest in such Prospect to
unaffiliated third parties, the
committee shall categorize
geographical areas of the leases
comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the Company's
Working Interest in any such
Development Acreage will be made
subject to Employee's Overriding
Royalty Interest provided for in
paragraph 9.2 hereinabove (as such
interest may have previously been
adjusted pursuant to other
provisions of this paragraph 9);
provided, however, with respect to
each well drilled on the Prospect by
a purchaser or farmee or their
assigns of Company's Working
Interest, and solely for the purpose
of this paragraph 9.5.1(e), Payout
shall be defined as the point in
time at which the revenue to
purchaser or farmee or their assigns
from its or their interest purchased
or farmed in from Company in oil
and/or gas production from such well
(after deduction of purchaser's or
farmee's prorata part of the burden
of (i) all landowners' royalties,
overriding royalties, net profits
interests, production payments or
other burdens upon, measured by or
payable out of such production and
(ii) all applicable ad valorem,
production, severance, sales,
gathering, windfall profits excise
and similar taxes) equals the sum
incurred by or for the account of
purchaser or farmee or their assigns
in preparing for drilling, drilling,
testing, completing, equipping,
operating, reworking and
recompleting the well, and marketing
the production therefrom.
With respect to the Company's Working
Interest in Exploratory Acreage to
be sold by Company, the committee
may adjust the Overriding Royalty
Interest of Employee in the
following manner:
Employee's after-Payout interest
shall be reduced to one-half of
Employee's after-Payout
Employment Agreement -- Gregory K. Harless
-26-
<PAGE> 27
interest stated in paragraph 9.2 (as
such after-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) and
Employee's before-Payout interest
shall be increased to twice
Employee's before-Payout interest
stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9),
with the result that Employee's
interests before and after Payout
shall be equal.
With respect to the Company's Working
Interest in Exploratory Acreage to
be farmed out by Company, the
committee shall (unless the
committee recommends otherwise and
the Board of Directors approves such
recommendation) adjust the
Overriding Royalty Interest of
Employee in the following manner:
Employee's Overriding Royalty
Interest shall be calculated by
multiplying Employee's percentage
interests stated in paragraph 9.2
above (as such interests stated in
paragraph 9.2 may have previously
been reduced pursuant to other
provisions of this paragraph 9) by
Company's overriding royalty
interest set forth in the particular
farmout agreement for said Prospect,
for and during the period of time in
which Company receives such
overriding royalty interest.
To the extent, if any, that
Company's overriding royalty
interest set forth in such farmout
agreement converts to a Working
Interest in such Prospect (whether
by election of Company or
otherwise), then, from and after
such conversion, Employee's
Overriding Royalty Interest shall be
based upon such Working Interest of
Company pursuant to paragraph 9.2
above; provided, however, if
pursuant to such farmout agreement,
only a portion of Company's
overriding royalty interest converts
to a Working Interest and Company
retains, following such conversion,
some overriding royalty interest in
addition to such Working Interest,
Employee shall be entitled to
receive, as part of Employee's
Overriding
Employment Agreement -- Gregory K. Harless
-27-
<PAGE> 28
Royalty Interest and in addition to
such Overriding Royalty Interest
based upon Company's Working
Interest, an interest equal to the
percentage stated in paragraph 9.2
above (as such interest may have
previously been reduced pursuant to
other provisions of this paragraph
9) multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest sold or farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by Company. Any exercise
of discretion by Company under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in
leases included within such
Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither Company nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
9.5.1(e).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of
Newco or of any parent or subsidiary
of the Company or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
9.5.1.(e).
If any of the events set forth in the
two immediately preceding sentences
hereof should occur, such that the
adjustment described above in this
paragraph 9.5.1(e) with respect to
the Overriding Royalty Interest of
Employee in leases in such
Exploratory Acreage is precluded
from occurring as provided above,
then, with respect to each well
drilled on such
Employment Agreement -- Gregory K. Harless
-28-
<PAGE> 29
Exploratory Acreage by a purchaser or
farmee or their assigns of Company's
Working Interest, and solely for
purposes of this paragraph 9.5.1(e),
Payout shall be defined as set forth
above in this paragraph 9.5.1(e).
9.5.2 Within sixty (60) days after the end of each fiscal
year of Company, Company may in its sole discretion
elect to reduce the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to Prospects
subject to this Agreement that were acquired by
Company during such fiscal year (which election, if
timely made as above provided, shall be effective as
of the beginning of such fiscal year) based on actual
Exploration and Development Costs incurred by Company
Group during such fiscal year in respect of all
Prospects subject to this Agreement, as follows (with
linear interpolation between indicated levels of
costs):
<TABLE>
<CAPTION>
Total E & D
Costs Level Permitted Reduction
----------- -------------------
<S> <C>
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
</TABLE>
**Permitted Reduction shall be determined in the sole discretion of
Company.
The total Exploration and Development Costs levels
and resultant ranges and escalation increments
provided for above are "Base Year" figures for fiscal
year 1996-1997, and shall be adjusted annually on a
compound basis beginning with the fiscal year
commencing April 1, 1997, according to the then
current Council of Petroleum Accountants Societies'
(COPAS) adjustment rate (based upon the percentage
increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers as of
April 1 as published by the United States Department
of Labor, Bureau of Labor Statistics).
The "Permitted Reduction" shall mean the percentage
by which Employee's Overriding Royalty Interest (both
before and after Payout) may be adjusted downward.
Each such adjustment shall determine Employee's
Overriding Royalty Interest for the fiscal year in
question, and shall be uniform on Prospects acquired
during that period (subject to paragraphs 9.5.1 and
9.5.3). Without limiting the foregoing, a Permitted
Reduction shall apply to any
Employment Agreement -- Gregory K. Harless
-29-
<PAGE> 30
Major Prospect subject to this Agreement that was
acquired by Company during such fiscal year, whether
or not an adjustment of Employee's Overriding Royalty
Interest in such Major Prospect shall have been made
pursuant to paragraph 9.5.3.
All leases acquired in those Prospects, whether
during the same fiscal year or thereafter, shall be
subject to the same Employee's Overriding Royalty
Interest established at the time the Prospect was
acquired, subject, however, to adjustment as provided
for in this paragraph 9. A Permitted Reduction in
Employee's Overriding Royalty Interest for a
particular fiscal year, however, shall not operate to
reduce Employee's Overriding Royalty Interest stated
in paragraph 9.2 in respect of any Prospects acquired
by Company in any subsequent fiscal year during the
term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploitation Prospects acquired by
Company during a fiscal year of
Company for which Company's estimate
of Exploration and Development Costs
incurred or to be incurred by
Company Group in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal year exceeds
$30 million through the end of the
respective primary development
periods for the fields comprising
such FPF/TLP Exploitation Prospects
(which periods, solely for purposes
of the adjustment provided for in
this paragraph, shall not exceed
five (5) years), an alternative
calculation will be made prior to
determining the applicable
"Permitted Reduction" of Employee's
Overriding Royalty Interest with
respect to such FPF/TLP Exploitation
Prospects. Such alternative
calculation shall be based upon the
assumptions that the total
Exploration and Development Costs to
be incurred by Company Group in
respect of all such FPF/TLP
Exploitation Prospects will be
incurred over a two (2) year period
and that such Exploration and
Development Costs will be in
addition to a "base level" of $70
million in Exploration and
Development Costs to be incurred by
Company Group exclusive of the
identified FPF/TLP Exploitation
Prospects. Such alternative
Exploration and Development Costs
level (the "alternative E & D Costs
level") shall be determined as
follows:
The alternative E & D Costs level
shall be the sum of:
Employment Agreement -- Gregory K. Harless
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<PAGE> 31
(i) One-half of Company's estimate
of Exploration and
Development Costs incurred or
to be incurred by Company
Group through the end of the
respective primary
development periods in
respect of all FPF/TLP
Exploitation Prospects
acquired in such fiscal year,
plus
(ii) $70 million.
The Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects (both before and after
Payout) may, in Company's sole
discretion, be reduced by the
greater of (x) the "Permitted
Reduction" percentage set forth in
the table above in this paragraph
for the actual "Total E & D Costs
Level" for such fiscal year and (y)
the "Permitted Reduction" percentage
set forth in the table above that
would be applicable if the "Total E
& D Costs Level" for such fiscal
year were equal to such "alternative
E & D Costs level".
If the Overriding Royalty Interest
set forth in paragraph 9.2 with
respect to such FPF/TLP Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two- thirds (before and after
Payout, respectively) of such
Overriding Royalty Interest set
forth in paragraph 9.2. Further, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploitation
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such FPF/TLP
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploitation Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout,
Employment Agreement -- Gregory K. Harless
-31-
<PAGE> 32
respectively) set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths.
9.5.2(b) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploitation Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, Company
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such Subsea Tieback
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such Subsea Tieback Exploitation
Prospect, would equal the Overriding
Royalty Interest percentage (before
and after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(c) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, Company may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding
Royalty Interest set forth in
paragraph 9.2. Further, if the
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths,
Employment Agreement -- Gregory K. Harless
-32-
<PAGE> 33
Company may, in its sole discretion,
further reduce such Overriding
Royalty Interest set forth in
paragraph 9.2 with respect to such
FPF/TLP Exploration Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times Company's Working Interest in
such FPF/TLP Exploration Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(d) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploration Prospects acquired by
Company during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploration Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths, Company may, in its sole
discretion, further reduce such
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploration
Prospect to a percentage (before and
after Payout, respectively) that,
when multiplied times Company's
Working Interest in such Subsea
Tieback Exploration Prospect, would
equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.3 With respect to any Major Prospect, Company may in
its sole discretion elect to adjust the Overriding
Royalty Interest set forth in paragraph 9.2,
effective as of the date of Company's acquisition of
such Major Prospect, as follows:
Employee's before-Payout interest shall be reduced
by the following formula:
<TABLE>
<C> <S>
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
-
Y
</TABLE>
Employment Agreement -- Gregory K. Harless
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<PAGE> 34
where "X" equals the total amount estimated by
Company for Exploration and Development Costs to be
incurred by Company Group in respect of such Major
Prospect through the end of the primary development
period for the field comprising such Major Prospect
(which period, solely for purposes of such adjustment
calculation, shall not exceed five (5) years), and
where "Y" equals $30 million.
Employee's after-Payout interest shall be increased
by adding thereto the full amount of the percentage
interest so deducted from Employee's before-Payout
interest until 2.5 times Payout is reached, at which
time Employee's after-Payout interest shall be
reduced by subtracting therefrom the same percentage
interest that was previously added thereto pursuant
to this sentence.
Such election may be made by Company whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been reduced pursuant to
paragraph 9.5.2. In the case of any such prior
reduction pursuant to paragraph 9.5.2, the term
"original before-Payout interest" as used above in
this paragraph shall refer to Employee's
before-Payout interest as previously reduced pursuant
to paragraph 9.5.2.
9.5.4 Notwithstanding anything contained herein to the
contrary, after an assignment is delivered to
Employee with respect to a Prospect pursuant to
paragraph 9.4, Company or its assigns may no longer
reduce or modify Employee's Overriding Royalty
Interest on any well in such Prospect without written
consent of Employee, except pursuant to paragraphs
9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3 in the
case only of assignments other than those delivered
pursuant to paragraphs 9.4.8(a), 9.4.8(b) and 9.4.9.
9.5.5 In no event may any party other than Company reduce
or modify Employee's Overriding Royalty Interest
without written consent of Employee.
9.5.6 Company shall give Employee written notice of any
adjustment made to Employee's Overriding Royalty
Interest pursuant to the provisions of paragraphs
9.5.1(b), 9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and
9.5.3 within one hundred twenty (120) days following
such adjustment.
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9.5.7 Upon request by Company, Employee shall execute and
deliver to Company such reassignments, transfer
orders, division orders, releases and other documents
deemed by Company to be necessary or appropriate to
evidence any modification, reduction or other
adjustment pursuant to this paragraph 9.5.
9.6 Company's Preferential Right to Purchase.
If at any time during the term or extended term of this
Agreement, or if within one (1) year from the expiration of
this Agreement, Employee receives and desires to accept an
offer for the purchase of a part or all of Employee's
Overriding Royalty Interest assigned pursuant to this
paragraph 9 (the portion or all of such Overriding Royalty
Interest covered by such offer to purchase being herein
sometimes called the "Offered Interest"), from a prospective
third party purchaser who is ready, willing and able to
purchase the same, then Employee shall have the right to sell
such Offered Interest, but only after complying with the
following terms and provisions:
9.6.1 The offer shall first be reduced to writing and
signed by Employee and the offeror. Employee shall
give Company written notice of his receipt of, and
his desire to accept, such written offer, together
with a copy of such written offer signed by the
prospective third party purchaser and containing all
of the terms and conditions of such offer. The date
such written notice is given to Company is herein
sometimes called the "Original Date."
9.6.2 Company shall thereafter have an option to purchase
the Offered Interest upon the same terms set forth in
said offer, which option may be exercised by written
notice thereof given to Employee within ten (10) days
after the Original Date.
9.6.3 If the Offered Interest is not purchased by Company
pursuant to the foregoing provisions of this
paragraph, then Employee shall have the right to sell
the Offered Interest to the prospective third party
purchaser named in such offer, provided that such
sale is consummated within thirty (30) days from the
expiration date of the option of Company created
hereby and provided that such sale is made in strict
conformity with the terms of such offer.
9.6.4 If, however, such sale of the Offered Interest does
not occur within such thirty-day period for the price
and upon the terms set forth in such offer, then any
sale of part or all of such Offered Interest
thereafter shall again be subject to the option to
purchase granted to Company under this paragraph 9.6.
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9.6.5 If Employee elects to take title to an Overriding
Royalty Interest in a legal entity other than himself
(which he may do only with Company's consent), such
entity shall take title subject to all of the terms
and conditions of this Agreement.
9.7 Additional Provisions Affecting Overriding Royalty
Interest.
In addition to the other provisions of this paragraph 9,
Employee's Overriding Royalty Interest shall be subject to the
following:
9.7.1 Notwithstanding anything to the contrary contained
herein, Employee shall not have the right to take in
kind or separately dispose of the production of oil
and gas attributable to his Overriding Royalty
Interest.
9.7.2 Employee's Overriding Royalty Interest shall also
apply to the production of oil and gas under the
terms and provisions of any renewal, extension or new
lease, to the extent such renewal, extension or new
lease covers all or any portion of any lands covered
by the expired lease which was subject to Employee's
Overriding Royalty Interest or is within the Prospect
plat, and provided, however, that any such renewal,
extension or new lease shall have been acquired by or
for the benefit of Company, either prior to or within
one (1) year after the expiration of the expired
lease.
9.7.3 Except as otherwise provided in this paragraph 9, in
no event shall Employee ever be liable or responsible
in any way for payment of any part of any
exploration, drilling or production costs or
liabilities incurred by Company or its assigns or
other lessees attributable to the lease or leases in
a Prospect or to the production therefrom, it being
the intent of the parties that Employee's Overriding
Royalty Interest shall constitute a non-participating
royalty interest for all purposes.
9.7.4 Company will conduct and carry on the development,
maintenance and operation of any lease subject to
Employee's Overriding Royalty Interest in a manner
which it deems in its sole judgment to be reasonable
and prudent and in accordance with good oil and gas
field practices, and it will drill such wells as it
deems proper in its sole judgment from time to time
in order to protect such lease from drainage;
provided, however, (a) nothing herein contained
shall obligate Company to conduct any drilling
operations whatsoever upon such lease, or to continue
to operate any well or to operate or maintain in
force or attempt to maintain in force such lease by
payment of delay rentals, compensatory royalties or
other payments or by the drilling of any wells upon
said lease, or in any
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other manner, and the extent and duration of all
operations, as well as the preservation of each of
such leases by delay rental payments or otherwise,
shall be solely at the will of Company, and (b)
Company shall have the right at any time to
surrender, abandon or otherwise terminate any such
lease in whole or in part without liability to
Employee.
9.7.5 Company shall have the right to sell all production
attributable to Employee's Overriding Royalty
Interest on the same basis upon which the production
attributable to Company's interest in the same
production is sold, and shall account to Employee on
that basis. In no event shall Employee be entitled
to receive payments for production attributable to
his Overriding Royalty Interest calculated on a basis
higher than that upon which Company's interest in the
same production is calculated or computed on a higher
price than that payable to Company on account of
production attributable to its interest, and in no
event shall Employee be entitled to receive payments
on amounts suspended by purchasers of the production
pending determination of the authorized price by
governmental entities. However, if Company sells any
such production to an affiliate of Company, the price
therefor shall not be less than would have been
reasonably obtainable in a sale to a non-affiliated
purchaser.
9.7.6 There shall be deducted from the production, before
Employee's Overriding Royalty Interest is computed,
any production lost in the production from the
leases, or any lands pooled therewith, or used for
drilling, operating, development or production or in
plant operations (including gas injection, secondary
recovery, pressure maintenance, repressuring, cycling
operations, plant fuel or shrinkage) conducted for
the purpose of producing or processing production
from lands covered by the leases or from any lands
pooled with the leases.
9.7.7 Company shall have the right and option, but not the
obligation, to process gas produced and saved from
the leases. If Company elects to process or have
processed, such gas in a gas processing plant or
other facility, whether or not owned by Company, then
in such event Employee shall be paid his percentage
share provided for herein of the proceeds of sale of
all gasoline or other liquid hydrocarbons or other
products manufactured or extracted from such gas as a
result of such processing (collectively, the
"Products"), less the costs of extraction or
manufacture (which may consist of a portion of the
Products). Company shall also pay to Employee the
same percentage share of the proceeds of sale of all
residue gas sold by Company, less expenses incurred
by Company in transporting any such gas to point of
delivery and for dehydration
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and/or compression of gas at or prior to such
delivery and other expenses and fees typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such gas is
produced).
9.7.8 Employee's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing
and transporting production from the leases or from
any lands pooled therewith which are typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by Company to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such production
is produced).
9.7.9 Employee's Overriding Royalty Interest shall also
bear its share of all ad valorem, production,
severance, sales, gathering and other taxes typically
borne by royalty owners (whether state, federal or
otherwise) assessed or levied on or in connection
with the Overriding Royalty Interest or the
production from the leases.
9.7.10 Company or its assigns shall have the right and
power, without any approval by Employee, to pool or
unitize any lease which is subject to Employee's
Overriding Royalty Interest, and to alter, change,
amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as
to all or any part of a Prospect, as to any one or
more of the formations or horizons thereunder, upon
such terms and provisions as Company shall in its
sole discretion determine. If and whenever through
the exercise of such right and power, or pursuant to
any law now existing or hereafter enacted, or any
rule, regulation or order of any governmental body
now or hereafter promulgated, any of the leases of
Company are pooled or unitized in any manner,
Employee's Overriding Royalty Interest shall also be
pooled and unitized, and in such event Employee's
Overriding Royalty shall only be paid on that portion
of the production from the unit or units so pooled,
which is attributable to said leases under and by
virtue of the pooling and unitization.
9.7.11 Company may withhold payment to Employee of any funds
attributable to Employee's Overriding Royalty
Interest which Company, in its sole discretion, deems
to be subject to a risk of refund or recoupment
pursuant to any rule, regulation or order of any
governmental authority or any adverse claims by third
parties. During such suspense period, Employee shall
not be entitled to interest on sums so withheld.
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9.7.12 In the event Company's Working Interest in any lease
in which Employee is entitled to an Overriding
Royalty Interest covers less than all of the full and
entire undivided interest in and to the land
described therein, and in and to all the oil and gas
rights relating thereto, then in that event the
Overriding Royalty Interest as to that portion of the
leased premises in which Company's Working Interest
in such lease does not cover such full and entire
undivided interest shall be reduced proportionately
(i.e., in the proportion that the undivided interest
in and to said land and oil and gas rights covered by
such lease bears to such full and entire undivided
interest).
9.7.13 Notwithstanding anything contained in this paragraph
9 to the contrary, Employee's Overriding Royalty
Interest in any Net Profit Share Lease ("NPSL") shall
be reduced at the same time and in the same
percentage as Company's net revenue interest in said
NPSL is reduced pursuant to the provisions of said
NPSL.
9.7.14 Company and Employee further undertake and agree
promptly to execute and deliver, upon request of
either party, all assignments, reassignments,
transfer orders, division orders, releases and any
other documents as may be necessary to implement this
paragraph 9 or otherwise to more fully assure to each
party the rights and interests of such party provided
for in this paragraph 9.
10. Insurance.
10.1 Employee shall be eligible for participation in such
insurance programs as Company shall institute from
time to time covering medical and dental expenses and
such life and accidental death and dismemberment
insurance programs as Company shall institute from
time to time. Payment of premiums for such coverages
shall be in accordance with Company policy covering
all employees as may be established from time to time
by Company. Employee shall also be eligible for
participation in such retirement, pension, deferred
compensation and other benefit programs the Company
shall initiate from time to time.
11. Outside Activities.
During the term or extended term of this Agreement, Employee
shall devote all of his working time, energy and talents to
the due discharge and performance of his duties hereunder, at
the direction and subject to the control of Company, and shall
perform such services and duties as shall reasonably be
required from him from time to time by Company.
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Employee agrees that he will not knowingly become involved in
a conflict of interest with Company or its subsidiaries, or
upon discovery thereof, allow such a conflict to continue.
Moreover, Employee agrees to provide Company a statement of
all other directorships Employee holds, with a brief
description of the business activities of each organization.
This statement shall be provided on or before December 31 of
each year. If, in the opinion of Company, a conflict of
interest exists between Company (and its affiliates) and the
organization in which the Employee holds a directorship,
Company can require Employee to resign the outside
directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed to
limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of the
issued and outstanding and publicly traded (on a recognized
national or regional securities exchange or in the
over-the-counter market) capital stock or other securities of
any corporation or other entity that conducts activities that
compete with the business of Company or any affiliate of
Company; or (ii) to invest, individually or with others, in
oil and gas prospects, subject, however, in the case of oil
and gas prospects to the following conditions:
12.1 Company must have first had the right and opportunity
to purchase all of the interest in any prospect made
available to Employee, even if this would preclude
Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made
available to Employee and have no desire to acquire
an additional interest, or declined to participate at
all in the prospect. If Company elects to
participate in less than the full interest made
available to Employee, Employee may invest in the
portion of such interest not acquired by Company.
12.3 Employee must purchase his interest in the oil and
gas prospect on terms which are no more favorable
than those made available to Company.
13. Disability During Employment.
If Employee shall become unable to perform his duties by
reason of disability, he shall be entitled to receive, in
addition to any insurance benefits he may receive, all of his
salary for the first one (1) month of his disability, and
one-half (1/2) of his salary for the next three (3) months of
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disability. Periods of disability shall not be cumulative so
long as they are separated by at least ninety (90) days of
continuous service.
The term "disability" shall mean disability which, in the
opinion of a doctor satisfactory to Company, renders Employee
unable to perform his duties hereunder as evidenced by such
doctor's certificate. The date disability commences shall be
the date Employee first absents himself from work during a
continuous period of disability.
14. Merger or Acquisition.
In the event Company should be acquired by or merged into
another company, by signature of Company's authorized
representatives, Company hereby agrees that this Employment
Agreement shall be binding upon Company, its successors and
assigns, and shall be disclosed to any party considering
merger with, or acquisition of, Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this
Agreement and the dispute cannot be settled through
direct discussions, Company and Employee agree that
they shall first endeavor to settle the dispute in an
amicable fashion. If such efforts fail to resolve
the dispute, the dispute shall, except as otherwise
provided in paragraph 19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2 below,
any and all claims, demands, cause of action,
disputes, controversies, and other matters in
question arising out of or relating to this
Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, even though some or all of
such claims allegedly are extracontractual in
nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, shall be
resolved by binding arbitration pursuant to
the Federal Arbitration Act in accordance
with the Commercial Arbitration Rules then in
effect with the American Arbitration
Association (the "AAA"). The arbitration
proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by
either party by providing to the other a
written notice of arbitration specifying the
claims, and the parties shall thereafter
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endeavor to agree on an arbitrator. If
within thirty (30) days of the notice of
initiation of the arbitration procedure, the
parties are unable to agree on an arbitrator,
the party requesting arbitration shall file a
request with the AAA that the Houston, Texas
office of the AAA provide a list of potential
arbitrators to both parties. The parties
shall thereafter have sixty (60) days to
select an arbitrator from such list, with
such selection to be by mutual agreement. If
the parties fail to select an arbitrator
within such time by mutual agreement, then
either party may request that the Chief Judge
of the U.S. District Court for the Southern
District of Texas appoint an arbitrator, and
any such appointment shall be binding. The
arbitrator, utilizing the Commercial
Arbitration Rules of the American Arbitration
Association, shall within 120 days of his or
her selection, resolve all disputes between
the parties. There shall be no transcript of
the hearings before the arbitrator. The
arbitrator's decision shall be in writing,
but shall be as brief as possible. The
arbitrator shall not assign the reasons for
his or her decision. The arbitrator's
decision shall be final and non-appealable to
the maximum extent permitted by law.
Judgment upon any award rendered in any such
arbitration proceeding may be entered by any
federal or state court having jurisdiction.
This agreement to arbitrate shall be
enforceable in either federal or state court.
The enforcement of this agreement to
arbitrate and all procedural aspects of this
agreement to arbitrate, including but not
limited to, the construction and
interpretation of this agreement to
arbitrate, the issues subject to arbitration
(i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver,
delay or defenses to arbitrability, and the
rules governing the conduct of the
arbitration, shall be governed by and
construed pursuant to the Federal Arbitration
Act and shall be decided by the arbitrator.
In deciding the substance of any such claims,
the arbitrator shall apply the substantive
laws of the State of Texas (excluding Texas
choice-of-law principles that might call for
the application of some other State's law);
provided, however, it is expressly agreed
that the arbitrator shall have no authority
to award treble, exemplary, or punitive
damages under any circumstances regardless of
whether such damages may be available under
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Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary,
or punitive damages in connection with any
such claims.
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the
event that either party wishes to seek a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief in connection with any or all such
claims, demands, cause of action, disputes,
controversies, and other matters in question
arising out of or relating to this Agreement,
any provision hereof, the alleged breach
thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, including disputes arising
out of a breach or alleged breach of
paragraph 4 or 16, even though some or all of
such claims allegedly are extra-contractual
in nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, each party shall
have the right to pursue such injunctive
relief in court, rather than by arbitration.
The parties agree that such action for a
temporary restraining order, a preliminary or
temporary injunction, or other injunctive
relief will be brought in the State or
federal courts residing in Houston, Harris
County, Texas.
15.2 The Company shall pay all costs and expenses of
Company and Employee (including, but not limited to,
attorneys' fees, the fees of the arbitrator and the
AAA and any other related costs) for any arbitration
proceeding or legal action; provided, however, that
if in any such arbitration proceeding or legal
action, the arbitrator or court, respectively,
determines that Employee has prosecuted or defended
any issue in such proceeding or action in bad faith,
the arbitrator or court, respectively, may allocate
the portion of such costs and expenses relating to
such issue between the parties in any other manner
deemed fair, equitable and reasonable by the
arbitrator or court, respectively.
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation and
benefits to be paid to Employee hereunder, and as an
additional incentive for Company to enter into this
Agreement, Company and Employee
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agree to the non-competition obligations hereunder.
Employee will not, directly or indirectly for
Employee or for others:
16.1.1 in any geographic area or market where
Company or any of its subsidiaries are
conducting any business as of the date of
termination of the employment relationship or
have during the previous twelve months
conducted such business, engage in any
business competitive with any such business;
or
16.1.2 in any geographic area or market where
Employee knew Company contemplated entering
any business as of the date of termination of
the employment relationship, but only if
Company had, as of such date, invested
significant resources toward entering into
such business in such geographic area or
market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise
assist, any other person, association, or
entity who is engaged, directly or
indirectly, in any business competitive with
Company's business within the parameters
described in paragraphs 16.1.1 and 16.1.2
above with respect to such competitive
business; or
16.1.4 induce any employee of Company or any of its
subsidiaries to terminate his or her
employment with Company or its subsidiaries,
or hire or assist in the hiring of any such
employee by any person, association, or
entity not affiliated with Company.
These non-competition obligations shall commence upon
the date of execution of this Agreement and extend
until the earlier of (a) the expiration of the term
of this Agreement (or any extended term) or (b) six
(6) months after termination of the employment
relationship; provided, however, that notwithstanding
anything contained in this paragraph 16 to the
contrary, such obligations shall only apply after the
termination of employment if the termination of
employment results from termination for Cause by
Company under paragraph 3.5 or voluntary termination
without Good Reason by Employee (it being understood
and agreed that termination of this Agreement by
Employee under paragraph 3.1 shall not, for purposes
of this paragraph 16, constitute voluntary
termination without Good Reason by Employee).
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16.2 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
businesses anywhere in the world during the period
provided for above, but acknowledges that Employee
will receive sufficiently high renumeration and other
benefits under this Agreement to justify such
restriction. Employee acknowledges that money
damages would not be sufficient remedy for any breach
of this Article by Employee, and Company shall be
entitled to enforce the provisions of this Agreement
and/or to specific performances and injunctive relief
as remedies for such breach or any threatened breach.
Such remedies shall not be deemed the exclusive
remedies for a breach of this Article, but shall be
in addition to all remedies available at law or in
equity to Company, including, without limitation, the
recovery of damages from Employee and Employee's
agents involved in such breach and remedies available
to Company pursuant to other agreements with
Employee.
16.3 It is expressly understood and agreed that Company
and Employee consider the restrictions contained in
this paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States
Foreign Corrupt Practices Act, generally codified in 15 USC 78
(FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo
contendere or admits civil or criminal liability under the
FCPA, or if a court finds that Employee committed an action
resulting in any Company entity having civil or criminal
liability or responsibility under the FCPA with knowledge of
the activities giving rise to such liability or knowledge of
facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were
likely to occur, such action or finding shall constitute Cause
for termination by Company under paragraph 3.5 of this
Agreement unless Company's Board of Directors determines that
the actions found to be in violation of the FCPA were taken in
good faith and in compliance with all applicable policies of
Company.
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18. Survival.
The provisions of paragraphs 4 and 16 shall survive any
termination of the employment relationship and/or of this
Agreement for the periods stated therein. The provisions of
paragraph 15 relating to arbitration shall survive any
termination of the employment relationship between Employee
and Company and the termination of this Agreement. Amounts,
compensation, rights and benefits which Employee is entitled
to receive or have accrued to Employee under this Agreement or
under any plan, program, arrangement, agreement or policy of
or with Company or any of its affiliates before, at or
subsequent to the termination of the employment relationship
between Employee and Company or the termination of this
Agreement shall not be superseded and shall survive any such
termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by Company or any of
its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions
being individually referred to herein as a "Payment,"
and any two or more of such payments or distributions
being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax,
and any interest in respect of such penalties,
additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"),
then Employee shall be entitled to receive an
additional payment or payments (individually referred
to herein as a "Gross-Up Payment" and any two or more
of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in
paragraph 19.11) imposed upon the Gross-Up Payment,
Employee retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
19.2 Subject to the provisions of paragraph 19.3 through
19.11, any determination (individually, a
"Determination") required to be made under this
paragraph 19, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment,
shall initially be made, at Company's expense, by
nationally recognized tax counsel mutually acceptable
to Company and Employee ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities,
calculations, and documentation both to Company and
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Employee within 15 business days of the termination
of Employee's employment, if applicable, or such
other time or times as is reasonably requested by
Company or Employee. If Tax Counsel makes the
initial Determination that no Excise Tax is payable
by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably
acceptable to Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any
Determination (a "Dispute") within 15 business days
after delivery of Tax Counsel's opinion with respect
to such Determination. The Gross-Up Payment, if any,
as determined pursuant to such Determination shall be
paid by Company to Employee within five business days
of Employee's receipt of such Determination. The
existence of a Dispute shall not in any way affect
Employee's right to receive the Gross-Up Payment in
accordance with such Determination. If there is no
Dispute, such Determination shall be binding, final
and conclusive upon Company and Employee, subject in
all respects, however, to the provisions of paragraph
19.3 through 19.11 below. As a result of the
uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have
been made by Company should have been made
("Underpayment"), and if upon any reasonable written
request from Employee or Company to Tax Counsel, or
upon Tax Counsel's own initiative, Tax Counsel, at
Company's expense, thereafter determines that
Employee is required to make a payment of any Excise
Tax or any additional Excise Tax, as the case may be,
Tax Counsel shall, at Company's expense, determine
the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by
Company to Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from
and against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of Employee resulting from any Final
Determination (as defined in paragraph 19.10) that
any Payment is subject to the Excise Tax.
19.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a claim
by Employee against Company under this paragraph 19
("Claim"), including, but not limited to, a claim for
indemnification of Employee by Company under
Employment Agreement -- Gregory K. Harless
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<PAGE> 48
paragraph 19.3, then such party shall promptly notify
the other party hereto in writing of such Claim ("Tax
Claim Notice").
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken
such action in connection with contesting such
Employee Claim as Company shall reasonably request in
writing from time to time, including the retention of
counsel and experts as are reasonably designated by
Company (it being understood and agreed by the
parties hereto that the terms of any such retention
shall expressly provide that Company shall be solely
responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and
the execution of powers of attorney, provided that:
19.5.1 within 30 calendar days after Company
receives or delivers, as the case may be, the
Tax Claim Notice relating to such Employee
Claim (or such earlier date that any payment
of the taxes claimed is due from Employee,
but in no event sooner than five calendar
days after Company receives or delivers such
Tax Claim Notice), Company shall have
notified Employee in writing ("Election
Notice") that Company does not dispute its
obligations (including, but not limited to,
its indemnity obligations) under this
Agreement and that Company elects to contest,
and to control the defense or prosecution of,
such Employee Claim at Company's sole risk
and sole cost and expense; and
19.5.2 Company shall have advanced to Employee on an
interest-free basis, the total amount of the
tax claimed in order for Employee, at
Company's request, to pay or cause to be paid
the tax claimed, file a claim for refund of
such tax and, subject to the provisions of
the last sentence of paragraph 19.7, sue for
a refund of such tax if such claim for refund
is disallowed by the appropriate taxing
authority (it being understood and agreed by
the parties hereto that Company shall only be
entitled to sue for a refund and Company
shall not be entitled to initiate any
proceeding in, for example, United States Tax
Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to
such advance or with respect to any imputed
income with respect to such advance; and
Employment Agreement -- Gregory K. Harless
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<PAGE> 49
19.5.3 Company shall reimburse Employee for any and
all costs and expenses resulting from any
such request by Company and shall indemnify
and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute,
at the sole cost, expense and risk of Company, such
Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by Company to a Final Determination;
provided, however, that (i) Company shall not,
without Employee's prior written consent, enter into
any compromise or settlement of such Employee Claim
that would adversely affect Employee, (ii) any
request from Company to Employee regarding any
extension of the statute of limitations relating to
assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the
contested issues involved in, and amount of, the
Employee Claim relate is limited solely to such
contested issues and amount, and (iii) Company's
control of any contest or proceeding shall be limited
to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in
his sole and absolute discretion, any other issue
raised by the Internal Revenue Service or any other
taxing authority. So long as Company is diligently
defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to
Company any information reasonably requested by
Company that relates to such Employee Claim, and
shall otherwise cooperate with Company and its
representatives in good faith in order to contest
effectively such Employee Claim. Company shall keep
Employee informed of all developments and events
relating to any such Employee Claim (including,
without limitation, providing to Employee copies of
all written materials pertaining to any such Employee
Claim), and Employee or his authorized
representatives shall be entitled, at Employee's
expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of
a tax claimed (pursuant to an Employee Claim) that
has been advanced by Company pursuant to paragraph
19.5.2 hereof, the extent of the liability of Company
hereunder with respect to such tax claimed has been
established by a Final Determination, Employee shall
promptly pay or cause to be paid to Company any
refund actually received by, or actually credited to,
Employee with respect to such tax (together with any
interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such
taxing authority related thereto), except to the
extent that any amounts
Employment Agreement -- Gregory K. Harless
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<PAGE> 50
are then due and payable by Company to Employee,
whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an
amount advanced by Company pursuant to paragraph
19.5.2, a determination is made by the Internal
Revenue Service or other appropriate taxing authority
that Employee shall not be entitled to any refund
with respect to such tax claimed and Company does not
notify Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30
days after such determination, then such advance
shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset,
to the extent thereof, the amount of any Gross-Up
Payments and other payments required to be paid
hereunder.
19.8 With respect to any Employee Claim, if Company fails
to deliver an Election Notice to Employee within the
period provided in paragraph 19.5.1 hereof or, after
delivery of such Election Notice, Company fails to
comply with the provisions of paragraph 19.5.2,
19.5.3 or 19.6 hereof, then Employee shall at any
time thereafter have the right (but not the
obligation), at his election and in his sole and
absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such Employee
Claim. Employee shall have full control of such
defense or prosecution and such proceedings,
including any settlement or compromise thereof. If
requested by Employee, Company shall cooperate, and
shall cause its affiliates to cooperate, in good
faith with Employee and his authorized
representatives in order to contest effectively such
Employee Claim. Company may attend, but not
participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph
19.8 and shall bear its own costs and expenses with
respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from
Company with respect to costs and expenses incurred
by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the
terms of this paragraph 19.9, Company shall pay, on a
fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such Employee Claim that have not
theretofore been paid by Company to Employee,
together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by
Company to Employee, within ten calendar days after
such Final Determination. In the case of any
Employee Claim not covered by the preceding sentence,
Employment Agreement -- Gregory K. Harless
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<PAGE> 51
Company shall pay, on a fully grossed-up after tax
basis, to Employee in immediately available funds the
full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim at
least ten calendar days before the date payment of
such taxes is due from Employee, except where payment
of such taxes is sooner required under the provisions
of this paragraph 19.9, in which case payment of such
taxes (and payment, on a fully grossed-up after tax
basis, of any costs and expenses required to be paid
under this paragraph 19.9 shall be made within the
time and in the manner otherwise provided in this
paragraph 19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim for
refund or credit in respect to an overpayment of tax
unless a suit is filed on a timely basis; or (D) any
final disposition by reason of the expiration of all
applicable statutes of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes), together
with any interest thereon, any penalties, additions
to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee
pursuant to this Agreement, whether by seeking other
employment or otherwise; nor shall the amount of any such
payment or other benefit be reduced on account of any
compensation earned by Employee as a result of employment by
another person or entity.
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended
except in writing and signed by Company and Employee.
This Agreement shall be binding upon the heirs,
administrators, or executors and the successors and
assigns of each party to this Agreement.
21.2 The rights and benefits of Employee under the
Agreement are personal to him and shall not be
assigned or transferred without
Employment Agreement -- Gregory K. Harless
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<PAGE> 52
the prior written consent of Company. Subject to the
foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
respective heirs, personal representatives,
successors and assigns.
21.3 All titles or headings of sections or paragraphs or
other divisions of this Agreement are only for the
convenience of the parties and shall not be construed
to have any effect or meaning with respect to the
other content of such sections or paragraphs or other
divisions, such content being controlling as to the
agreement between the parties hereto.
21.4 This Agreement is made and will be performed under,
and shall be governed by and construed in accordance
with, the law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO THIS
AGREEMENT THAT HE HAS READ THIS AGREEMENT BEFORE
SIGNING IT AND THAT HE FULLY UNDERSTANDS ITS
PURPOSES, TERMS AND PROVISIONS, WHICH HE HEREBY
EXPRESSLY ACKNOWLEDGED TO BE REASONABLE IN ALL
RESPECTS. EMPLOYEE FURTHER ACKNOWLEDGES RECEIPT OF
ONE COPY OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
580 Westlake Boulevard, Suite 1300
Houston, Texas 77079
Attention: President and Chief Executive Officer
If to Employee:
Gregory K. Harless
8019 Forest Breeze
Spring, Texas 77379
Company and Employee may change the above addresses
for notice purposes by notifying the other in
writing.
Employment Agreement -- Gregory K. Harless
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<PAGE> 53
21.7 The Company may withhold from any amounts payable
under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21.8 Except as otherwise expressly provided herein,
nothing contained in this Agreement shall limit or
otherwise affect any rights or benefits which are
vested in, accrued to, or earned by Employee, or for
which Employee is entitled to, prior to the Effective
Date whether under the Employment Agreement or
otherwise.
21.9 ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL
AGREEMENT DATED EFFECTIVE AS OF FEBRUARY 12, 1996,
BETWEEN COMPANY AND EMPLOYEE SHALL TERMINATE AND BE
FROM THE EFFECTIVE DATE NULL, VOID AND OF NO FURTHER
FORCE OR EFFECT WHATSOEVER.
Executed as of the Effective Date in duplicate originals at Houston,
Texas.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ ROBERT E. HENDERSON
--------------------------------
Printed Name: Robert E. Henderson
------------------------
Printed Title: President and Chief
------------------------
Executive Officer
------------------------
EMPLOYEE:
/s/ GREGORY K. HARLESS
---------------------------------------
Gregory K. Harless
Employment Agreement -- Gregory K. Harless
-53-
<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (hereinafter called this
"Agreement") is entered into effective as of June 27, 1996 (the "Effective
Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy Oil & Gas
USA Inc.) (hereinafter called "Company") and Clinton D. Smith (hereinafter
called "Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated March 1, 1989, which was thereafter amended on a number of
occasions (such Employment Agreement, as heretofore amended, being referred to
herein as the "Employment Agreement"); and
WHEREAS, Enron Capital & Trade Resources Corp., a Delaware corporation,
Mystery Acquisition, Inc., a Delaware corporation ("Parent"), Robert E.
Henderson, Richard R. Clark, Michael W. Strickler, and D. S. Huber, have
entered into that certain Stockholders' Agreement dated April 2, 1996 (the
"Stockholders Agreement"); and
WHEREAS, Section C.2(a) of the Stockholders Agreement provides that the
Employment Agreement will be amended and restated as set forth herein and
Company and Employee desire to so amend and restate the Employment Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as Vice President -
Operations of Company. The permanent place of Employee's
employment shall be at a location within a 50-mile radius of the
central business district of the City of Houston, Texas; provided,
however, Employee shall be required to undertake such ordinary and
usual travel as is necessary to properly discharge his duties and
responsibilities hereunder. Employee hereby accepts such
employment, and agrees to serve Company faithfully, diligently and
in a good and workmanlike manner.
2. Term.
The term of employment shall be for the period beginning a term of
three (3) years beginning on the Effective Date, subject, however,
to the provisions of paragraph 3.
3. Extension and Termination.
3.1 If either Employee or Company elects to terminate this
Agreement at the end of the term stated in paragraph 2, or
at the end of any
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 2
extended term hereof as hereinafter provided, notice of
the election to terminate shall be given to the other
party no later than six (6) months before the end of this
Agreement. If no notice is given by either party, the
term, or extended term, of this Agreement shall be deemed
to have been extended for an additional three (3) months.
3.2 In the event Company elects to terminate this Agreement as
provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary and other
benefits provided elsewhere in this Agreement for
Employee's services rendered to Company hereunder
through the end of such term or extended term.
3.2.2 Company shall pay to Employee, on or before the
last day of his employment hereunder, a lump sum
cash payment equal to six (6) months' salary at
Employee's monthly rate for the month immediately
preceding the month in which Company elects to
terminate this Agreement.
3.2.3 Company shall pay to Employee, on or before the
last day of his employment hereunder, a lump sum
cash payment for all (a) vacation time carried
forward from a previous year in accordance with
paragraph 8, and (b) all earned and unused
vacation time for the then current year. Earned
vacation time shall, for the purpose of this
paragraph, be calculated by dividing the number of
days in the calendar year which have transpired by
365, and then multiplying the result by the number
of vacation days to which Employee is entitled for
that year pursuant to paragraph 8.
3.2.4 If Employee has a leased automobile, the lease
payments on which are guaranteed by Company,
Employee shall have the option, to be exercised on
or before the last day of his employment
hereunder, of assuming the remaining lease
payments and retaining the automobile, or
assigning the lease agreement to Company in return
for Company's agreement to assume the remaining
lease payments.
3.2.5 Interests vested in Employee under paragraph 9 of
this Agreement shall be assigned in due course in
compliance with paragraph 9.4. Company and
Employee agree that the promises, covenants and
undertakings of paragraph 9 shall survive the
termination of employment of Employee and shall be
binding on all assigns of Company.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 3
3.3 In the event Employee elects to terminate this Agreement
as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the term,
or extended term hereof, unless waived by Company.
3.3.2 The provisions of paragraphs 3.2.1, 3.2.3, 3.2.4,
and 3.2.5 shall be applicable, but Employee shall
not be entitled to the payment provided for in
paragraph 3.2.2.
3.4 Company may at its option consent to a request by Employee
to terminate this Agreement at a time other than that
stated in paragraph 2, as extended, in which case the date
requested by Employee and agreed to by Company will be the
end of the term of this Agreement and the provisions of
paragraph 3.3 shall be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon written
notice of such termination to Employee by Company. Any
termination of this Agreement by Company for Cause shall
be effective thirty (30) days after written notice of
termination for Cause is given by Company to Employee. If
Company terminates this Agreement for Cause, Company shall
have no liability or obligation to Employee thereafter
under this Agreement except (i) for the payment of his
salary and other benefits through the month of discharge,
prorated in the case of salary for the month of discharge
on a daily basis to the date of termination, and (ii) that
the provisions of paragraph 3.2.5 shall be applicable. As
used in this Agreement, the term "Cause" means (a)
Employee is found guilty of, admits in writing facts
amounting to, or is held civilly liable for fraud,
embezzlement or dishonesty, (b) Employee is convicted of a
felony involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in good
faith determines that the continued employment of the
Employee would be materially detrimental to the Company
(in any case which felony through lapse of time or
otherwise is not subject to appeal), (c) Employee
knowingly discloses trade secrets or confidential Company
matters to unauthorized persons, (d) Employee willfully
breaches or habitually neglects any duties he is required
to perform under the terms of this Agreement and any such
breach or neglect is not cured within thirty (30) days
after Company has provided Employee with written notice of
such breach or neglect, (e) Employee materially breaches
any of the other material terms of this Agreement and any
such breach is not cured within thirty (30) days after the
Company has provided Employee with written notice of such
breach, and (f) the occurrence of an action or finding
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-3-
<PAGE> 4
described in paragraph 17, except as otherwise provided in
paragraph 17. The waiver by Company of a breach of any
provision of this Agreement by Employee shall not operate
or be construed as a waiver of any subsequent breach by
Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in paragraphs
3.1, 3.4 or 3.5 above, Employee shall be entitled to
receive on the date of such termination or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the month
immediately preceding the month in which such
termination or discharge occurs, for the unexpired
portion of the term or extended term hereof then
in effect.
3.6.2 The payments and other benefits provided for in
paragraphs 3.2.2, 3.2.3, 3.2.4 and 3.2.5 hereof.
3.7 In the event Employee terminates this Agreement for "Good
Reason" (as defined in paragraph 3.9), and prior to such
termination Employee has not terminated this Agreement
under paragraph 3.1 hereof, Employee shall be entitled to
receive from Company on the date of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in effect at
the effective time of such termination (but prior
to giving effect to any reduction therein which
precipitated such termination), for the unexpired
portion of the term or extended term hereof then
in effect.
3.7.2 A lump sum cash payment equal to six (6) months'
salary, at Employee's rate in effect at the time
of such termination (but prior to giving effect to
any reduction therein which precipitated such
termination).
3.7.3 The payments and other benefits provided for in
paragraphs 3.2.3, 3.2.4 and 3.2.5.
3.8 Any termination of this Agreement by Employee for Good
Reason shall be effective thirty (30) days after written
notice of termination for Good Reason is given by Employee
to Company
3.9 As used in this Agreement, the term "Good Reason" means
any one or more of the following events has occurred:
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-4-
<PAGE> 5
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's position
(including office, title and reporting
requirements), authority, duties or
responsibilities with Company or any other action
that results in a material diminution in, or
interference with, such position, authority,
duties or responsibilities, and any such
assignment or action is not cured within thirty
(30) days after Employee has provided Company with
written notice of such assignment or action;
3.9.2 The failure to continue to provide Employee with
office space, related facilities and support
personnel (including, but not limited to,
administrative and secretarial assistance) (a)
that are both commensurate with Employee's
responsibilities to and position with Company and
not materially dissimilar to the office space,
related facilities and support personnel provided
to other employees of Company having comparable
responsibility to that of Employee or (b) that are
physically located at Company's principal
executive offices, and any such failure is not
cured within thirty (30) days after Employee has
provided Company with written notice of such
failure;
3.9.3 Any (a) reduction in Employee's monthly salary as
established in paragraph 5 (including subsequent
increases), (b) reduction in, discontinuance of,
or failure to allow or continue to allow
Employee's participation in, the incentive
compensation program provided under paragraph 9
hereof, or (c) reduction in, or failure to allow
or continue Employee's participation in, any
employee benefit plan or program (except when such
benefit plan or program is replaced with another
benefit plan, program or arrangement that provides
Employee, in the aggregate, with reasonably
comparable benefits) in which Employee is
participating or is eligible to participate prior
to such reduction or failure (other than as a
result of the expiration of such plan or program),
and any such reduction, discontinuance or failure
is not cured within thirty (30) days after
Employee has provided Company with written notice
of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of Employee's
performance of his duties and responsibilities to
a location more than 50 miles outside of the
central business district of the City of Houston,
Texas; or
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-5-
<PAGE> 6
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2, 3.9.3, and
3.9.4) which is not cured within thirty (30) days
after Employee has provided Company with written
notice of such breach.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of this
Agreement, and for a period of four (4) years from the
date of termination of his employment hereunder, keep
secret and confidential and not disclose to any party not
a party to this Agreement, land or lease data, geological
or geophysical data, well data or any other information
which he may receive as a result of the performance of his
duties hereunder, except when disclosure is necessary for
the performance of his duties to Company hereunder. This
paragraph shall not apply to information that is in the
public domain through no action of Employee.
4.2 Upon termination of this employment hereunder, Employee
shall promptly deliver to Company all written information
and documents (whether confidential or not), and all
copies thereof, relating to Company's business and
activities and which are in the possession of or under the
control of Employee.
5. Salary.
As compensation for his services rendered to Company hereunder,
Company shall pay to Employee a salary at the rate of $10,958.33
per month. Employee's salary may be reviewed at such times as may
be determined by Company, and Company may at its discretion
increase this salary. Employee's salary shall be paid in two equal
monthly installments, payable on the fifteenth and last days of
each month (or on the first business day of Company thereafter if
any such payment date is not a business day of Company), subject to
any and all necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $250.00 dollars
per month to Employee. In addition to such monthly allowance,
Company shall pay, in accordance with Company policy, for all
gasoline, insurance and maintenance required for use of the
automobile.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 7
7. Business Expenses.
Employee is authorized to incur reasonable business expenses in
accordance with Company's policies as may be established from time
to time for promoting the business of Company, including
expenditures for entertainment and travel. Company shall reimburse
Employee from time to time for all such business expenses in
accordance with those policies adopted by Company which include,
but are not limited to, the requirement that Employee timely
present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom; and
7.4 The name and occupation of the person or persons
entertained to establish the business relationship with
Company.
With respect to any reimbursable business expense contemplated
above exceeding twenty-five dollars ($25.00), Employee will furnish
documentary evidence of such expense to Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of twenty
(20) days per calendar year at full pay. The timing and use of
such vacation days shall be requested by Employee and approved by
Company in accordance with its policy. Up to one week may be
carried over from year to year. Employee shall not be entitled to
receive payment in lieu of unused vacation time except as otherwise
provided herein. With prior approval, vacation may be deferred if
business matters keep Employee from taking his normal vacation.
9. Incentive Compensation.
9.1 Definitions.
An "AFFILIATE" of a specified person is any person that, directly
or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with that specified
person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-7-
<PAGE> 8
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated persons
(other than Joint Energy Development Investments Limited
Partnership ("JEDI") or an affiliate of Enron Corp.) shall
become the beneficial owner, directly or indirectly, of
66-2/3 percent or more of the outstanding Voting Stock of
Newco unless Newco becomes a subsidiary of an entity which
does not have a beneficial owner, directly or indirectly,
of 66 2/3 percent or more of the outstanding Voting Stock
of such entity (other than JEDI or an affiliate of Enron
Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person, if
as a result any person (other than JEDI or an affiliate of
Enron Corp.) shall become the beneficial owner, directly
or indirectly, of 66-2/3 percent or more of the
outstanding Voting Stock of Newco unless Newco becomes a
subsidiary of an entity which does not have a beneficial
owner, directly or indirectly, of 66-2/3 percent or more
of the outstanding Voting Stock of such entity (other than
JEDI or an affiliate of Enron Corp.), (y) any sale, lease,
exchange or other transfer of two-thirds or more of the
consolidated assets of Newco and its subsidiaries taken as
a whole in one transaction or a series of related
transactions whether by direct sale of assets, sale of
stock of a subsidiary or a merger involving any
subsidiary, or (z) the dissolution of Newco; or
(iii) Recognizing that the events described in
this clause and the events described in clause (ii) above
may not necessarily be mutually exclusive, any sale,
exchange or other transfer of two-thirds or more of the
outstanding Voting Stock of the Company or any sale,
lease, exchange or other transfer of two-thirds or more of
the consolidated assets of the Company and its
subsidiaries (if any) taken as a whole in one transaction
or a series of related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of Company or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates, Joint
Energy Development Investments Limited Partnership or any of its
affiliates, Enron Capital & Trade Resources Corp. or any of its
affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development Investments
Limited Partnership or any of its affiliates or Enron Capital
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-8-
<PAGE> 9
& Trade Resources Corp. or any of its affiliates for access to one
or more Working Interests of Company.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in such
Prospect acquired by Company and, for purposes of this paragraph 9,
shall include each portion thereof that Company may subsequently
transfer to another member of Company Group or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than 50
percent of the outstanding voting securities of a non-individual
person, (b) having the right, directly or indirectly, to more than
50 percent of the profits of a non-individual person, (c) having
the right, directly or indirectly, to more than 50 percent of the
assets of a non-individual person if it is dissolved or (d) having
the contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
"DEVELOPMENT ACREAGE" means the acreage within a Prospect covering
a known or inferred geologic structure upon which Company and/or
its joint working interest owners or a farmee of Company's Working
Interest in a Prospect have drilled a well capable of commercial
oil and/or gas production. Such acreage shall be deemed to be
Development Acreage from the surface of the earth down through the
deepest known productive horizon. The committee described in
paragraph 9.5.1(a), below, shall designate acreage within a
Prospect as Development Acreage based upon the most current
interpretation available at the time of designation.
"EFFECTIVE DATE" means the effective date of this amended and
restated Employment Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct, capital
costs actually incurred by Company Group in connection with
exploration and development of such Prospect or Prospects,
including, without limitation, all costs incurred in preparing for
drilling, drilling, testing, completing, equipping (including,
without limitation, installation of platforms, facilities and
pipelines and dry hole costs) and recompleting wells, all
geological and geophysical costs, and all leasehold costs
(including bonus, delay rentals and all other costs of acquiring
and maintaining in force the leases, or portions thereof or
undivided interests therein, included in such Prospects).
Exploration and Development Costs shall not include lease operating
expenses or general and administrative expenses of the Company
Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect which
has not been designated by the committee described in paragraph
9.5.1(a),
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-9-
<PAGE> 10
below, as either Development Acreage or a Producing Property
Acquisition. Exploratory Acreage shall not be limited as to depth
(except to the extent, if any, to which Company's Working Interest
therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing a
hydrocarbon reservoir which (a) exhibits a sufficient likelihood of
such hydrocarbon reservoir being economic, based on commercially
producible shows of hydrocarbons in a well drilled within such
reservoir, together with other geological and geophysical data and
interpretations, such that Company in its reasonable judgment plans
to develop such reservoir, and (b) is reasonably expected by
Company to be exploited and/or developed by utilizing a floating
production facility and/or a tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than an
FPF/TLP Exploitation Prospect) with respect to which Company
reasonably expects to utilize a floating production facility and/or
a tension leg platform in connection with operations to be
conducted on such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first well
drilled on such Prospect in which Company participates as a Working
Interest owner or with respect to which Company retains an
overriding royalty or other interest in oil and gas production from
such well.
"MAJOR PROSPECT" means any FPF/TLP Exploration Prospect, FPF/TLP
Exploitation Prospect, Subsea Tieback Exploration Prospect or
Subsea Tieback Exploitation Prospect with respect to which the
total amount estimated by Company for Exploration and Development
Costs to be incurred by Company Group (i.e., net to Company Group's
interest) through the end of the primary development period for the
field comprising such Prospect exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which provides
for sharing between lessor and lessee of the net profits or net
proceeds, as defined in said lease, from the sale of oil and/or gas
produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation, or
its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross production
of oil and gas under each oil and gas lease (or portion thereof)
included within a Prospect, which interest (except as herein
otherwise provided) shall be free of all costs of acquisition,
exploration, drilling, completing, equipping, operating and
developing any oil and gas produced from such lease.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-10-
<PAGE> 11
A "PARENT" of a specified person is another person that controls
such specified person directly or indirectly through one or more
intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue to
Company or its assigns from its interest in oil and gas production
from such well (after deduction of Company's or its assigns'
prorata part of the burden of (i) all landowners' royalties,
overriding royalties, net profits interests, production payments or
other burdens upon, measured by or payable out of such production
and (ii) all applicable ad valorem, production, severance, sales,
gathering, windfall profits excise and similar taxes) equals the
sum incurred by or for the account of Company or its assigns (x) in
preparing for drilling, drilling, testing, completing, equipping
(including, without limitation, installation of platforms,
facilities and pipelines), operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for such
well's allocable share of geological and geophysical costs,
leasehold costs and other common costs. "Leasehold costs" shall
mean payments for bonus, delay rentals, and all other costs of
acquiring from the landowners (or, in the case of an acquisition by
Company (but not any assignee of Company), from predecessors in
title to such leases) and maintaining in force the leases allocated
to the well. Leases "allocated" to a well shall mean the leases or
portions thereof or undivided interests therein to which production
from a well is attributed, whether on a lease or unit basis. With
respect to each such well, "common costs" shall mean capital costs
that are attributable to (a) such Prospect as a whole or (b) such
well and one or more other wells (but not all wells) on such
Prospect and shall include, without limitation, costs of drilling,
plugging and abandoning non- productive wells on such Prospect.
Each such well's allocable share of common costs shall be
determined by Company in any manner it deems appropriate from time
to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well and
each subsequent well drilled on a Prospect, the point in time at
which such revenue to Company or its assigns from its interest in
oil and gas production from such well, after such deductions
mentioned above, equals the product of 2.5 times the sum incurred
by or for the account of Company or its assigns (x) in preparing
for drilling, drilling, testing, completing, equipping, operating,
reworking and recompleting the well, and marketing the production
therefrom, and (y) for such well's allocable share of geological
and geophysical costs, leasehold costs and other common costs as
mentioned above.
A "PERSON" is an individual, a corporation, a trust, a partnership,
a limited liability company, an association or any other entity.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-11-
<PAGE> 12
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
Company during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves considered
proved under such lease or leases at the time of acquisition. A
Producing Property Acquisition shall include acquisition of such
leasehold interests even though Company may have previously
acquired interests in some or all of the same leases as a Prospect
acquisition (i.e., prior to the time such leases were considered to
contain proved oil and gas reserves). Company may in its sole
discretion designate a Producing Property Acquisition in whole or
in part as a Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by Company within the United
States and its coastal waters while Employee is employed by Company
and during the term or extended term of this Agreement covering
lands which in the sole opinion of Company may contain one or more
hydrocarbon accumulations capable of being commercially produced.
For purposes of this definition of Prospect, the acquisition of a
lease or leases shall mean the acquisition by Company of legal or
beneficial rights or interests in a lease or leases, including
(without limitation) contractual rights to acquire or earn a lease
or leases (whether by farmout agreement or otherwise, and whether
such contractual rights are subject to certain conditions such as
the drilling or completion of a commercial well, and without regard
to the results of the drilling or completion of any such well under
such contract). A Prospect shall not include a prospect acquired
by Company by merger or consolidation of Company with or into
another entity unless such prospect is so designated by Company.
A Prospect shall not include a Producing Property Acquisition
unless such Prospect is so designated by Company, and shall not
include leases included in a Prospect under previous Employee
Incentive Compensation Plans. All Prospects shall be deemed to be
without depth limitation unless the Company designates specified
depths only at the time said Prospect is initially acquired by
Company. Notwithstanding the date or dates on which leases in a
Prospect are actually acquired by Company, solely for purposes of
determining the employees of Company who are entitled to receive an
Overriding Royalty Interest therein, such leases, or portions
thereof or undivided interests therein, shall be deemed to have
been acquired by Company as of the date on which Company's
management approved such Prospect acquisition. In furtherance of
the foregoing, if any lease or leases, or portions thereof or
undivided interests therein, acquired by Company on or after April
18, 1996, but prior to the commencement of the term of this
Agreement, would constitute a "Prospect" under the foregoing
definition but for the fact that such lease or leases, or portions
thereof or undivided interests therein, were not acquired by
Company during the term of this Agreement, the same shall,
nevertheless, be
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-12-
<PAGE> 13
deemed to have been acquired by Company as of the commencement of
the term of this Agreement and shall constitute a Prospect for
purposes of this paragraph 9.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such hydrocarbon reservoir being economic, based on
commercially producible shows of hydrocarbons in a well drilled
within such reservoir, together with other geological and
geophysical data and interpretations, such that Company in its
reasonable judgment plans to develop such reservoir, and (b) is
reasonably expected by Company to be exploited and/or developed by
utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect (other
than a Subsea Tieback Exploitation Prospect) with respect to which
Company reasonably expects to utilize a subsea tieback system in
connection with operations to be conducted on such Prospect.
A "SUBSIDIARY" of a specified person is an entity controlled by
such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election of
directors thereof.
"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the costs and
expenses relating to the maintenance and development of, and
operations relating to, such lease and the well or wells associated
therewith.
9.2 Employee's Property Interest.
9.2.1 Subject to the other provisions of this paragraph 9,
Employee shall own, be immediately vested with, and be
entitled to receive the benefits of an Overriding Royalty
Interest equal to an undivided percentage of Company's
Working Interest, more specifically described below, in
each well on a Prospect and the lease or leases allocated
thereto, as follows:
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-13-
<PAGE> 14
EMPLOYEE: Clinton D. Smith
OVERRIDING ROYALTY INTEREST
IN
FPF/TLP EXPLORATION PROSPECTS,
FPF/TLP EXPLOITATION PROSPECTS,
SUBSEA TIEBACK EXPLORATION PROSPECTS
AND
SUBSEA TIEBACK EXPLOITATION PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.085937 0.343749
Group XV 5/16/96 and Thereafter 0.085937 0.343749
</TABLE>
OVERRIDING ROYALTY INTEREST
IN
ALL OTHER PROSPECTS
<TABLE>
<CAPTION>
GROUP TIME PERIOD BEFORE PAYOUT AFTER PAYOUT
----- ----------- ------------- ------------
<S> <C> <C> <C>
Group XIV 4/18/96-5/15/96 0.09375 0.37500
Group XV 5/16/96 and Thereafter 0.09375 0.37500
</TABLE>
At 7:00 a.m. on the first day of the month following the month in
which Payout of such well occurs, the Overriding Royalty Interest
shall increase from the applicable before-Payout percentage to the
applicable after-Payout percentage. Except as herein otherwise
expressly provided, references in this paragraph 9 to Employee's
"Overriding Royalty Interest" with respect to any Prospect shall
mean the applicable before-Payout and after-Payout percentages of
Company's Working Interest in such Prospect as set forth above.
9.2.2 Under previous Employee Incentive Compensation Plans, Employee has
received or is entitled to receive overriding royalty interests
("Existing ORIs") in certain prospects (the "Existing Prospects").
The Existing ORIs are equal to an undivided percentage of Company's
Working Interest, more specifically described below by Group and
Time Period during which Company acquired such Existing Prospects,
in each well on an Existing Prospect and the lease or leases
allocated thereto, as follows:
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-14-
<PAGE> 15
EMPLOYEE: Clinton D. Smith
<TABLE>
<CAPTION>
EXISTING ORI
------------
GROUP DATES BEFORE PAYOUT After Payout
----- ----- ------------- ------------
<S> <C> <C> <C>
GROUP I 4/1/87-9/3/87 -- --
GROUP II 9/4/87-10/31/87 -- --
GROUP III 11/1/87-7/16/88 -- --
GROUP IV 7/17/88-12/15/88 -- --
GROUP V 12/16/88-3/31/89 0.07500% 0.3000%
GROUP VI 4/1/89-9/24/90 0.07500% 0.3000%
GROUP VII 9/25/90-6/30/91 0.10000% 0.4000%
GROUP VIII 7/1/91-9/30/91 0.08750% 0.3500%
GROUP IX 10/1/91-2/14/93 0.10000% 0.4000%
GROUP X 2/15/93-6/30/93 0.10000% 0.4000%
GROUP XI 7/1/93-4/29/94 0.10000% 0.4000%
GROUP XII 4/30/94-3/31/95 0.10000% 0.4000%
GROUP XIII 4/1/95-4/17/96 0.10000% 0.4000%
</TABLE>
The provisions of paragraphs 9.4, 9.5, 9.6 and 9.7 shall apply to
the Existing ORIs in the Existing Prospects as fully as such
provisions apply to any Overriding Royalty Interest in a Prospect
to which Employee is entitled under this Agreement.
Mention is made that, effective June 1, 1996, the Company has
repurchased certain of the Existing ORIs from Employee as
contemplated by the Stockholders' Agreement referred to in
paragraph 9.5.1(a).
9.3 Governmental Filings.
Company will assist Employee in Filing an 83b Election with the
Internal Revenue Service on each Prospect, on a prospect by
prospect or lease by lease basis, as the case may be, denoting the
transfer to Employee of the Overriding Royalty Interest and stating
the value of such interest for the purposes at the time the
interest is acquired.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-15-
<PAGE> 16
9.4 Assignment of Overriding Royalty Interest.
Except as otherwise expressly provided in paragraphs 9.4.8 and
9.4.9, Employee shall not be entitled to obtain recordable
assignments of his interest under this paragraph 9 until his
completion of three years of employment by Company and, except as
otherwise expressly provided herein, Employee shall forfeit
ownership of such interest if Employee's employment is terminated
by Company pursuant to paragraph 3.5 or by Employee without Good
Reason as defined in paragraph 3.9, prior to the completion of such
three years of employment. Upon completion of three years of
employment of Employee by Company, Employee's ownership of
interests theretofore or thereafter transferred to him pursuant to
this Agreement will no longer be subject to forfeiture, and
assignments will be made in accordance with this paragraph 9.4.
Subject to the other provisions of this paragraph 9, Employee shall
be entitled to the revenue arising from his Overriding Royalty
Interest whether or not he is entitled to a recordable assignment.
Subject to the foregoing provisions of this paragraph 9.4 and to
the provisions of paragraph 9.5, as soon as practicable after the
end of each calendar quarter during the term or extended term of
this Agreement, Employee shall be entitled to receive recordable
assignments of his Overriding Royalty Interest in a lease or leases
(or portions thereof) acquired by Company in a Prospect during such
calendar quarter. If Employee's employment is terminated by
Company pursuant to paragraph 3.5 or by Employee without Good
Reason as defined in paragraph 3.9, during any such calendar
quarter, Employee shall not be entitled to receive recordable
assignments that would otherwise have been due under this paragraph
in respect of any lease or leases (or portions thereof) acquired by
Company in a Prospect during such calendar quarter or thereafter
(and Employee shall not own, be vested with or be entitled to
receive the benefits of any Overriding Royalty Interest that would
have been granted by such recordable assignments) unless the
termination is at the end of the term or extended term of this
Agreement. As soon as practicable after the end of each such
calendar quarter, Company shall provide Employee with the
following:
(a) A recordable assignment of his Overriding Royalty
Interest in the leases (or portions thereof)
acquired by Company in each Prospect during such
calendar quarter.
(b) A plat outlining the geographical limits of each
such Prospect. Company shall review each Prospect
plat each calendar quarter in light of drilling
activity on or near the Prospect, and expand the
plat boundary if new leases are acquired which
Company believes to contain a prospective
hydrocarbon accumulation that is located on the
same geological feature as such Prospect.
Employee shall be entitled to his Overriding
Royalty Interest in any lease
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-16-
<PAGE> 17
acquired by Company within the Prospect plat
boundary (and, to the extent provided in paragraph
9.7.2, in any renewal, extension or new lease
within the Prospect plat boundary) for as long as
such lease within the boundary remains in effect.
9.4.1 Upon execution and delivery of such recordable assignment
to Employee, Company shall record the assignment.
9.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, Company believes in good faith
that there is a substantial likelihood that it may be
necessary to exercise its discretion under paragraph 9.5
with respect to adjustment of Employee's Overriding
Royalty Interest in leases included within such Prospect,
Company may defer delivery of a recordable assignment of
Employee's Overriding Royalty Interest pending a
determination under paragraph 9.5.
9.4.3 Upon request by Company, Employee agrees to execute and
deliver any and all transfer orders, division orders and
other documents as may be necessary or appropriate to
cause all revenue attributable to his interest in a well
to be paid to Company on his behalf until delivery by
Company to Employee of a recordable assignment of his
interest in such well pursuant to this paragraph 9. In
such event, Company agrees promptly to process such funds
and pay all funds due Employee at the same time third
parties are paid revenue distributions from such well by
Company. After an assignment is delivered to Employee,
Company shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct payment
to Employee of all revenue attributable to his interest in
such well.
9.4.4. Subject to the last sentence of this paragraph 9.4.4,
Company or its assigns shall quarterly perform Payout
calculations on each well which has not reached Payout in
every Prospect so that payments to Employee may be made on
a proper before payout/after payout basis on each well in
every Prospect. Company or its assigns shall prepare a
quarterly Payout statement for each well within each
Prospect and shall provide Employee a copy of said
quarterly Payout statements within ninety (90) days
following the end of the quarter. If Company or its
assigns fails to provide said quarterly Payout statements
for any such well(s) to at least five (5) employees
(whether or not such employees include the Employee) who
are entitled to receive an Overriding Royalty Interest in
such well(s) pursuant to this Agreement and/or other
employment agreements with Company for a period of four
(4) consecutive quarters, any such employee (including
without limitation, the
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-17-
<PAGE> 18
Employee) may give Company written notice of said failure.
If Company or its assigns does not provide the overdue
quarterly Payout statements to each employee entitled to
same within thirty (30) days following receipt of such
notice, all wells within such Prospect which had
previously been considered before Payout pursuant to
paragraph 9.2 shall be deemed to be after Payout pursuant
to paragraph 9.2 as of the first day of the month
following the month in which the earliest delinquent
quarterly Payout statement should have been provided.
When Payout status is reached on a well, Company or its
assigns shall deliver notice of such event to Employee,
the operator of such well and each purchaser of production
from such well and Company or its assigns shall direct
such operator or purchaser of production (as appropriate)
to disburse future revenues attributable to Employee's and
Company's respective interests in such well on an
after-Payout basis. Notwithstanding the foregoing, if
Employee's Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph 9 so
as to be the same percentage before and after Payout of
such well, then the provisions of this paragraph 9.4.4
shall no longer apply from and after the date of such
adjustment.
9.4.5 Should Employee be married or divorced at such time as
Employee earns the right to have an Overriding Royalty
Interest assigned to him hereunder, Company shall have no
obligation to make assignments to Employee's spouse/or
former spouse. Any division of community property shall
be the responsibility of Employee.
9.4.6 All interests assigned by Company to Employee shall be
subject to the terms, conditions and provisions of (a) any
joint operating agreement at any time theretofore or
thereafter entered into by Company or its assigns with
other Working Interest owners covering any of the leases
affected by the Overriding Royalty Interest herein
provided for, and (b) any farm-out or other agreements
under which Company acquires or may acquire its interest
in the leases; including, particularly, by way of
illustration and not by way of limitation, (i) any
provision of an applicable farm-out agreement requiring
reduction of Company's interest in the leases after
"payout" of an earning well or wells thereunder, in which
event Employee's Overriding Royalty in such leases shall
be proportionately reduced, and (ii) any provision
requiring forfeiture of interest for nonparticipation,
recoupment of multiple recovery costs and the like to the
extent that Company would forfeit its Working Interest for
nonparticipation either forever or until recoupment of
drilling and/or operating costs by the third parties
electing to participate, or such other like reason; and in
the event any such provisions come into effect, Employee's
Overriding
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-18-
<PAGE> 19
Royalty in such leases shall be suspended until such time,
if ever, as such multiple recovery of costs by the
participating leasehold owners has been recovered or such
other cause for suspension is removed and such Working
Interest of Company is reinstated, at which time
Employee's Overriding Royalty shall be so reinstated.
All interests assigned by Company to Employee shall be
subject to the terms, conditions and provisions of the
leases, any assignments and/or subleases thereof
theretofore made or agreed to be made by Company, and any
amendments or modifications of the leases, theretofore or
thereafter made, and Employee agrees that any such
amendments or modifications may be made without the
consent or joinder of Employee.
9.4.7 Company or its assigns shall not have the right to sell,
assign, farmout, convey or otherwise encumber Employee's
Overriding Royalty Interest, except as otherwise provided
in this paragraph 9.
9.4.8(a) Except as otherwise provided in the fifth
sentence of paragraph 9.4, and
notwithstanding anything (other than such
fifth sentence of paragraph 9.4)
contained herein to the contrary, if,
after the Effective Date and during the
term or extended term hereof, there shall
have been a Change in Control, then
Employee shall be entitled to receive
recordable assignments of his Overriding
Royalty Interest, adjusted in the manner
described hereinbelow, in any lease or
leases (or portions thereof or undivided
interests therein) theretofore acquired
by Company and not yet assigned during
the term or extended term hereof and,
upon subsequent acquisition by Company,
in any lease or leases (or portions
thereof or undivided interests therein)
thereafter acquired by Company, in all
Prospects acquired by Company prior to
such Change in Control (without regard to
whether or not Employee has then
completed three years of employment by
Company). Said Overriding Royalty
Interest shall be assigned in the
following manner:
Employee's after-Payout interest shall be
reduced to one-half of Employee's
after-Payout interest stated in paragraph
9.2 (as such after-Payout interest stated
in paragraph 9.2 may have previously been
reduced pursuant to other provisions of
this paragraph 9) and Employee's
before-Payout interest shall be increased
to twice Employee's before-Payout
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-19-
<PAGE> 20
interest stated in paragraph 9.2 (as such
before-Payout interest stated in
paragraph 9.2 may have previously been
reduced pursuant to other provisions of
this paragraph 9) with the result that
Employee's interests before and after
Payout shall be equal.
9.4.8(b) Except as otherwise provided in the fifth
sentence of paragraph 9.4, and
notwithstanding anything (other than such
fifth sentence of paragraph 9.4)
contained herein to the contrary, if,
after the Effective Date and during the
term or extended term hereof, the
Company's Working Interest in any
Prospect is sold, transferred or conveyed
to the holder of any indebtedness of the
Company or of Newco or of any parent or
subsidiary of the Company or Newco, or to
any unaffiliated third party, by or
pursuant to a foreclosure of any mortgage
or other security interest therein
securing such indebtedness or any part
thereof or by transfer or conveyance in
lieu of such foreclosure, then Employee
shall be entitled to receive, prior to
the consummation of such sale, transfer
or conveyance, a recordable assignment of
his Overriding Royalty Interest, adjusted
in the manner described in paragraph
9.4.8(a), in any lease or leases (or
portions thereof or undivided interests
therein) theretofore acquired by Company
and not yet assigned during the term or
extended term hereof and, upon subsequent
acquisition by Company, in any lease or
leases (or portions thereof or undivided
interests therein) thereafter acquired by
Company, in all Prospects acquired by
Company prior to such sale, transfer or
conveyance (without regard to whether or
not Employee has then completed three
years of employment by Company).
9.4.9 Except as otherwise provided in the fifth sentence of
paragraph 9.4, and notwithstanding anything (other than
such fifth sentence of paragraph 9.4) contained herein to
the contrary, if, during the term or extended term hereof,
all or substantially all of the Company's Working
Interests in all or substantially all Exploratory Acreage
then owned by the Company are sold, transferred or
conveyed to an unaffiliated third party, then Employee
shall be entitled to receive, prior to the consummation of
such sale, transfer or conveyance, recordable assignments
of his Overriding Royalty Interest, adjusted in the manner
described in paragraph 9.4.8(a), in all leases (or
portions thereof or undivided interests therein) that
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 21
cover and include such Exploratory Acreage not yet
assigned during the term or extended term hereof (without
regard to whether or not Employee has then completed three
years of employment by Company).
9.5 Retained Company Discretion
9.5.1 Employee and Company recognize that in instances where all
or a portion of Company's Working Interest in a lease or
leases will be sold or farmed out to unaffiliated third
parties, Employee's Overriding Royalty Interest might in
some circumstances have a negative effect on the
marketability of Company's Working Interest to third
parties. In such cases, Company will in good faith
attempt to transfer Company's Working Interest subject to
Employee's Overriding Royalty Interest provided for in
this paragraph 9; provided, however, if, in Company's good
faith judgment, Company's Working Interest cannot be sold
or farmed out subject to Employee's Overriding Royalty
Interest, Company may elect to adjust Employee's
Overriding Royalty Interest as hereinafter provided.
9.5.1(a) The Board of Directors of Company shall
designate a committee of not less than
three individual persons employed by
Company, at least half of whom has been
granted an employee Overriding Royalty
Interest by Company, to exercise
discretion on behalf of Company in
reducing or modifying, pursuant to this
paragraph 9.5.1 only, the Overriding
Royalty Interests provided for in this
paragraph 9; provided, however, that the
Board of Directors of the Company shall
have the right to designate a non-voting
member of such committee, who may be a
director of the Company or otherwise, and
such member shall have the right to
participate in all meetings of such
committee (and shall receive reasonable
advance notice of any such meetings) and
shall be entitled to the same information
as is available to the other members of
the committee. Such committee shall make
all decisions under this paragraph 9.5.1
subject to obtaining the approval of the
Board of Directors of Company where such
approval is required under the provisions
of this paragraph 9.5.1. Any decision
made by the committee shall require the
approval of a majority of the members of
the committee. Any change to this
paragraph 9.5.1(a) shall require the
approval of the Board of Directors of the
Company and a majority of the Management
Directors (as that
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 22
term is defined in the Stockholders'
Agreement dated April 2, 1996, between
Enron Capital & Trade Resources Corp.,
Newco and certain employees of and
consultants to the Company, as it may be
amended from time to time) who became
stockholders pursuant to Section B.1 of
that agreement.
9.5.1(b) With respect to any Prospect on which no
initial Well has been drilled and no
assignments of Overriding Royalty
Interests have been made to Employee, the
committee may modify or reduce the
Overriding Royalty Interest of Employee
in leases included within such Prospect
in any manner necessary in the good faith
judgment of the committee to make an
interest in such Prospect saleable to any
person not in Company Group; provided,
however, in connection with any sale by
Company of an interest in such Prospect
to any such person, Employee's Overriding
Royalty Interest shall be reduced to zero
unless the committee recommends a lesser
reduction and such recommendation is
approved by the Board of Directors of
Company. Such modification or reduction
shall apply only to the interest sold to
such a person, and shall not affect the
interest retained by the Company. Any
reduction or exercise of discretion by
Company under this paragraph shall be
applied proportionately to all
participants who are entitled to receive
from Company an Overriding Royalty
Interest in leases included within such
Prospect.
9.5.1(c) With respect to any Prospect on which the
Initial Well has been drilled and which
Prospect has not been determined by
Company to be capable of producing oil
and/or gas, should Company desire to sell
all or any portion of its Working
Interest in such Prospect to unaffiliated
third parties, the committee may adjust
the Overriding Royalty Interest of
Employee in leases included within such
Prospect in the following manner:
Employee's after-Payout interest shall be
reduced to one-half of Employee's
after-Payout interest stated in paragraph
9.2 (as such after-Payout interest stated
in paragraph 9.2 may have previously been
reduced pursuant to other provisions of
this paragraph 9) and Employee's
before-Payout interest shall be
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 23
increased to twice Employee's
before-Payout interest stated in
paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may have
previously been reduced pursuant to other
provisions of this paragraph 9), with the
result that Employee's interests before
and after Payout shall be equal.
Such adjustment shall apply only to the
interest sold to unaffiliated third
parties, and shall not affect the
interest retained by Company. Any
exercise of discretion by Company under
this paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in leases
included within such Prospect.
Notwithstanding anything contained herein
to the contrary, if, after the Effective
Date and during the term or extended term
hereof, there shall have been a Change in
Control, then neither Company nor the
person acquiring the control shall have
any right to make the adjustment
described above in this paragraph
9.5.1(c).
Notwithstanding anything contained herein
to the contrary, if, after the Effective
Date and during the term or extended term
hereof, the Company's Working Interest in
any Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of Newco
or of any parent or subsidiary of the
Company or Newco, or to any unaffiliated
third party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing such
indebtedness or any part thereof or by
transfer or conveyance in lieu of such
foreclosure, then such holder or other
third party shall not have any right to
make the adjustment described above in
this paragraph 9.5.1.(c).
9.5.1(d) With respect to any Prospect which has
not been determined by Company to be
capable of producing oil and/or gas, and
regardless of whether or not the Initial
Well has been drilled thereon, should
Company desire to farmout all or any
portion of its Working Interest in such
Prospect to unaffiliated third parties,
the committee shall (unless the committee
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 24
recommends otherwise and the Board of
Directors approves such recommendation)
adjust the Overriding Royalty Interest of
Employee in leases included within such
Prospect in the following manner:
Employee's Overriding Royalty Interest
shall be calculated by multiplying
Employee's percentage interests stated in
paragraph 9.2 above (as such interests
may have previously been reduced pursuant
to other provisions of this paragraph 9)
by Company's overriding royalty interest
set forth in the particular farmout
agreement for said Prospect, for and
during the period of time in which
Company receives such overriding royalty
interest.
To the extent, if any, that Company's
overriding royalty interest set forth in
such farmout agreement converts to a
Working Interest in such Prospect
(whether by election of Company or
otherwise), then, from and after such
conversion, Employee's Overriding Royalty
Interest shall be based upon such Working
Interest of Company pursuant to paragraph
9.2 above; provided, however, if pursuant
to such farmout agreement, only a portion
of Company's overriding royalty interest
converts to a Working Interest and
Company retains, following such
conversion, some overriding royalty
interest in addition to such Working
Interest, Employee shall be entitled to
receive, as part of Employee's Overriding
Royalty Interest based upon Company's
Working Interest, an interest equal to
the percentage stated in paragraph 9.2
above (as such interest may have
previously been reduced pursuant to other
provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to the
interest farmed out to unaffiliated third
parties, and shall not affect the
interest retained by Company. Any
exercise of discretion by Company under
this paragraph shall be applied in like
manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in leases
included within such Prospect.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-24-
<PAGE> 25
With respect to each well drilled on the
Prospect by a farmee of Company's Working
Interest and solely for the purpose of
this paragraph 9.5.1 (d), Payout shall be
defined as the point in time at which the
revenue to Company from its interest in
oil and gas production from such well
(after deduction of Company's prorata
part of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production payments or
other burdens upon, measured by or
payable out of such production and (ii)
all applicable ad valorem, production,
severance, sales, gathering, windfall
profits excise and similar taxes) equals
the sum incurred by or for the account of
Company (x) in preparing for drilling,
drilling, testing, completing, equipping
(including, without limitation,
installation of platforms, facilities and
pipelines), operating, reworking and
recompleting the well, and marketing the
production therefrom, and (y) for such
well's allocable share of geological and
geophysical costs, leasehold costs, all
other costs of acquiring and maintaining
in force the leases allocated to the well
and other common costs. Leases
"allocated" to a well and "common costs"
shall have the respective meanings
ascribed thereto in the definition of
"Payout" set forth in paragraph 9.1.
Notwithstanding anything contained herein
to the contrary, if, after the Effective
Date and during the term or extended term
hereof, there has been a Change in
Control, then neither Company nor the
person acquiring the control shall have
any right to make the adjustment
described above in this paragraph
9.5.1(d).
Notwithstanding anything contained herein
to the contrary, if, after the Effective
Date and during the term or extended term
hereof, the Company's Working Interest in
any Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of Newco
or of any parent or subsidiary of the
Company or Newco, or to any unaffiliated
third party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing such
indebtedness or any part thereof or by
transfer or conveyance in lieu of such
foreclosure, then such holder or other
third party shall not have any right to
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-25-
<PAGE> 26
make the adjustment described above in
this paragraph 9.5.1.(d).
9.5.1(e) With respect to any Prospect on which the
Initial Well has been drilled and which
Prospect has been determined by Company
to be capable of producing oil and/or
gas, should Company desire to sell or
farmout all or any portion of its Working
Interest in such Prospect to unaffiliated
third parties, the committee shall
categorize geographical areas of the
leases comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the Company's
Working Interest in any such Development
Acreage will be made subject to
Employee's Overriding Royalty Interest
provided for in paragraph 9.2 hereinabove
(as such interest may have previously
been adjusted pursuant to other
provisions of this paragraph 9);
provided, however, with respect to each
well drilled on the Prospect by a
purchaser or farmee or their assigns of
Company's Working Interest, and solely
for the purpose of this paragraph
9.5.1(e), Payout shall be defined as the
point in time at which the revenue to
purchaser or farmee or their assigns from
its or their interest purchased or farmed
in from Company in oil and/or gas
production from such well (after
deduction of purchaser's or farmee's
prorata part of the burden of (i) all
landowners' royalties, overriding
royalties, net profits interests,
production payments or other burdens
upon, measured by or payable out of such
production and (ii) all applicable ad
valorem, production, severance, sales,
gathering, windfall profits excise and
similar taxes) equals the sum incurred by
or for the account of purchaser or farmee
or their assigns in preparing for
drilling, drilling, testing, completing,
equipping, operating, reworking and
recompleting the well, and marketing the
production therefrom.
With respect to the Company's Working
Interest in Exploratory Acreage to be
sold by Company, the committee may adjust
the Overriding Royalty Interest of
Employee in the following manner:
Employee's after-Payout interest shall be
reduced to one-half of Employee's
after-Payout
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-26-
<PAGE> 27
interest stated in paragraph 9.2 (as such
after-Payout interest stated in paragraph
9.2 may have previously been reduced
pursuant to other provisions of this
paragraph 9) and Employee's before-Payout
interest shall be increased to twice
Employee's before-Payout interest stated
in paragraph 9.2 (as such before-Payout
interest stated in paragraph 9.2 may have
previously been reduced pursuant to other
provisions of this paragraph 9), with the
result that Employee's interests before
and after Payout shall be equal.
With respect to the Company's Working
Interest in Exploratory Acreage to be
farmed out by Company, the committee
shall (unless the committee recommends
otherwise and the Board of Directors
approves such recommendation) adjust the
Overriding Royalty Interest of Employee
in the following manner:
Employee's Overriding Royalty Interest
shall be calculated by multiplying
Employee's percentage interests stated in
paragraph 9.2 above (as such interests
stated in paragraph 9.2 may have
previously been reduced pursuant to other
provisions of this paragraph 9) by
Company's overriding royalty interest set
forth in the particular farmout agreement
for said Prospect, for and during the
period of time in which Company receives
such overriding royalty interest.
To the extent, if any, that Company's
overriding royalty interest set forth in
such farmout agreement converts to a
Working Interest in such Prospect
(whether by election of Company or
otherwise), then, from and after such
conversion, Employee's Overriding Royalty
Interest shall be based upon such Working
Interest of Company pursuant to paragraph
9.2 above; provided, however, if pursuant
to such farmout agreement, only a portion
of Company's overriding royalty interest
converts to a Working Interest and
Company retains, following such
conversion, some overriding royalty
interest in addition to such Working
Interest, Employee shall be entitled to
receive, as part of Employee's Overriding
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-27-
<PAGE> 28
Royalty Interest and in addition to such
Overriding Royalty Interest based upon
Company's Working Interest, an interest
equal to the percentage stated in
paragraph 9.2 above (as such interest may
have previously been reduced pursuant to
other provisions of this paragraph 9)
multiplied by Company's retained
overriding royalty interest.
Such adjustment shall apply only to the
interest sold or farmed out to
unaffiliated third parties, and shall not
affect the interest retained by Company.
Any exercise of discretion by Company
under this paragraph shall be applied in
like manner to all participants who are
entitled to receive from Company an
Overriding Royalty Interest in leases
included within such Prospect.
Notwithstanding anything contained herein
to the contrary, if, after the Effective
Date and during the term or extended term
hereof, there shall have been a Change in
Control, then neither Company nor the
person acquiring the control shall have
any right to make the adjustment
described above in this paragraph
9.5.1(e).
Notwithstanding anything contained herein
to the contrary, if, after the Effective
Date and during the term or extended term
hereof, the Company's Working Interest in
any Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the Company or of Newco
or of any parent or subsidiary of the
Company or Newco, or to any unaffiliated
third party, by or pursuant to a
foreclosure of any mortgage or other
security interest therein securing such
indebtedness or any part thereof or by
transfer or conveyance in lieu of such
foreclosure, then such holder or other
third party shall not have any right to
make the adjustment described above in
this paragraph 9.5.1.(e).
If any of the events set forth in the two
immediately preceding sentences hereof
should occur, such that the adjustment
described above in this paragraph
9.5.1(e) with respect to the Overriding
Royalty Interest of Employee in leases in
such Exploratory Acreage is precluded
from occurring as provided above, then,
with respect to each well drilled on such
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-28-
<PAGE> 29
Exploratory Acreage by a purchaser or
farmee or their assigns of Company's
Working Interest, and solely for purposes
of this paragraph 9.5.1(e), Payout shall
be defined as set forth above in this
paragraph 9.5.1(e).
9.5.2 Within sixty (60) days after the end of each fiscal year
of Company, Company may in its sole discretion elect to
reduce the Overriding Royalty Interest set forth in
paragraph 9.2 with respect to Prospects subject to this
Agreement that were acquired by Company during such fiscal
year (which election, if timely made as above provided,
shall be effective as of the beginning of such fiscal
year) based on actual Exploration and Development Costs
incurred by Company Group during such fiscal year in
respect of all Prospects subject to this Agreement, as
follows (with linear interpolation between indicated
levels of costs):
<TABLE>
<CAPTION>
Total E & D
Costs Level Permitted Reduction
----------- -------------------
<S> <C>
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
</TABLE>
**Permitted Reduction shall be determined in the sole discretion of Company.
The total Exploration and Development Costs levels and
resultant ranges and escalation increments provided for
above are "Base Year" figures for fiscal year 1996-1997,
and shall be adjusted annually on a compound basis
beginning with the fiscal year commencing April 1, 1997,
according to the then current Council of Petroleum
Accountants Societies' (COPAS) adjustment rate (based upon
the percentage increase or decrease in the average weekly
earnings of Crude Petroleum and Gas Production Workers as
of April 1 as published by the United States Department of
Labor, Bureau of Labor Statistics).
The "Permitted Reduction" shall mean the percentage by
which Employee's Overriding Royalty Interest (both before
and after Payout) may be adjusted downward. Each such
adjustment shall determine Employee's Overriding Royalty
Interest for the fiscal year in question, and shall be
uniform on Prospects acquired during that period (subject
to paragraphs 9.5.1 and 9.5.3). Without limiting the
foregoing, a Permitted Reduction shall apply to any
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-29-
<PAGE> 30
Major Prospect subject to this Agreement that was acquired
by Company during such fiscal year, whether or not an
adjustment of Employee's Overriding Royalty Interest in
such Major Prospect shall have been made pursuant to
paragraph 9.5.3.
All leases acquired in those Prospects, whether during the
same fiscal year or thereafter, shall be subject to the
same Employee's Overriding Royalty Interest established at
the time the Prospect was acquired, subject, however, to
adjustment as provided for in this paragraph 9. A
Permitted Reduction in Employee's Overriding Royalty
Interest for a particular fiscal year, however, shall not
operate to reduce Employee's Overriding Royalty Interest
stated in paragraph 9.2 in respect of any Prospects
acquired by Company in any subsequent fiscal year during
the term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing provisions
of this paragraph 9.5.2, with respect to
any FPF/TLP Exploitation Prospects
acquired by Company during a fiscal year
of Company for which Company's estimate
of Exploration and Development Costs
incurred or to be incurred by Company
Group in respect of all FPF/TLP
Exploitation Prospects acquired in such
fiscal year exceeds $30 million through
the end of the respective primary
development periods for the fields
comprising such FPF/TLP Exploitation
Prospects (which periods, solely for
purposes of the adjustment provided for
in this paragraph, shall not exceed five
(5) years), an alternative calculation
will be made prior to determining the
applicable "Permitted Reduction" of
Employee's Overriding Royalty Interest
with respect to such FPF/TLP Exploitation
Prospects. Such alternative calculation
shall be based upon the assumptions that
the total Exploration and Development
Costs to be incurred by Company Group in
respect of all such FPF/TLP Exploitation
Prospects will be incurred over a two (2)
year period and that such Exploration and
Development Costs will be in addition to
a "base level" of $70 million in
Exploration and Development Costs to be
incurred by Company Group exclusive of
the identified FPF/TLP Exploitation
Prospects. Such alternative Exploration
and Development Costs level (the
"alternative E & D Costs level") shall be
determined as follows:
The alternative E & D Costs level shall
be the sum of:
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 31
(i) One-half of Company's estimate of
Exploration and Development Costs
incurred or to be incurred by
Company Group through the end of
the respective primary
development periods in respect of
all FPF/TLP Exploitation
Prospects acquired in such fiscal
year, plus
(ii) $70 million.
The Overriding Royalty Interest set forth
in paragraph 9.2 with respect to such
FPF/TLP Exploitation Prospects (both
before and after Payout) may, in
Company's sole discretion, be reduced by
the greater of (x) the "Permitted
Reduction" percentage set forth in the
table above in this paragraph for the
actual "Total E & D Costs Level" for such
fiscal year and (y) the "Permitted
Reduction" percentage set forth in the
table above that would be applicable if
the "Total E & D Costs Level" for such
fiscal year were equal to such
"alternative E & D Costs level".
If the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to
such FPF/TLP Exploitation Prospects, when
reduced pursuant to the foregoing
provisions of this paragraph, exceeds
two-thirds of the Overriding Royalty
Interest set forth in paragraph 9.2,
Company may, in its sole discretion,
further reduce such Overriding Royalty
Interest to an interest equal to two-
thirds (before and after Payout,
respectively) of such Overriding Royalty
Interest set forth in paragraph 9.2.
Further, if the Overriding Royalty
Interest set forth in paragraph 9.2 with
respect to any such FPF/TLP Exploitation
Prospect, when reduced to such two-thirds
level pursuant to the foregoing
provisions of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working Interest
percentage of 50% of 8/8ths, Company may,
in its sole discretion, further reduce
such Overriding Royalty Interest set
forth in paragraph 9.2 with respect to
such FPF/TLP Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied times
Company's Working Interest in such
FPF/TLP Exploitation Prospect, would
equal the Overriding Royalty Interest
percentage (before and after Payout,
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-31-
<PAGE> 32
respectively) set forth in paragraph 9.2
times a Working Interest percentage of
50% of 8/8ths.
9.5.2(b) Notwithstanding the foregoing provisions
of this paragraph 9.5.2, with respect to
any Subsea Tieback Exploitation Prospects
acquired by Company during such fiscal
year, if the Overriding Royalty Interest
set forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospects, when reduced pursuant to the
foregoing provisions of this paragraph,
exceeds the Overriding Royalty Interest
in such Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working Interest
percentage of 50% of 8/8ths, Company may,
in its sole discretion, further reduce
such Overriding Royalty Interest set
forth in paragraph 9.2 with respect to
such Subsea Tieback Exploitation Prospect
to a percentage (before and after Payout,
respectively) that, when multiplied times
Company's Working Interest in such Subsea
Tieback Exploitation Prospect, would
equal the Overriding Royalty Interest
percentage (before and after Payout,
respectively) set forth in paragraph 9.2
times a Working Interest percentage of
50% of 8/8ths.
9.5.2(c) Notwithstanding the foregoing provisions
of this paragraph 9.5.2, with respect to
any FPF/TLP Exploration Prospects
acquired by Company during such fiscal
year, if the Overriding Royalty Interest
set forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to the
foregoing provisions of this paragraph,
exceeds two-thirds of the Overriding
Royalty Interest set forth in paragraph
9.2, Company may, in its sole discretion,
further reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding Royalty
Interest set forth in paragraph 9.2.
Further, if the Overriding Royalty
Interest set forth in paragraph 9.2 with
respect to any such FPF/TLP Exploration
Prospect, when reduced to such two-thirds
level pursuant to the foregoing
provisions of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working Interest
percentage of 50% of 8/8ths,
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
-32-
<PAGE> 33
Company may, in its sole discretion,
further reduce such Overriding Royalty
Interest set forth in paragraph 9.2 with
respect to such FPF/TLP Exploration
Prospect to a percentage (before and
after Payout, respectively) that, when
multiplied times Company's Working
Interest in such FPF/TLP Exploration
Prospect, would equal the Overriding
Royalty Interest percentage (before and
after Payout, respectively) set forth in
paragraph 9.2 times a Working Interest
percentage of 50% of 8/8ths.
9.5.2(d) Notwithstanding the foregoing provisions
of this paragraph 9.5.2, with respect to
any Subsea Tieback Exploration Prospects
acquired by Company during such fiscal
year, if the Overriding Royalty Interest
set forth in paragraph 9.2 with respect
to any such Subsea Tieback Exploration
Prospects, when reduced pursuant to the
foregoing provisions of this paragraph,
exceeds the Overriding Royalty Interest
in such Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working Interest
percentage of 50% of 8/8ths, Company may,
in its sole discretion, further reduce
such Overriding Royalty Interest set
forth in paragraph 9.2 with respect to
such Subsea Tieback Exploration Prospect
to a percentage (before and after Payout,
respectively) that, when multiplied times
Company's Working Interest in such Subsea
Tieback Exploration Prospect, would equal
the Overriding Royalty Interest
percentage (before and after Payout,
respectively) set forth in paragraph 9.2
times a Working Interest percentage of
50% of 8/8ths.
9.5.3 With respect to any Major Prospect, Company may in its
sole discretion elect to adjust the Overriding Royalty
Interest set forth in paragraph 9.2, effective as of the
date of Company's acquisition of such Major Prospect, as
follows:
Employee's before-Payout interest shall be reduced by the
following formula:
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
-
Y
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 34
where "X" equals the total amount estimated by Company
for Exploration and Development Costs to be incurred by
Company Group in respect of such Major Prospect through
the end of the primary development period for the field
comprising such Major Prospect (which period, solely for
purposes of such adjustment calculation, shall not exceed
five (5) years), and
where "Y" equals $30 million.
Employee's after-Payout interest shall be increased by
adding thereto the full amount of the percentage interest
so deducted from Employee's before-Payout interest until
2.5 times Payout is reached, at which time Employee's
after-Payout interest shall be reduced by subtracting
therefrom the same percentage interest that was previously
added thereto pursuant to this sentence.
Such election may be made by Company whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been reduced pursuant to paragraph
9.5.2. In the case of any such prior reduction pursuant
to paragraph 9.5.2, the term "original before-Payout
interest" as used above in this paragraph shall refer to
Employee's before-Payout interest as previously reduced
pursuant to paragraph 9.5.2.
9.5.4 Notwithstanding anything contained herein to the contrary,
after an assignment is delivered to Employee with respect
to a Prospect pursuant to paragraph 9.4, Company or its
assigns may no longer reduce or modify Employee's
Overriding Royalty Interest on any well in such Prospect
without written consent of Employee, except pursuant to
paragraphs 9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3
in the case only of assignments other than those delivered
pursuant to paragraphs 9.4.8(a), 9.4.8(b) and 9.4.9.
9.5.5 In no event may any party other than Company reduce or
modify Employee's Overriding Royalty Interest without
written consent of Employee.
9.5.6 Company shall give Employee written notice of any
adjustment made to Employee's Overriding Royalty Interest
pursuant to the provisions of paragraphs 9.5.1(b),
9.5.1(c), 9.5.1(d), 9.5.1(e), 9.5.2 and 9.5.3 within one
hundred twenty (120) days following such adjustment.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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9.5.7 Upon request by Company, Employee shall execute and
deliver to Company such reassignments, transfer orders,
division orders, releases and other documents deemed by
Company to be necessary or appropriate to evidence any
modification, reduction or other adjustment pursuant to
this paragraph 9.5.
9.6 Company's Preferential Right to Purchase.
If at any time during the term or extended term of this Agreement,
or if within one (1) year from the expiration of this Agreement,
Employee receives and desires to accept an offer for the purchase
of a part or all of Employee's Overriding Royalty Interest assigned
pursuant to this paragraph 9 (the portion or all of such Overriding
Royalty Interest covered by such offer to purchase being herein
sometimes called the "Offered Interest"), from a prospective third
party purchaser who is ready, willing and able to purchase the
same, then Employee shall have the right to sell such Offered
Interest, but only after complying with the following terms and
provisions:
9.6.1 The offer shall first be reduced to writing and signed by
Employee and the offeror. Employee shall give Company
written notice of his receipt of, and his desire to
accept, such written offer, together with a copy of such
written offer signed by the prospective third party
purchaser and containing all of the terms and conditions
of such offer. The date such written notice is given to
Company is herein sometimes called the "Original Date."
9.6.2 Company shall thereafter have an option to purchase the
Offered Interest upon the same terms set forth in said
offer, which option may be exercised by written notice
thereof given to Employee within ten (10) days after the
Original Date.
9.6.3 If the Offered Interest is not purchased by Company
pursuant to the foregoing provisions of this paragraph,
then Employee shall have the right to sell the Offered
Interest to the prospective third party purchaser named in
such offer, provided that such sale is consummated within
thirty (30) days from the expiration date of the option of
Company created hereby and provided that such sale is made
in strict conformity with the terms of such offer.
9.6.4 If, however, such sale of the Offered Interest does not
occur within such thirty-day period for the price and upon
the terms set forth in such offer, then any sale of part
or all of such Offered Interest thereafter shall again be
subject to the option to purchase granted to Company under
this paragraph 9.6.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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9.6.5 If Employee elects to take title to an Overriding Royalty
Interest in a legal entity other than himself (which he
may do only with Company's consent), such entity shall
take title subject to all of the terms and conditions of
this Agreement.
9.7 Additional Provisions Affecting Overriding Royalty
Interest.
In addition to the other provisions of this paragraph 9, Employee's
Overriding Royalty Interest shall be subject to the following:
9.7.1 Notwithstanding anything to the contrary contained herein,
Employee shall not have the right to take in kind or
separately dispose of the production of oil and gas
attributable to his Overriding Royalty Interest.
9.7.2 Employee's Overriding Royalty Interest shall also apply to
the production of oil and gas under the terms and
provisions of any renewal, extension or new lease, to the
extent such renewal, extension or new lease covers all or
any portion of any lands covered by the expired lease
which was subject to Employee's Overriding Royalty
Interest or is within the Prospect plat, and provided,
however, that any such renewal, extension or new lease
shall have been acquired by or for the benefit of Company,
either prior to or within one (1) year after the
expiration of the expired lease.
9.7.3 Except as otherwise provided in this paragraph 9, in no
event shall Employee ever be liable or responsible in any
way for payment of any part of any exploration, drilling
or production costs or liabilities incurred by Company or
its assigns or other lessees attributable to the lease or
leases in a Prospect or to the production therefrom, it
being the intent of the parties that Employee's Overriding
Royalty Interest shall constitute a non-participating
royalty interest for all purposes.
9.7.4 Company will conduct and carry on the development,
maintenance and operation of any lease subject to
Employee's Overriding Royalty Interest in a manner which
it deems in its sole judgment to be reasonable and prudent
and in accordance with good oil and gas field practices,
and it will drill such wells as it deems proper in its
sole judgment from time to time in order to protect such
lease from drainage; provided, however, (a) nothing
herein contained shall obligate Company to conduct any
drilling operations whatsoever upon such lease, or to
continue to operate any well or to operate or maintain in
force or attempt to maintain in force such lease by
payment of delay rentals, compensatory royalties or other
payments or by the drilling of any wells upon said lease,
or in any
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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other manner, and the extent and duration of all
operations, as well as the preservation of each of such
leases by delay rental payments or otherwise, shall be
solely at the will of Company, and (b) Company shall have
the right at any time to surrender, abandon or otherwise
terminate any such lease in whole or in part without
liability to Employee.
9.7.5 Company shall have the right to sell all production
attributable to Employee's Overriding Royalty Interest on
the same basis upon which the production attributable to
Company's interest in the same production is sold, and
shall account to Employee on that basis. In no event
shall Employee be entitled to receive payments for
production attributable to his Overriding Royalty Interest
calculated on a basis higher than that upon which
Company's interest in the same production is calculated or
computed on a higher price than that payable to Company on
account of production attributable to its interest, and in
no event shall Employee be entitled to receive payments on
amounts suspended by purchasers of the production pending
determination of the authorized price by governmental
entities. However, if Company sells any such production
to an affiliate of Company, the price therefor shall not
be less than would have been reasonably obtainable in a
sale to a non-affiliated purchaser.
9.7.6 There shall be deducted from the production, before
Employee's Overriding Royalty Interest is computed, any
production lost in the production from the leases, or any
lands pooled therewith, or used for drilling, operating,
development or production or in plant operations
(including gas injection, secondary recovery, pressure
maintenance, repressuring, cycling operations, plant fuel
or shrinkage) conducted for the purpose of producing or
processing production from lands covered by the leases or
from any lands pooled with the leases.
9.7.7 Company shall have the right and option, but not the
obligation, to process gas produced and saved from the
leases. If Company elects to process or have processed,
such gas in a gas processing plant or other facility,
whether or not owned by Company, then in such event
Employee shall be paid his percentage share provided for
herein of the proceeds of sale of all gasoline or other
liquid hydrocarbons or other products manufactured or
extracted from such gas as a result of such processing
(collectively, the "Products"), less the costs of
extraction or manufacture (which may consist of a portion
of the Products). Company shall also pay to Employee the
same percentage share of the proceeds of sale of all
residue gas sold by Company, less expenses incurred by
Company in transporting any such gas to point of delivery
and for dehydration
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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and/or compression of gas at or prior to such delivery and
other expenses and fees typically borne by royalty owners
(excluding expenses or fees for capital projects funded by
Company to the extent such expenses or fees have been
included in the Payout calculation for the well from which
such gas is produced).
9.7.8 Employee's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing and
transporting production from the leases or from any lands
pooled therewith which are typically borne by royalty
owners (excluding expenses or fees for capital projects
funded by Company to the extent such expenses or fees have
been included in the Payout calculation for the well from
which such production is produced).
9.7.9 Employee's Overriding Royalty Interest shall also bear its
share of all ad valorem, production, severance, sales,
gathering and other taxes typically borne by royalty
owners (whether state, federal or otherwise) assessed or
levied on or in connection with the Overriding Royalty
Interest or the production from the leases.
9.7.10 Company or its assigns shall have the right and power,
without any approval by Employee, to pool or unitize any
lease which is subject to Employee's Overriding Royalty
Interest, and to alter, change, amend or terminate any
pooling or unitization agreements heretofore or hereafter
entered into, as to all or any part of a Prospect, as to
any one or more of the formations or horizons thereunder,
upon such terms and provisions as Company shall in its
sole discretion determine. If and whenever through the
exercise of such right and power, or pursuant to any law
now existing or hereafter enacted, or any rule, regulation
or order of any governmental body now or hereafter
promulgated, any of the leases of Company are pooled or
unitized in any manner, Employee's Overriding Royalty
Interest shall also be pooled and unitized, and in such
event Employee's Overriding Royalty shall only be paid on
that portion of the production from the unit or units so
pooled, which is attributable to said leases under and by
virtue of the pooling and unitization.
9.7.11 Company may withhold payment to Employee of any funds
attributable to Employee's Overriding Royalty Interest
which Company, in its sole discretion, deems to be subject
to a risk of refund or recoupment pursuant to any rule,
regulation or order of any governmental authority or any
adverse claims by third parties. During such suspense
period, Employee shall not be entitled to interest on sums
so withheld.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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9.7.12 In the event Company's Working Interest in any lease in
which Employee is entitled to an Overriding Royalty
Interest covers less than all of the full and entire
undivided interest in and to the land described therein,
and in and to all the oil and gas rights relating thereto,
then in that event the Overriding Royalty Interest as to
that portion of the leased premises in which Company's
Working Interest in such lease does not cover such full
and entire undivided interest shall be reduced
proportionately (i.e., in the proportion that the
undivided interest in and to said land and oil and gas
rights covered by such lease bears to such full and entire
undivided interest).
9.7.13 Notwithstanding anything contained in this paragraph 9 to
the contrary, Employee's Overriding Royalty Interest in
any Net Profit Share Lease ("NPSL") shall be reduced at
the same time and in the same percentage as Company's net
revenue interest in said NPSL is reduced pursuant to the
provisions of said NPSL.
9.7.14 Company and Employee further undertake and agree promptly
to execute and deliver, upon request of either party, all
assignments, reassignments, transfer orders, division
orders, releases and any other documents as may be
necessary to implement this paragraph 9 or otherwise to
more fully assure to each party the rights and interests
of such party provided for in this paragraph 9.
10. Insurance.
10.1 Employee shall be eligible for participation in such
insurance programs as Company shall institute from time to
time covering medical and dental expenses and such life
and accidental death and dismemberment insurance programs
as Company shall institute from time to time. Payment of
premiums for such coverages shall be in accordance with
Company policy covering all employees as may be
established from time to time by Company. Employee shall
also be eligible for participation in such retirement,
pension, deferred compensation and other benefit programs
the Company shall initiate from time to time.
11. Outside Activities.
During the term or extended term of this Agreement, Employee shall
devote all of his working time, energy and talents to the due
discharge and performance of his duties hereunder, at the direction
and subject to the control of Company, and shall perform such
services and duties as shall reasonably be required from him from
time to time by Company.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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Employee agrees that he will not knowingly become involved in a
conflict of interest with Company or its subsidiaries, or upon
discovery thereof, allow such a conflict to continue. Moreover,
Employee agrees to provide Company a statement of all other
directorships Employee holds, with a brief description of the
business activities of each organization. This statement shall be
provided on or before December 31 of each year. If, in the opinion
of Company, a conflict of interest exists between Company (and its
affiliates) and the organization in which the Employee holds a
directorship, Company can require Employee to resign the outside
directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed to
limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of the
issued and outstanding and publicly traded (on a recognized
national or regional securities exchange or in the over-the-counter
market) capital stock or other securities of any corporation or
other entity that conducts activities that compete with the
business of Company or any affiliate of Company; or (ii) to invest,
individually or with others, in oil and gas prospects, subject,
however, in the case of oil and gas prospects to the following
conditions:
12.1 Company must have first had the right and opportunity to
purchase all of the interest in any prospect made
available to Employee, even if this would preclude
Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made available
to Employee and have no desire to acquire an additional
interest, or declined to participate at all in the
prospect. If Company elects to participate in less than
the full interest made available to Employee, Employee may
invest in the portion of such interest not acquired by
Company.
12.3 Employee must purchase his interest in the oil and gas
prospect on terms which are no more favorable than those
made available to Company.
13. Disability During Employment.
If Employee shall become unable to perform his duties by reason of
disability, he shall be entitled to receive, in addition to any
insurance benefits he may receive, all of his salary for the first
one (1) month of his disability, and one-half (1/2) of his salary
for the next three (3) months of
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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disability. Periods of disability shall not be cumulative so long
as they are separated by at least ninety (90) days of continuous
service.
The term "disability" shall mean disability which, in the opinion
of a doctor satisfactory to Company, renders Employee unable to
perform his duties hereunder as evidenced by such doctor's
certificate. The date disability commences shall be the date
Employee first absents himself from work during a continuous period
of disability.
14. Merger or Acquisition.
In the event Company should be acquired by or merged into another
company, by signature of Company's authorized representatives,
Company hereby agrees that this Employment Agreement shall be
binding upon Company, its successors and assigns, and shall be
disclosed to any party considering merger with, or acquisition of,
Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this Agreement
and the dispute cannot be settled through direct
discussions, Company and Employee agree that they shall
first endeavor to settle the dispute in an amicable
fashion. If such efforts fail to resolve the dispute, the
dispute shall, except as otherwise provided in paragraph
19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2 below, any
and all claims, demands, cause of action,
disputes, controversies, and other matters in
question arising out of or relating to this
Agreement, any provision hereof, the alleged
breach thereof, or in any way relating to the
subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, even though some or all of such
claims allegedly are extracontractual in nature,
whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or
federal law, whether provided by statute or the
common law, for damages or any other relief, shall
be resolved by binding arbitration pursuant to the
Federal Arbitration Act in accordance with the
Commercial Arbitration Rules then in effect with
the American Arbitration Association (the "AAA").
The arbitration proceeding shall be conducted in
Houston, Texas. The arbitration may be initiated
by either party by providing to the other a
written notice of arbitration specifying the
claims, and the parties shall thereafter
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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endeavor to agree on an arbitrator. If within
thirty (30) days of the notice of initiation of
the arbitration procedure, the parties are unable
to agree on an arbitrator, the party requesting
arbitration shall file a request with the AAA that
the Houston, Texas office of the AAA provide a
list of potential arbitrators to both parties.
The parties shall thereafter have sixty (60) days
to select an arbitrator from such list, with such
selection to be by mutual agreement. If the
parties fail to select an arbitrator within such
time by mutual agreement, then either party may
request that the Chief Judge of the U.S. District
Court for the Southern District of Texas appoint
an arbitrator, and any such appointment shall be
binding. The arbitrator, utilizing the Commercial
Arbitration Rules of the American Arbitration
Association, shall within 120 days of his or her
selection, resolve all disputes between the
parties. There shall be no transcript of the
hearings before the arbitrator. The arbitrator's
decision shall be in writing, but shall be as
brief as possible. The arbitrator shall not
assign the reasons for his or her decision. The
arbitrator's decision shall be final and
non-appealable to the maximum extent permitted by
law. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any
federal or state court having jurisdiction. This
agreement to arbitrate shall be enforceable in
either federal or state court. The enforcement of
this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including
but not limited to, the construction and
interpretation of this agreement to arbitrate, the
issues subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable
issues, allegations of waiver, delay or defenses
to arbitrability, and the rules governing the
conduct of the arbitration, shall be governed by
and construed pursuant to the Federal Arbitration
Act and shall be decided by the arbitrator. In
deciding the substance of any such claims, the
arbitrator shall apply the substantive laws of the
State of Texas (excluding Texas choice-of-law
principles that might call for the application of
some other State's law); provided, however, it is
expressly agreed that the arbitrator shall have no
authority to award treble, exemplary, or punitive
damages under any circumstances regardless of
whether such damages may be available under
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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Texas law, the parties hereby waiving their right,
if any, to recover treble, exemplary, or punitive
damages in connection with any such claims.
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the event
that either party wishes to seek a temporary
restraining order, a preliminary or temporary
injunction, or other injunctive relief in
connection with any or all such claims, demands,
cause of action, disputes, controversies, and
other matters in question arising out of or
relating to this Agreement, any provision hereof,
the alleged breach thereof, or in any way relating
to the subject matter of this Agreement, involving
Company, Employee, and/or their respective
representatives, including disputes arising out of
a breach or alleged breach of paragraph 4 or 16,
even though some or all of such claims allegedly
are extra-contractual in nature, whether such
claims sound in contract, tort, or otherwise, at
law or in equity, under state or federal law,
whether provided by statute or the common law, for
damages or any other relief, each party shall have
the right to pursue such injunctive relief in
court, rather than by arbitration. The parties
agree that such action for a temporary restraining
order, a preliminary or temporary injunction, or
other injunctive relief will be brought in the
State or federal courts residing in Houston,
Harris County, Texas.
15.2 The Company shall pay all costs and expenses of Company
and Employee (including, but not limited to, attorneys'
fees, the fees of the arbitrator and the AAA and any other
related costs) for any arbitration proceeding or legal
action; provided, however, that if in any such arbitration
proceeding or legal action, the arbitrator or court,
respectively, determines that Employee has prosecuted or
defended any issue in such proceeding or action in bad
faith, the arbitrator or court, respectively, may allocate
the portion of such costs and expenses relating to such
issue between the parties in any other manner deemed fair,
equitable and reasonable by the arbitrator or court,
respectively.
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation and
benefits to be paid to Employee hereunder, and as an
additional incentive for Company to enter into this
Agreement, Company and Employee
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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agree to the non-competition obligations hereunder.
Employee will not, directly or indirectly for Employee or
for others:
16.1.1 in any geographic area or market where Company or
any of its subsidiaries are conducting any
business as of the date of termination of the
employment relationship or have during the
previous twelve months conducted such business,
engage in any business competitive with any such
business; or
16.1.2 in any geographic area or market where Employee
knew Company contemplated entering any business as
of the date of termination of the employment
relationship, but only if Company had, as of such
date, invested significant resources toward
entering into such business in such geographic
area or market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise assist,
any other person, association, or entity who is
engaged, directly or indirectly, in any business
competitive with Company's business within the
parameters described in paragraphs 16.1.1 and
16.1.2 above with respect to such competitive
business; or
16.1.4 induce any employee of Company or any of its
subsidiaries to terminate his or her employment
with Company or its subsidiaries, or hire or
assist in the hiring of any such employee by any
person, association, or entity not affiliated with
Company.
These non-competition obligations shall commence upon the
date of execution of this Agreement and extend until the
earlier of (a) the expiration of the term of this
Agreement (or any extended term) or (b) six (6) months
after termination of the employment relationship;
provided, however, that notwithstanding anything contained
in this paragraph 16 to the contrary, such obligations
shall only apply after the termination of employment if
the termination of employment results from termination for
Cause by Company under paragraph 3.5 or voluntary
termination without Good Reason by Employee (it being
understood and agreed that termination of this Agreement
by Employee under paragraph 3.1 shall not, for purposes of
this paragraph 16, constitute voluntary termination
without Good Reason by Employee).
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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16.2 Employee understands that the foregoing restrictions may
limit Employee's ability to engage in certain businesses
anywhere in the world during the period provided for
above, but acknowledges that Employee will receive
sufficiently high renumeration and other benefits under
this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient
remedy for any breach of this Article by Employee, and
Company shall be entitled to enforce the provisions of
this Agreement and/or to specific performances and
injunctive relief as remedies for such breach or any
threatened breach. Such remedies shall not be deemed the
exclusive remedies for a breach of this Article, but shall
be in addition to all remedies available at law or in
equity to Company, including, without limitation, the
recovery of damages from Employee and Employee's agents
involved in such breach and remedies available to Company
pursuant to other agreements with Employee.
16.3 It is expressly understood and agreed that Company and
Employee consider the restrictions contained in this
paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions are
found by a court having jurisdiction to be unreasonable,
or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the
restrictions therein set forth to be modified by such
courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States Foreign
Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as
the FCPA may hereafter be amended, and/or its successor statutes.
If Employee pleads guilty to or nolo contendere or admits civil or
criminal liability under the FCPA, or if a court finds that
Employee committed an action resulting in any Company entity having
civil or criminal liability or responsibility under the FCPA with
knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably
inferred the activities giving rise to liability had occurred or
were likely to occur, such action or finding shall constitute Cause
for termination by Company under paragraph 3.5 of this Agreement
unless Company's Board of Directors determines that the actions
found to be in violation of the FCPA were taken in good faith and
in compliance with all applicable policies of Company.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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18. Survival.
The provisions of paragraphs 4 and 16 shall survive any termination
of the employment relationship and/or of this Agreement for the
periods stated therein. The provisions of paragraph 15 relating to
arbitration shall survive any termination of the employment
relationship between Employee and Company and the termination of
this Agreement. Amounts, compensation, rights and benefits which
Employee is entitled to receive or have accrued to Employee under
this Agreement or under any plan, program, arrangement, agreement
or policy of or with Company or any of its affiliates before, at or
subsequent to the termination of the employment relationship
between Employee and Company or the termination of this Agreement
shall not be superseded and shall survive any such termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that
any payment or distribution by Company or any of its
affiliates to or for the benefit of Employee, whether paid
or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise (any such payments or
distributions being individually referred to herein as a
"Payment," and any two or more of such payments or
distributions being referred to herein as "Payments"),
would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or additional
amounts with respect to such excise tax, and any interest
in respect of such penalties, additions to tax or
additional amounts, being collectively referred herein to
as the "Excise Tax"), then Employee shall be entitled to
receive an additional payment or payments (individually
referred to herein as a "Gross-Up Payment" and any two or
more of such additional payments being referred to herein
as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in paragraph
19.11) imposed upon the Gross-Up Payment, Employee retains
an amount of such Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
19.2 Subject to the provisions of paragraph 19.3 through 19.11,
any determination (individually, a "Determination")
required to be made under this paragraph 19, including
whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall initially be made, at
Company's expense, by nationally recognized tax counsel
mutually acceptable to Company and Employee ("Tax
Counsel"). Tax Counsel shall provide detailed supporting
legal authorities, calculations, and documentation both to
Company and
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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Employee within 15 business days of the termination of
Employee's employment, if applicable, or such other time
or times as is reasonably requested by Company or
Employee. If Tax Counsel makes the initial Determination
that no Excise Tax is payable by Employee with respect to
a Payment or Payments, it shall furnish Employee with an
opinion reasonably acceptable to Employee that no Excise
Tax will be imposed with respect to any such Payment or
Payments. Employee shall have the right to dispute any
Determination (a "Dispute") within 15 business days after
delivery of Tax Counsel's opinion with respect to such
Determination. The Gross-Up Payment, if any, as
determined pursuant to such Determination shall be paid by
Company to Employee within five business days of
Employee's receipt of such Determination. The existence
of a Dispute shall not in any way affect Employee's right
to receive the Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such Determination
shall be binding, final and conclusive upon Company and
Employee, subject in all respects, however, to the
provisions of paragraph 19.3 through 19.11 below. As a
result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have been
made by Company should have been made ("Underpayment"),
and if upon any reasonable written request from Employee
or Company to Tax Counsel, or upon Tax Counsel's own
initiative, Tax Counsel, at Company's expense, thereafter
determines that Employee is required to make a payment of
any Excise Tax or any additional Excise Tax, as the case
may be, Tax Counsel shall, at Company's expense, determine
the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by Company to
Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and
against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments, demands,
judgements, settlements, costs and expenses (including
reasonable attorneys', accountants', and experts' fees and
expenses) with respect to any tax liability of Employee
resulting from any Final Determination (as defined in
paragraph 19.10) that any Payment is subject to the Excise
Tax.
19.4 If a party hereto receives any written or oral
communication with respect to any question, adjustment,
assessment or pending or threatened audit, examination,
investigation or administrative, court or other proceeding
which, if pursued successfully, could result in or give
rise to a claim by Employee against Company under this
paragraph 19 ("Claim"), including, but not limited to, a
claim for indemnification of Employee by Company under
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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paragraph 19.3, then such party shall promptly notify the
other party hereto in writing of such Claim ("Tax Claim
Notice").
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken such
action in connection with contesting such Employee Claim
as Company shall reasonably request in writing from time
to time, including the retention of counsel and experts as
are reasonably designated by Company (it being understood
and agreed by the parties hereto that the terms of any
such retention shall expressly provide that Company shall
be solely responsible for the payment of any and all fees
and disbursements of such counsel and any experts) and the
execution of powers of attorney, provided that:
19.5.1 within 30 calendar days after Company receives or
delivers, as the case may be, the Tax Claim Notice
relating to such Employee Claim (or such earlier
date that any payment of the taxes claimed is due
from Employee, but in no event sooner than five
calendar days after Company receives or delivers
such Tax Claim Notice), Company shall have
notified Employee in writing ("Election Notice")
that Company does not dispute its obligations
(including, but not limited to, its indemnity
obligations) under this Agreement and that Company
elects to contest, and to control the defense or
prosecution of, such Employee Claim at Company's
sole risk and sole cost and expense; and
19.5.2 Company shall have advanced to Employee on an
interest-free basis, the total amount of the tax
claimed in order for Employee, at Company's
request, to pay or cause to be paid the tax
claimed, file a claim for refund of such tax and,
subject to the provisions of the last sentence of
paragraph 19.7, sue for a refund of such tax if
such claim for refund is disallowed by the
appropriate taxing authority (it being understood
and agreed by the parties hereto that Company
shall only be entitled to sue for a refund and
Company shall not be entitled to initiate any
proceeding in, for example, United States Tax
Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax basis,
from any tax imposed with respect to such advance
or with respect to any imputed income with respect
to such advance; and
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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19.5.3 Company shall reimburse Employee for any and all
costs and expenses resulting from any such request
by Company and shall indemnify and hold Employee
harmless, on fully grossed-up after-tax basis,
from any tax imposed as a result of such
reimbursement.
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute, at
the sole cost, expense and risk of Company, such Employee
Claim by all appropriate proceedings, which proceedings
shall be defended or prosecuted diligently by Company to a
Final Determination; provided, however, that (i) Company
shall not, without Employee's prior written consent, enter
into any compromise or settlement of such Employee Claim
that would adversely affect Employee, (ii) any request
from Company to Employee regarding any extension of the
statute of limitations relating to assessment, payment, or
collection of taxes for the taxable year of Employee with
respect to which the contested issues involved in, and
amount of, the Employee Claim relate is limited solely to
such contested issues and amount, and (iii) Company's
control of any contest or proceeding shall be limited to
issues with respect to the Employee Claim and Employee
shall be entitled to settle or contest, in his sole and
absolute discretion, any other issue raised by the
Internal Revenue Service or any other taxing authority.
So long as Company is diligently defending or prosecuting
such Employee Claim, Employee shall provide or cause to be
provided to Company any information reasonably requested
by Company that relates to such Employee Claim, and shall
otherwise cooperate with Company and its representatives
in good faith in order to contest effectively such
Employee Claim. Company shall keep Employee informed of
all developments and events relating to any such Employee
Claim (including, without limitation, providing to
Employee copies of all written materials pertaining to any
such Employee Claim), and Employee or his authorized
representatives shall be entitled, at Employee's expense,
to participate in all conferences, meetings and
proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been
advanced by Company pursuant to paragraph 19.5.2 hereof,
the extent of the liability of Company hereunder with
respect to such tax claimed has been established by a
Final Determination, Employee shall promptly pay or cause
to be paid to Company any refund actually received by, or
actually credited to, Employee with respect to such tax
(together with any interest paid or credited thereon by
the taxing authority and any recovery of legal fees from
such taxing authority related thereto), except to the
extent that any amounts
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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are then due and payable by Company to Employee, whether
under the provisions of this Agreement or otherwise. If,
after the receipt by Employee of an amount advanced by
Company pursuant to paragraph 19.5.2, a determination is
made by the Internal Revenue Service or other appropriate
taxing authority that Employee shall not be entitled to
any refund with respect to such tax claimed and Company
does not notify Employee in writing of its intent to
contest such denial of refund prior to the expiration of
30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent
thereof, the amount of any Gross-Up Payments and other
payments required to be paid hereunder.
19.8 With respect to any Employee Claim, if Company fails to
deliver an Election Notice to Employee within the period
provided in paragraph 19.5.1 hereof or, after delivery of
such Election Notice, Company fails to comply with the
provisions of paragraph 19.5.2, 19.5.3 or 19.6 hereof,
then Employee shall at any time thereafter have the right
(but not the obligation), at his election and in his sole
and absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such Employee
Claim. Employee shall have full control of such defense
or prosecution and such proceedings, including any
settlement or compromise thereof. If requested by
Employee, Company shall cooperate, and shall cause its
affiliates to cooperate, in good faith with Employee and
his authorized representatives in order to contest
effectively such Employee Claim. Company may attend, but
not participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim controlled
by Employee pursuant to this paragraph 19.8 and shall bear
its own costs and expenses with respect thereto. In the
case of any Employee Claim that is defended or prosecuted
by Employee, Employee shall, from time to time, be
entitled to current payment, on a fully grossed-up after
tax basis, from Company with respect to costs and expenses
incurred by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the terms
of this paragraph 19.9, Company shall pay, on a fully
grossed-up after tax basis, to Employee in immediately
available funds the full amount of any taxes arising or
resulting from or incurred in connection with such
Employee Claim that have not theretofore been paid by
Company to Employee, together with the costs and expenses,
on a fully grossed-up after tax basis, incurred in
connection therewith that have not theretofore been paid
by Company to Employee, within ten calendar days after
such Final Determination. In the case of any Employee
Claim not covered by the preceding sentence,
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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<PAGE> 51
Company shall pay, on a fully grossed-up after tax basis,
to Employee in immediately available funds the full amount
of any taxes arising or resulting from or incurred in
connection with such Employee Claim at least ten calendar
days before the date payment of such taxes is due from
Employee, except where payment of such taxes is sooner
required under the provisions of this paragraph 19.9, in
which case payment of such taxes (and payment, on a fully
grossed-up after tax basis, of any costs and expenses
required to be paid under this paragraph 19.9 shall be
made within the time and in the manner otherwise provided
in this paragraph 19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment, decree
or other order by a court or other tribunal with
appropriate jurisdiction, which has become final and
non-appealable; (B) a final and binding settlement or
compromise with an administrative agency with appropriate
jurisdiction, including, but not limited to, a closing
agreement under Section 7121 of the Code; (C) any
disallowance of a claim for refund or credit in respect to
an overpayment of tax unless a suit is filed on a timely
basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise Taxes,
income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or
additional amounts with respect to such taxes and any
interest in respect of such penalties, additions to tax,
or additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee pursuant
to this Agreement, whether by seeking other employment or
otherwise; nor shall the amount of any such payment or other
benefit be reduced on account of any compensation earned by
Employee as a result of employment by another person or entity.
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended except in
writing and signed by Company and Employee. This
Agreement shall be binding upon the heirs, administrators,
or executors and the successors and assigns of each party
to this Agreement.
21.2 The rights and benefits of Employee under the Agreement
are personal to him and shall not be assigned or
transferred without
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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the prior written consent of Company. Subject to the
foregoing, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns.
21.3 All titles or headings of sections or paragraphs or other
divisions of this Agreement are only for the convenience
of the parties and shall not be construed to have any
effect or meaning with respect to the other content of
such sections or paragraphs or other divisions, such
content being controlling as to the agreement between the
parties hereto.
21.4 This Agreement is made and will be performed under, and
shall be governed by and construed in accordance with, the
law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO THIS
AGREEMENT THAT HE HAS READ THIS AGREEMENT BEFORE SIGNING
IT AND THAT HE FULLY UNDERSTANDS ITS PURPOSES, TERMS AND
PROVISIONS, WHICH HE HEREBY EXPRESSLY ACKNOWLEDGED TO BE
REASONABLE IN ALL RESPECTS. EMPLOYEE FURTHER ACKNOWLEDGES
RECEIPT OF ONE COPY OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
580 Westlake Boulevard, Suite 1300
Houston, Texas 77079
Attention: President and Chief Executive Officer
If to Employee:
Clinton D. Smith
1311 Austin Colony
Richmond, Texas 77469
Company and Employee may change the above addresses for
notice purposes by notifying the other in writing.
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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21.7 The Company may withhold from any amounts payable under
this Agreement such federal, state, or local taxes as
shall be required to be withheld pursuant to any
applicable law or regulation.
21.8 Except as otherwise expressly provided herein, nothing
contained in this Agreement shall limit or otherwise
affect any rights or benefits which are vested in, accrued
to, or earned by Employee, or for which Employee is
entitled to, prior to the Effective Date whether under the
Employment Agreement or otherwise.
21.9 ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL
AGREEMENT DATED EFFECTIVE AS OF FEBRUARY 12, 1996, BETWEEN
COMPANY AND EMPLOYEE SHALL TERMINATE AND BE FROM THE
EFFECTIVE DATE NULL, VOID AND OF NO FURTHER FORCE OR
EFFECT WHATSOEVER.
Executed as of the Effective Date in duplicate originals at Houston, Texas.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ ROBERT E. HENDERSON
--------------------------------
Printed Name: Robert E. Henderson
------------------------
Printed Title: President and Chief
------------------------
Executive Officer
------------------------
EMPLOYEE:
/s/ CLINTON D. SMITH
-----------------------------------
Clinton D. Smith
EMPLOYMENT AGREEMENT -- CLINTON D. SMITH
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EXHIBIT 10.11
AMENDED AND RESTATED
CONSULTING SERVICES AGREEMENT
THIS AMENDED AND RESTATED CONSULTING SERVICES AGREEMENT (this
"Agreement"), is made and entered into effective as of June 27, 1996 (the
"Effective Date"), by and between MARINER ENERGY, INC. (formerly known as Hardy
Oil & Gas USA Inc.)(herein referred to as COMPANY);
and
DAVID S. HUBER (herein referred to as "HUBER") whose address is 176
Brookview Court, Ancaster, Ontario L9G1J6;
WHEREAS,
a) COMPANY is engaged in the business of acquiring, exploring,
developing, owning and operating oil and gas properties in various
deepwater areas of the United States Gulf of Mexico;
b) HUBER has represented to COMPANY that he is qualified professionally
to furnish deepwater engineering consulting services for such
purposes; and
c) COMPANY desires to engage and retain HUBER for the term and purposes
hereinafter set forth and HUBER desires to provide to COMPANY the
services hereinafter defined for the consideration hereinafter stated.
NOW, THEREFORE, COMPANY and HUBER have COVENANTED and AGREED and by
these presents do COVENANT and AGREE as follows:
1.
SERVICES PROVIDED
A. Deepwater Prospect Management
During the term hereof HUBER will use his best efforts and
endeavors (as an independent contractor) to manage Deepwater
Prospects to the point in time equal to 90 days following
first production from each well on said Prospect for COMPANY
in the United States Gulf of Mexico. The entire work effort
of HUBER under this Agreement shall be performed for the
exclusive benefit of COMPANY.
Consulting Services Agreement for David S. Huber
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B. Deepwater Prospect Solicitation
During the term hereof HUBER will use his best efforts and
endeavors (as an independent contractor) to solicit third
parties in order to cause Deepwater Prospects generated by
third parties to be presented to COMPANY for evaluation and
consideration with respect to COMPANY'S participation in said
prospects as a Working Interest owner.
C. Deepwater Prospect Marketing
In the event COMPANY decides to market all or a portion of its
interest in a Deepwater Prospect, HUBER will use his best
efforts and endeavors to assist COMPANY in such marketing
effort during the term hereof.
2.
TERM OF AGREEMENT
This Agreement shall continue for a term of five (5) years,
commencing on the Effective Date and ending on June 30, 2001, and shall
automatically be extended for each successive calendar month thereafter until
either COMPANY or HUBER shall give the other party 30 days' advance written
notice of intent to terminate, in which event this Agreement shall terminate
upon the expiration of such 30-day period.
Notwithstanding anything contained herein to the contrary,
HUBER shall have the right to terminate this Agreement at any time if COMPANY
relocates its principal office outside of the metropolitan area of Houston,
Texas.
During the term of this Agreement, COMPANY shall have the
first option on HUBER's services. At any time during the term of this
Agreement that HUBER and COMPANY agree that COMPANY does not have any Deepwater
Prospects requiring HUBER's services, HUBER may provide services to other
parties, so long as HUBER's work for said parties does not violate the
provisions of paragraph 10 and otherwise does not conflict with any of the
COMPANY'S Deepwater Prospects.
3.
RETAINER FEE
For the period commencing on the Effective Date and ending on
June 30, 2001, COMPANY shall pay HUBER a daily retainer fee of $850 per day
worked, payable semi-monthly on or before the 1st and the 15th days of each
month.
COMPANY hereby guarantees HUBER a minimum of 200 days'
retainer fee during each year of this Agreement. Should HUBER and the Company
mutually agree that Huber may provide services directly for other parties
during a year of this
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Agreement, said services will be credited toward COMPANY'S guaranteed 200 days
per year.
If, by the end of the ninth month of each year of this
Agreement, COMPANY has not paid HUBER for at least 100 days of service during
such year, COMPANY shall pay HUBER the difference between actual days paid and
100 days.
If, by the last day of each such year, COMPANY has not paid
HUBER for at least 200 days of service during said year, COMPANY shall pay
HUBER the difference between actual days paid and 200 days.
4.
OFFICE SPACE, PARKING
COMPANY shall provide an office and paid parking for HUBER at
COMPANY'S office at 580 Westlake Boulevard, Suite 1300, Houston, Texas 77079
or such other office location in Houston as COMPANY may choose, during the term
of this Agreement. HUBER may perform the services to be provided hereunder at
COMPANY'S office or in any other location HUBER deems necessary or appropriate.
5.
REIMBURSEMENT OF EXPENSES
In connection with services provided pursuant to this
Agreement:
A. COMPANY will reimburse HUBER for all reasonable out
of pocket expenses incurred;
B. COMPANY will reimburse HUBER for all reasonable
automobile rental and fuel expenses incurred;
C. COMPANY shall pay HUBER $45 per day as per diem
allowance;
D. COMPANY will reimburse HUBER for monthly round-trip
airfare from Houston, Texas to Colorado Springs,
Colorado; and
E. COMPANY will pay for HUBER's hotel/apartment
accommodations in Houston, Texas.
All expenditures described above which are expected to exceed
one-hundred dollars ($100.00) must be pre-approved by COMPANY'S Senior Vice
President of Production.
Consulting Services Agreement for David S. Huber
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<PAGE> 4
HUBER will submit a monthly expense report to COMPANY within a
reasonable time following the last day of each month. COMPANY shall make
reimbursement to HUBER within one (1) week following receipt of expense report.
6.
INCENTIVE COMPENSATION
6.1 Definitions.
An "AFFILIATE" of a specified person is any person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with
that specified person.
"BENEFICIAL OWNERSHIP" of a security shall be determined in
accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.
A "CHANGE IN CONTROL" shall have occurred if, after the
Effective Date:
(i) Any person or group of affiliated
persons (other than Joint Energy Development
Investments Limited Partnership ("JEDI") or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66 2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.); or
(ii) Newco shall approve (x) a merger or
consolidation of Newco with or into any other person,
if as a result any person (other than JEDI or an
affiliate of Enron Corp.) shall become the beneficial
owner, directly or indirectly, of 66-2/3 percent or
more of the outstanding Voting Stock of Newco unless
Newco becomes a subsidiary of an entity which does
not have a beneficial owner, directly or indirectly,
of 66-2/3 percent or more of the outstanding Voting
Stock of such entity (other than JEDI or an affiliate
of Enron Corp.), (y) any sale, lease, exchange or
other transfer of two-thirds or more of the
consolidated assets of Newco and its subsidiaries
taken as a whole in one transaction or a series of
related transactions whether by direct sale of
assets, sale of stock of a subsidiary or a merger
involving any subsidiary, or (z) the dissolution of
Newco; or
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<PAGE> 5
(iii) Recognizing that the events
described in this clause and the events described in
clause (ii) above may not necessarily be mutually
exclusive, any sale, exchange or other transfer of
two-thirds or more of the outstanding Voting Stock of
the COMPANY or any sale, lease, exchange or other
transfer of two-thirds or more of the consolidated
assets of the COMPANY and its subsidiaries (if any)
taken as a whole in one transaction or a series of
related transactions.
"COMPANY" means Mariner Energy, Inc., a Delaware corporation.
"COMPANY GROUP" means any or all of COMPANY or any of its
affiliates, Hardy Oil & Gas plc or any of its affiliates,
Joint Energy Development Investments Limited Partnership or
any of its affiliates, Enron Capital & Trade Resources Corp.
or any of its affiliates, and any and all other persons paying
introduction/placement fees to Joint Energy Development
Investments Limited Partnership or any of its affiliates or
Enron Capital & Trade Resources Corp. or any of its affiliates
for access to one or more Working Interests of COMPANY.
"COMPANY'S WORKING INTEREST" and "WORKING INTEREST OF COMPANY"
mean, with respect to any Prospect, the Working Interest in
such Prospect acquired by COMPANY and, for purposes of this
paragraph 6, shall include each portion thereof that COMPANY
may subsequently transfer to another member of COMPANY Group
or to any other person.
"CONTROL" means (a) holding, directly or indirectly, more than
50 percent of the outstanding voting securities of a
non-individual person, (b) having the right, directly or
indirectly, to more than 50 percent of the profits of a
non-individual person, (c) having the right, directly or
indirectly, to more than 50 percent of the assets of a
non-individual person if it is dissolved or (d) having the
contractual power to designate more than 50 percent of the
directors (or individuals exercising similar functions) of a
non-individual person.
"DEVELOPMENT ACREAGE" means the acreage within a Prospect
covering a known or inferred geologic structure upon which
COMPANY and/or its joint working interest owners or a farmee
of COMPANY's Working Interest in a Prospect have drilled a
well capable of commercial oil and/or gas production. Such
acreage shall be deemed to be Development Acreage from the
surface of the earth down through the deepest known productive
horizon. The committee described in paragraph 6.5.1(a),
below, shall designate acreage within a Prospect as
Development Acreage based upon the most current interpretation
available at the time of designation.
Consulting Services Agreement for David S. Huber
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"EFFECTIVE DATE" means the effective date of this Consulting
Services Agreement.
"EXPLORATION AND DEVELOPMENT COSTS" means, with respect to any
Prospect or Prospects, and without duplication, all direct,
capital costs actually incurred by COMPANY Group in connection
with exploration and development of such Prospect or
Prospects, including, without limitation, all costs incurred
in preparing for drilling, drilling, testing, completing,
equipping (including, without limitation, installation of
platforms, facilities and pipelines and dry hole costs) and
recompleting wells, all geological and geophysical costs, and
all leasehold costs (including bonus, delay rentals and all
other costs of acquiring and maintaining in force the leases,
or portions thereof or undivided interests therein, included
in such Prospects). Exploration and Development Costs shall
not include lease operating expenses or general and
administrative expenses of the COMPANY Group.
"EXPLORATORY ACREAGE" means the acreage comprising a Prospect
which has not been designated by the committee described in
paragraph 6.5.1(a), below, as either Development Acreage or a
Producing Property Acquisition. Exploratory Acreage shall not
be limited as to depth (except to the extent, if any, to which
COMPANY's Working Interest therein is limited as to depth).
"FPF/TLP EXPLOITATION PROSPECT" means any Prospect containing
a hydrocarbon reservoir which (a) exhibits a sufficient
likelihood of such hydrocarbon reservoir being economic, based
on commercially producible shows of hydrocarbons in a well
drilled within such reservoir, together with other geological
and geophysical data and interpretations, such that COMPANY in
its reasonable judgment plans to develop such reservoir, and
(b) is reasonably expected by COMPANY to be exploited and/or
developed by utilizing a floating production facility and/or a
tension leg platform.
"FPF/TLP EXPLORATION PROSPECT" means any Prospect (other than
an FPF/TLP Exploitation Prospect) with respect to which
COMPANY reasonably expects to utilize a floating production
facility and/or a tension leg platform in connection with
operations to be conducted on such Prospect.
"INITIAL WELL" means, with respect to a Prospect, the first
well drilled on such Prospect in which COMPANY participates as
a Working Interest owner or with respect to which COMPANY
retains an overriding royalty or other interest in oil and gas
production from such well.
Consulting Services Agreement for David S. Huber
-6-
<PAGE> 7
"MAJOR PROSPECT" means any Prospect with respect to which the
total amount estimated by COMPANY for Exploration and
Development Costs to be incurred by COMPANY Group (i.e., net
to COMPANY Group's interest) through the end of the primary
development period for the field comprising such Prospect
exceeds $30 million.
"NET PROFIT SHARE LEASE" means an oil and gas lease which
provides for sharing between lessor and lessee of the net
profits or net proceeds, as defined in said lease, from the
sale of oil and/or gas produced therefrom.
"NEWCO" means Mariner Holdings, Inc., a Delaware corporation,
or its successors.
"OVERRIDING ROYALTY INTEREST" means an interest in gross
production of oil and gas under each oil and gas lease (or
portion thereof) included within a Prospect, which interest
(except as herein otherwise provided) shall be free of all
costs of acquisition, exploration, drilling, completing,
equipping, operating and developing any oil and gas produced
from such lease.
A "PARENT" of a specified person is another person that
controls such specified person directly or indirectly through
one or more intermediaries.
"PAYOUT" means, for each Initial Well and each subsequent well
drilled on a Prospect, the point in time at which the revenue
to COMPANY or its assigns from its interest in oil and gas
production from such well (after deduction of COMPANY's or its
assigns' prorata part of the burden of (i) all landowners'
royalties, overriding royalties, net profits interests,
production payments or other burdens upon, measured by or
payable out of such production and (ii) all applicable ad
valorem, production, severance, sales, gathering, windfall
profits excise and similar taxes) equals the sum incurred by
or for the account of COMPANY or its assigns (x) in preparing
for drilling, drilling, testing, completing, equipping
(including, without limitation, installation of platforms,
facilities and pipelines), operating, reworking and
recompleting the well, and marketing the production therefrom,
and (y) for such well's allocable share of geological and
geophysical costs, leasehold costs and other common costs.
"Leasehold costs" shall mean payments for bonus, delay
rentals, and all other costs of acquiring from the landowners
(or, in the case of an acquisition by COMPANY (but not any
assignee of COMPANY), from predecessors in title to such
leases) and maintaining in force the leases allocated to the
well. Leases "allocated" to a well shall mean the leases or
portions thereof or undivided interests therein to which
production from a well is attributed, whether on a lease or
unit basis. With respect to each such well, "common costs"
shall mean capital costs that are attributable to (a) such
Prospect as a whole or (b) such well and one or more other
wells (but not all wells) on such Prospect and shall include,
without
Consulting Services Agreement for David S. Huber
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<PAGE> 8
limitation, costs of drilling, plugging and abandoning
non-productive wells on such Prospect. Each such well's
allocable share of common costs shall be determined by COMPANY
in any manner it deems appropriate from time to time.
The expression "2.5 TIMES PAYOUT" means, for each Initial Well
and each subsequent well drilled on a Prospect, the point in
time at which such revenue to COMPANY or its assigns from its
interest in oil and gas production from such well, after such
deductions mentioned above, equals the product of 2.5 times
the sum incurred by or for the account of COMPANY or its
assigns (x) in preparing for drilling, drilling, testing,
completing, equipping, operating, reworking and recompleting
the well, and marketing the production therefrom, and (y) for
such well's allocable share of geological and geophysical
costs, leasehold costs and other common costs as mentioned
above.
A "PERSON" is an individual, a corporation, a trust, a
partnership, a limited liability company, an association or
any other entity.
"PRODUCING PROPERTY ACQUISITION" means a lease or leases, or
portions thereof or undivided interests therein, acquired by
COMPANY during the term or extended term of this Agreement
principally for the value of existing oil and gas production
thereon and further development of oil and gas reserves
considered proved under such lease or leases at the time of
acquisition. A Producing Property Acquisition shall include
acquisition of such leasehold interests even though COMPANY
may have previously acquired interests in some or all of the
same leases as a Prospect acquisition (i.e., prior to the time
such leases were considered to contain proved oil and gas
reserves). COMPANY may in its sole discretion designate a
Producing Property Acquisition in whole or in part as a
Prospect.
"PROSPECT" means the lease or leases, or portions thereof or
undivided interests therein, acquired by COMPANY during the
term or extended term of this Agreement covering lands in deep
water areas of the United States Gulf of Mexico which in the
sole opinion of COMPANY may contain one or more hydrocarbon
accumulations capable of being commercially produced;
provided, however, "Prospect" shall not include any prospects
other than FPF/TLP Exploration Prospects, FPF/TLP Exploitation
Prospects, Subsea Tieback Exploration Prospects and Subsea
Tieback Exploitation Prospects. For purposes of this
definition of Prospect, the acquisition of a lease or leases
shall mean the acquisition by COMPANY of legal or beneficial
rights or interests in a lease or leases, including (without
limitation) contractual rights to acquire or earn a lease or
leases (whether by farmout agreement or otherwise, and whether
such contractual rights are subject to certain conditions such
as the drilling or
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completion of a commercial well, and without regard to the
results of the drilling or completion of any such well under
such contract). A Prospect shall not include a prospect
acquired by COMPANY by merger or consolidation of COMPANY with
or into another entity unless such prospect is so designated
by COMPANY. A Prospect shall not include a Producing Property
Acquisition unless such Prospect is so designated by COMPANY.
All Prospects shall be deemed to be without depth limitation
unless the COMPANY designates specified depths only at the
time said Prospect is initially acquired by COMPANY.
Notwithstanding the date or dates on which leases in a
Prospect are actually acquired by COMPANY, solely for purposes
of determining the individuals who are entitled to receive an
Overriding Royalty Interest therein, such leases, or portions
thereof or undivided interests therein, shall be deemed to
have been acquired by COMPANY as of the date on which
COMPANY's management approved such Prospect acquisition. In
furtherance of the foregoing, if any lease or leases, or
portions thereof or undivided interests therein, acquired by
COMPANY on or after April 18, 1996, but prior to the
commencement of the term of this Agreement, would constitute a
"Prospect" under the foregoing definition but for the fact
that such lease or leases, or portions thereof or undivided
interests therein, were not acquired by COMPANY during the
term of this Agreement, the same shall, nevertheless, be
deemed to have been acquired by COMPANY as of the commencement
of the term of this Agreement and shall constitute a Prospect
for purposes of this paragraph 6.
"SUBSEA TIEBACK EXPLOITATION PROSPECT" means any Prospect
containing a hydrocarbon reservoir which (a) exhibits a
sufficient likelihood of such hydrocarbon reservoir being
economic, based on commercially producible shows of
hydrocarbons in a well drilled within such reservoir, together
with other geological and geophysical data and
interpretations, such that COMPANY in its reasonable judgment
plans to develop such reservoir, and (b) is reasonably
expected by COMPANY to be exploited and/or developed by
utilizing a subsea tieback system.
"SUBSEA TIEBACK EXPLORATION PROSPECT" means any Prospect
(other than a Subsea Tieback Exploitation Prospect) with
respect to which COMPANY reasonably expects to utilize a
subsea tieback system in connection with operations to be
conducted on such Prospect.
A "SUBSIDIARY" of a specified person is an entity controlled
by such person directly or indirectly through one or more
intermediaries.
"VOTING STOCK" means shares of capital stock of the specified
entity the holders of which are entitled to vote for election
of directors thereof.
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"WORKING INTEREST" means the leasehold working interest, or
undivided interest therein, under an oil and gas lease which
obligates the owner thereof to bear his percentage of the
costs and expenses relating to the maintenance and development
of, and operations relating to, such lease and the well or
wells associated therewith.
6.2 HUBER's Property Interest.
6.2.1 Subject to the other provisions of this paragraph 6,
HUBER shall own, be immediately vested with, and be
entitled to receive the benefits of an Overriding
Royalty Interest equal to an undivided percentage of
COMPANY's Working Interest, more specifically
described below, in each well on a Prospect and the
lease or leases allocated thereto, as follows:
Overriding Royalty Interest
----------------------------
Before Payout After Payout
------------- ------------
0.125000% 0.500000%
At 7:00 a.m. on the first day of the month following
the month in which Payout of such well occurs, the
Overriding Royalty Interest shall increase from the
applicable before-Payout percentage to the applicable
after-Payout percentage.
6.2.2 Under a previous Incentive Compensation Plan, HUBER
has received or is entitled to receive overriding
royalty interests ("Existing ORIs") in a certain
prospect (the "Existing Prospect"). The Existing
ORIs are equal to an undivided percentage of
Company's Working Interest in each well on the
Existing Prospect and the lease or leases allocated
thereto, as follows:
Existing ORI
------------
Existing Prospect Before Payout After Payout
----------------- ------------- ------------
Mississippi Canyon 661, 705 0.09000% 0.36000%
The provisions of paragraphs 6.4, 6.5, 6.6 and 6.7
shall apply to the Existing ORIs in the Existing
Prospect as fully as such provisions apply to any
Overriding Royalty Interest in a Prospect to which
HUBER is entitled under this Agreement.
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6.3 Governmental Filings.
COMPANY will assist HUBER in Filing an 83b Election with the
Internal Revenue Service on each Prospect, on a prospect by
prospect or lease by lease basis, as the case may be, denoting
the transfer to HUBER of the Overriding Royalty Interest and
stating the value of such interest for the purposes at the
time the interest is acquired.
6.4 Assignment of Overriding Royalty Interest.
Subject to the provisions of paragraph 6.5, as soon as
practicable after the end of each calendar quarter during the
term or extended term of this Agreement, HUBER shall be
entitled to receive recordable assignments of his Overriding
Royalty Interest in a lease or leases (or portions thereof)
acquired by COMPANY in a Prospect during such calendar
quarter. As soon as practicable after the end of each such
calendar quarter, COMPANY shall provide HUBER with the
following:
(a) A recordable assignment of his Overriding
Royalty Interest in the leases (or portions
thereof) acquired by COMPANY in each Prospect
during such calendar quarter.
(b) A plat outlining the geographical limits of
each such Prospect. COMPANY shall review
each Prospect plat each calendar quarter in
light of drilling activity on or near the
Prospect, and expand the plat boundary if new
leases are acquired which COMPANY believes to
contain a prospective hydrocarbon
accumulation that is located on the same
geological feature as such Prospect. HUBER
shall be entitled to his Overriding Royalty
Interest in any lease acquired by COMPANY
within the Prospect plat boundary (and, to
the extent provided in paragraph 6.7.2, in
any renewal, extension or new lease within
the Prospect plat boundary) for as long as
such lease within the boundary remains in
effect.
6.4.1 Upon execution and delivery of such recordable
assignment to HUBER, COMPANY shall record the
assignment.
6.4.2 If, prior to the drilling of the Initial Well on a
Prospect or thereafter, COMPANY believes in good
faith that there is a substantial likelihood that it
may be necessary to exercise its discretion under
paragraph 6.5 with respect to adjustment of HUBER's
Overriding Royalty Interest in leases included within
such Prospect, COMPANY may defer delivery of a
recordable
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assignment of HUBER's Overriding Royalty Interest
pending a determination under paragraph 6.5.
6.4.3 Upon request by COMPANY, HUBER agrees to execute and
deliver any and all transfer orders, division orders
and other documents as may be necessary or
appropriate to cause all revenue attributable to his
interest in a well to be paid to COMPANY on his
behalf until delivery by COMPANY to HUBER of a
recordable assignment of his interest in such well
pursuant to this paragraph 6. In such event, COMPANY
agrees promptly to process such funds and pay all
funds due HUBER at the same time third parties are
paid revenue distributions from such well by COMPANY.
After an assignment is delivered to HUBER, COMPANY
shall promptly give appropriate notice to the
disbursing entities in order to facilitate direct
payment to HUBER of all revenue attributable to his
interest in such well.
6.4.4. Subject to the last sentence of this paragraph 6.4.4,
COMPANY or its assigns shall quarterly perform Payout
calculations on each well which has not reached
Payout in every Prospect so that payments to HUBER
may be made on a proper before payout/after payout
basis on each well in every Prospect. COMPANY or its
assigns shall prepare a quarterly Payout statement
for each well within each Prospect and shall provide
HUBER a copy of said quarterly Payout statements
within ninety (90) days following the end of the
quarter. When Payout status is reached on a well,
COMPANY or its assigns shall deliver notice of such
event to HUBER, the operator of such well and each
purchaser of production from such well and COMPANY or
its assigns shall direct such operator or purchaser
of production (as appropriate) to disburse future
revenues attributable to HUBER's and COMPANY's
respective interests in such well on an after-Payout
basis. Notwithstanding the foregoing, if HUBER's
Overriding Royalty Interest in any such well is
adjusted pursuant to any provisions of this paragraph
6 so as to be the same percentage before and after
Payout of such well, then the provisions of this
paragraph 6.4.4 shall no longer apply from and after
the date of such adjustment.
6.4.5 Should HUBER be married or divorced at such time as
HUBER earns the right to have an Overriding Royalty
Interest assigned to him hereunder, COMPANY shall
have no obligation to make assignments to HUBER's
spouse/or former spouse. Any division of community
property shall be the responsibility of HUBER.
6.4.6 All interests assigned by COMPANY to HUBER shall be
subject to the terms, conditions and provisions of
(a) any joint operating
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agreement at any time theretofore or thereafter
entered into by COMPANY or its assigns with other
Working Interest owners covering any of the leases
affected by the Overriding Royalty Interest herein
provided for, and (b) any farm-out or other
agreements under which COMPANY acquires or may
acquire its interest in the leases; including,
particularly, by way of illustration and not by way
of limitation, (i) any provision of an applicable
farm-out agreement requiring reduction of COMPANY's
interest in the leases after "payout" of an earning
well or wells thereunder, in which event HUBER's
Overriding Royalty in such leases shall be
proportionately reduced, and (ii) any provision
requiring forfeiture of interest for
nonparticipation, recoupment of multiple recovery
costs and the like to the extent that COMPANY would
forfeit its Working Interest for nonparticipation
either forever or until recoupment of drilling and/or
operating costs by the third parties electing to
participate, or such other like reason; and in the
event any such provisions come into effect, HUBER's
Overriding Royalty in such leases shall be suspended
until such time, if ever, as such multiple recovery
of costs by the participating leasehold owners has
been recovered or such other cause for suspension is
removed and such Working Interest of COMPANY is
reinstated, at which time HUBER's Overriding Royalty
shall be so reinstated.
All interests assigned by COMPANY to HUBER shall be
subject to the terms, conditions and provisions of
the leases, any assignments and/or subleases thereof
theretofore made or agreed to be made by COMPANY, and
any amendments or modifications of the leases,
theretofore or thereafter made, and HUBER agrees that
any such amendments or modifications may be made
without the consent or joinder of HUBER.
6.4.7 COMPANY or its assigns shall not have the right to
sell, assign, farmout, convey or otherwise encumber
HUBER's Overriding Royalty Interest, except as
otherwise provided in this paragraph 6.
6.4.8(a) Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then HUBER shall be entitled to
receive recordable assignments of
his Overriding Royalty Interest,
adjusted in the manner described
hereinbelow, in any lease or leases
(or portions thereof or undivided
interests therein) theretofore
acquired by COMPANY and not yet
assigned during the term or extended
term hereof and, upon subsequent
acquisition by COMPANY, in any lease
or
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leases (or portions thereof or
undivided interests therein)
thereafter acquired by COMPANY, in
all Prospects acquired by COMPANY
prior to such Change in Control.
Said Overriding Royalty Interest
shall be assigned in the following
manner:
HUBER's after-Payout interest shall
be reduced to one-half of HUBER's
after-Payout interest stated in
paragraph 6.2 (as such after-Payout
interest stated in paragraph 6.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 6) and HUBER's before-
Payout interest shall be increased
to twice HUBER's before-Payout
interest stated in paragraph 6.2 (as
such before-Payout interest stated
in paragraph 6.2 may have previously
been reduced pursuant to other
provisions of this paragraph 6) with
the result that HUBER's interests
before and after Payout shall be
equal.
6.4.8(b) Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
COMPANY's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the COMPANY or of
Newco or of any parent or subsidiary
of the COMPANY or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then HUBER shall be
entitled to receive, prior to the
consummation of such sale, transfer
or conveyance, a recordable
assignment of his Overriding Royalty
Interest, adjusted in the manner
described in paragraph 6.4.8(a), in
any lease or leases (or portions
thereof or undivided interests
therein) theretofore acquired by
COMPANY and not yet assigned during
the term or extended term hereof
and, upon subsequent acquisition by
COMPANY, in any lease or leases (or
portions thereof or undivided
interests therein) thereafter
acquired by COMPANY, in all
Prospects acquired by COMPANY prior
to such sale, transfer or
conveyance.
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6.4.9 Notwithstanding anything contained herein to the
contrary, if, during the term or extended term
hereof, all or substantially all of the COMPANY's
Working Interests in all or substantially all
Exploratory Acreage then owned by the COMPANY are
sold, transferred or conveyed to an unaffiliated
third party, then HUBER shall be entitled to receive,
prior to the consummation of such sale, transfer or
conveyance, recordable assignments of his Overriding
Royalty Interest, adjusted in the manner described in
paragraph 6.4.8(a), in all leases (or portions
thereof or undivided interests therein) that cover
and include such Exploratory Acreage not yet assigned
during the term or extended term hereof.
6.5 Retained Company Discretion
6.5.1 HUBER and COMPANY recognize that in instances where
all or a portion of COMPANY's Working Interest in a
lease or leases will be sold or farmed out to
unaffiliated third parties, HUBER's Overriding
Royalty Interest might in some circumstances have a
negative effect on the marketability of COMPANY's
Working Interest to third parties. In such cases,
COMPANY will in good faith attempt to transfer
COMPANY's Working Interest subject to HUBER's
Overriding Royalty Interest provided for in this
paragraph 6; provided, however, if, in COMPANY's good
faith judgment, COMPANY's Working Interest cannot be
sold or farmed out subject to HUBER's Overriding
Royalty Interest, COMPANY may elect to adjust HUBER's
Overriding Royalty Interest as hereinafter provided.
6.5.1(a) The Board of Directors of COMPANY
shall designate a committee of not
less than three individual persons
employed by COMPANY, at least half
of whom has been granted an employee
Overriding Royalty Interest by
COMPANY, to exercise discretion on
behalf of COMPANY in reducing or
modifying, pursuant to this
paragraph 6.5.1 only, the Overriding
Royalty Interests provided for in
this paragraph 6; provided, however,
that the Board of Directors of the
COMPANY shall have the right to
designate a non-voting member of
such committee, who may be a
director of the COMPANY or
otherwise, and such member shall
have the right to participate in all
meetings of such committee (and
shall receive reasonable advance
notice of any such meetings) and
shall be entitled to the same
information as is available to the
other members of the committee.
Such committee shall make all
decisions under this paragraph 6.5.1
subject
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to obtaining the approval of the
Board of Directors of COMPANY where
such approval is required under the
provisions of this paragraph 6.5.1.
Any decision made by the committee
shall require the approval of a
majority of the members of the
committee. Any change to this
paragraph 6.5.1(a) shall require the
approval of the Board of Directors
of the COMPANY and a majority of the
Management Directors (as that term
is defined in the Stockholders'
Agreement dated April 2, 1996,
between Enron Capital & Trade
Resources Corp., Newco and certain
employees of and consultants to the
COMPANY, as it may be amended from
time to time) who became
stockholders pursuant to Section B.1
of that agreement.
6.5.1(b) With respect to any Prospect on
which no initial Well has been
drilled and no assignments of
Overriding Royalty Interests have
been made to HUBER, the committee
may modify or reduce the Overriding
Royalty Interest of HUBER in leases
included within such Prospect in any
manner necessary in the good faith
judgment of the committee to make an
interest in such Prospect saleable
to any person not in COMPANY Group;
provided, however, in connection
with any sale by COMPANY of an
interest in such Prospect to any
such person, HUBER's Overriding
Royalty Interest shall be reduced to
zero unless the committee recommends
a lesser reduction and such
recommendation is approved by the
Board of Directors of COMPANY. Such
modification or reduction shall
apply only to the interest sold to
such a person, and shall not affect
the interest retained by the
COMPANY. Any reduction or exercise
of discretion by COMPANY under this
paragraph shall be applied
proportionately to all participants
who are entitled to receive from
COMPANY an Overriding Royalty
Interest in leases included within
such Prospect.
6.5.1(c) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has not
been determined by COMPANY to be
capable of producing oil and/or gas,
should COMPANY desire to sell all or
any portion of its Working Interest
in such Prospect to unaffiliated
third parties, the committee may
adjust the Overriding Royalty
Interest of
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HUBER in leases included within such
Prospect in the following manner:
HUBER's after-Payout interest shall
be reduced to one-half of HUBER's
after-Payout interest stated in
paragraph 6.2 (as such after-Payout
interest stated in paragraph 6.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 6) and HUBER's before-
Payout interest shall be increased
to twice HUBER's before-Payout
interest stated in paragraph 6.2 (as
such before-Payout interest stated
in paragraph 6.2 may have previously
been reduced pursuant to other
provisions of this paragraph 6),
with the result that HUBER's
interests before and after Payout
shall be equal.
Such adjustment shall apply only to
the interest sold to unaffiliated
third parties, and shall not affect
the interest retained by COMPANY.
Any exercise of discretion by
COMPANY under this paragraph shall
be applied in like manner to all
participants who are entitled to
receive from COMPANY an Overriding
Royalty Interest in leases included
within such Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither COMPANY nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
6.5.1(c).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
COMPANY's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the COMPANY or of
Newco or of any parent or subsidiary
of the COMPANY or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
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foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
6.5.1.(c).
6.5.1(d) With respect to any Prospect which
has not been determined by COMPANY
to be capable of producing oil
and/or gas, and regardless of
whether or not the Initial Well has
been drilled thereon, should COMPANY
desire to farmout all or any portion
of its Working Interest in such
Prospect to unaffiliated third
parties, the committee shall (unless
the committee recommends otherwise
and the Board of Directors approves
such recommendation) adjust the
Overriding Royalty Interest of HUBER
in leases included within such
Prospect in the following manner:
HUBER's Overriding Royalty Interest
shall be calculated by multiplying
HUBER's percentage interests stated
in paragraph 6.2 above (as such
interests may have previously been
reduced pursuant to other provisions
of this paragraph 6) by COMPANY's
overriding royalty interest set
forth in the particular farmout
agreement for said Prospect, for and
during the period of time in which
COMPANY receives such overriding
royalty interest.
To the extent, if any, that
COMPANY's overriding royalty
interest set forth in such farmout
agreement converts to a Working
Interest in such Prospect (whether
by election of COMPANY or
otherwise), then, from and after
such conversion, HUBER's Overriding
Royalty Interest shall be based upon
such Working Interest of COMPANY
pursuant to paragraph 6.2 above;
provided, however, if pursuant to
such farmout agreement, only a
portion of COMPANY's overriding
royalty interest converts to a
Working Interest and COMPANY
retains, following such conversion,
some overriding royalty interest in
addition to such Working Interest,
HUBER shall be entitled to receive,
as part of HUBER's Overriding
Royalty Interest based upon
COMPANY's Working Interest, an
interest equal to the percentage
stated in paragraph 6.2 above (as
such interest may have previously
been reduced pursuant to other
provisions
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of this paragraph 6) multiplied by
COMPANY's retained overriding
royalty interest.
Such adjustment shall apply only to
the interest farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by COMPANY. Any exercise of
discretion by COMPANY under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from COMPANY an
Overriding Royalty Interest in
leases included within such
Prospect.
With respect to each well drilled on
the Prospect by a farmee of
COMPANY's Working Interest and
solely for the purpose of this
paragraph 6.5.1 (d), Payout shall be
defined as the point in time at
which the revenue to COMPANY from
its interest in oil and gas
production from such well (after
deduction of COMPANY's prorata part
of the burden of (i) all landowners'
royalties, overriding royalties, net
profits interests, production
payments or other burdens upon,
measured by or payable out of such
production and (ii) all applicable
ad valorem, production, severance,
sales, gathering, windfall profits
excise and similar taxes) equals the
sum incurred by or for the account
of COMPANY (x) in preparing for
drilling, drilling, testing,
completing, equipping (including,
without limitation, installation of
platforms, facilities and
pipelines), operating, reworking and
recompleting the well, and marketing
the production therefrom, and (y)
for such well's allocable share of
geological and geophysical costs,
leasehold costs, all other costs of
acquiring and maintaining in force
the leases allocated to the well and
other common costs. Leases
"allocated" to a well and "common
costs" shall have the respective
meanings ascribed thereto in the
definition of "Payout" set forth in
paragraph 6.1.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
has been a Change in Control, then
neither COMPANY nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
6.5.1(d).
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Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
COMPANY's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the COMPANY or of
Newco or of any parent or subsidiary
of the COMPANY or Newco, or to any
unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
6.5.1.(d).
6.5.1(e) With respect to any Prospect on
which the Initial Well has been
drilled and which Prospect has been
determined by COMPANY to be capable
of producing oil and/or gas, should
COMPANY desire to sell or farmout
all or any portion of its Working
Interest in such Prospect to
unaffiliated third parties, the
committee shall categorize
geographical areas of the leases
comprising the Prospect into
Development Acreage and Exploratory
Acreage.
Any sale or farmout of the COMPANY's
Working Interest in any such
Development Acreage will be made
subject to HUBER's Overriding
Royalty Interest provided for in
paragraph 6.2 hereinabove (as such
interest may have previously been
adjusted pursuant to other
provisions of this paragraph 6);
provided, however, with respect to
each well drilled on the Prospect by
a purchaser or farmee or their
assigns of COMPANY's Working
Interest, and solely for the purpose
of this paragraph 6.5.1(e), Payout
shall be defined as the point in
time at which the revenue to
purchaser or farmee or their assigns
from its or their interest purchased
or farmed in from COMPANY in oil
and/or gas production from such well
(after deduction of purchaser's or
farmee's prorata part of the burden
of (i) all landowners' royalties,
overriding royalties, net profits
interests, production payments or
other burdens upon, measured by or
payable out of such production and
(ii) all applicable ad valorem,
production, severance, sales,
gathering, windfall profits excise
and similar
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taxes) equals the sum incurred by or
for the account of purchaser or
farmee or their assigns in preparing
for drilling, drilling, testing,
completing, equipping, operating,
reworking and recompleting the well,
and marketing the production
therefrom.
With respect to the COMPANY's
Working Interest in Exploratory
Acreage to be sold by COMPANY, the
committee may adjust the Overriding
Royalty Interest of HUBER in the
following manner:
HUBER's after-Payout interest shall
be reduced to one-half of HUBER's
after-Payout interest stated in
paragraph 6.2 (as such after-Payout
interest stated in paragraph 6.2 may
have previously been reduced
pursuant to other provisions of this
paragraph 6) and HUBER's before-
Payout interest shall be increased
to twice HUBER's before-Payout
interest stated in paragraph 6.2 (as
such before-Payout interest stated
in paragraph 6.2 may have previously
been reduced pursuant to other
provisions of this paragraph 6),
with the result that HUBER's
interests before and after Payout
shall be equal.
With respect to the COMPANY's
Working Interest in Exploratory
Acreage to be farmed out by COMPANY,
the committee shall (unless the
committee recommends otherwise and
the Board of Directors approves such
recommendation) adjust the
Overriding Royalty Interest of HUBER
in the following manner:
HUBER's Overriding Royalty Interest
shall be calculated by multiplying
HUBER's percentage interests stated
in paragraph 6.2 above (as such
interests stated in paragraph 6.2
may have previously been reduced
pursuant to other provisions of this
paragraph 6) by COMPANY's overriding
royalty interest set forth in the
particular farmout agreement for
said Prospect, for and during the
period of time in which COMPANY
receives such overriding royalty
interest.
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To the extent, if any, that
COMPANY's overriding royalty
interest set forth in such farmout
agreement converts to a Working
Interest in such Prospect (whether
by election of COMPANY or
otherwise), then, from and after
such conversion, HUBER's Overriding
Royalty Interest shall be based upon
such Working Interest of COMPANY
pursuant to paragraph 6.2 above;
provided, however, if pursuant to
such farmout agreement, only a
portion of COMPANY's overriding
royalty interest converts to a
Working Interest and COMPANY
retains, following such conversion,
some overriding royalty interest in
addition to such Working Interest,
HUBER shall be entitled to receive,
as part of HUBER's Overriding
Royalty Interest and in addition to
such Overriding Royalty Interest
based upon COMPANY's Working
Interest, an interest equal to the
percentage stated in paragraph 6.2
above (as such interest may have
previously been reduced pursuant to
other provisions of this paragraph
6) multiplied by COMPANY's retained
overriding royalty interest.
Such adjustment shall apply only to
the interest sold or farmed out to
unaffiliated third parties, and
shall not affect the interest
retained by COMPANY. Any exercise
of discretion by COMPANY under this
paragraph shall be applied in like
manner to all participants who are
entitled to receive from COMPANY an
Overriding Royalty Interest in
leases included within such
Prospect.
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, there
shall have been a Change in Control,
then neither COMPANY nor the person
acquiring the control shall have any
right to make the adjustment
described above in this paragraph
6.5.1(e).
Notwithstanding anything contained
herein to the contrary, if, after
the Effective Date and during the
term or extended term hereof, the
COMPANY's Working Interest in any
Prospect is sold, transferred or
conveyed to the holder of any
indebtedness of the COMPANY or of
Newco or of any parent or subsidiary
of the COMPANY or Newco, or to any
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unaffiliated third party, by or
pursuant to a foreclosure of any
mortgage or other security interest
therein securing such indebtedness
or any part thereof or by transfer
or conveyance in lieu of such
foreclosure, then such holder or
other third party shall not have any
right to make the adjustment
described above in this paragraph
6.5.1.(e).
If any of the events set forth in
the two immediately preceding
sentences hereof should occur, such
that the adjustment described above
in this paragraph 6.5.1(e) with
respect to the Overriding Royalty
Interest of HUBER in leases in such
Exploratory Acreage is precluded
from occurring as provided above,
then, with respect to each well
drilled on such Exploratory Acreage
by a purchaser or farmee or their
assigns of COMPANY's Working
Interest, and solely for purposes of
this paragraph 6.5.1(e), Payout
shall be defined as set forth above
in this paragraph 6.5.1(e).
6.5.2 Attached hereto as Exhibit "A" are copies of
paragraphs 9.5.2 and 9.5.3 of COMPANY's employee
Overriding Royalty Interest pool program in which
certain employees of COMPANY are entitled to
participate from time to time. HUBER and COMPANY
agree that, in the event COMPANY elects from time to
time during the term or extended term of this
Agreement to reduce the Overriding Royalty Interests
of such participating employees of COMPANY in any
Prospects subject to this Agreement, pursuant to any
of the provisions of such paragraphs 9.5.2 and 9.5.3,
HUBER's Overriding Royalty Interest in such Prospects
shall be reduced in the same manner and in the same
proportion as the reduction of Overriding Royalty
Interests in such Prospects of such employees.
6.5.3 Notwithstanding anything contained herein to the
contrary, after an assignment is delivered to HUBER
with respect to a Prospect pursuant to paragraph 6.4,
COMPANY or its assigns may no longer reduce or modify
HUBER's Overriding Royalty Interest on any well in
such Prospect without written consent of HUBER,
except pursuant to paragraphs 6.5.1(c), 6.5.1(d),
6.5.1(e) and 6.5.2 in the case only of assignments
other than those delivered pursuant to paragraphs
6.4.8(a), 6.4.8(b) and 6.4.9.
6.5.4 In no event may any party other than COMPANY reduce
or modify HUBER's Overriding Royalty Interest without
written consent of HUBER.
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6.5.5 COMPANY shall give HUBER written notice of any
adjustment made to HUBER's Overriding Royalty
Interest pursuant to the provisions of paragraphs
6.5.1(b), 6.5.1(c), 6.5.1(d), 6.5.1(e) and 6.5.2
within one hundred twenty (120) days following such
adjustment.
6.5.6 Upon request by COMPANY, HUBER shall execute and
deliver to COMPANY such reassignments, transfer
orders, division orders, releases and other documents
deemed by COMPANY to be necessary or appropriate to
evidence any modification, reduction or other
adjustment pursuant to this paragraph 6.5.
6.6 COMPANY's Preferential Right to Purchase.
If at any time during the term or extended term of this
Agreement, or if within one (1) year from the expiration of
this Agreement, HUBER receives and desires to accept an offer
for the purchase of a part or all of HUBER's Overriding
Royalty Interest assigned pursuant to this paragraph 6 (the
portion or all of such Overriding Royalty Interest covered by
such offer to purchase being herein sometimes called the
"Offered Interest"), from a prospective third party purchaser
who is ready, willing and able to purchase the same, then
HUBER shall have the right to sell such Offered Interest, but
only after complying with the following terms and provisions:
6.6.1 The offer shall first be reduced to writing and
signed by HUBER and the offeror. HUBER shall give
COMPANY written notice of his receipt of, and his
desire to accept, such written offer, together with a
copy of such written offer signed by the prospective
third party purchaser and containing all of the terms
and conditions of such offer. The date such written
notice is given to COMPANY is herein sometimes called
the "Original Date."
6.6.2 COMPANY shall thereafter have an option to purchase
the Offered Interest upon the same terms set forth in
said offer, which option may be exercised by written
notice thereof given to HUBER within ten (10) days
after the Original Date.
6.6.3 If the Offered Interest is not purchased by COMPANY
pursuant to the foregoing provisions of this
paragraph, then HUBER shall have the right to sell
the Offered Interest to the prospective third party
purchaser named in such offer, provided that such
sale is consummated within thirty (30) days from the
expiration date of the option of COMPANY created
hereby and provided that such sale is made in strict
conformity with the terms of such offer.
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6.6.4 If, however, such sale of the Offered Interest does
not occur within such thirty-day period for the price
and upon the terms set forth in such offer, then any
sale of part or all of such Offered Interest
thereafter shall again be subject to the option to
purchase granted to COMPANY under this paragraph 6.6.
6.6.5 If HUBER elects to take title to an Overriding
Royalty Interest in a legal entity other than himself
(which he may do only with COMPANY's consent), such
entity shall take title subject to all of the terms
and conditions of this Agreement.
6.7 Additional Provisions Affecting Overriding Royalty Interest.
In addition to the other provisions of this paragraph 6,
HUBER's Overriding Royalty Interest shall be subject to the
following:
6.7.1 Notwithstanding anything to the contrary contained
herein, HUBER shall not have the right to take in
kind or separately dispose of the production of oil
and gas attributable to his Overriding Royalty
Interest.
6.7.2 HUBER's Overriding Royalty Interest shall also apply
to the production of oil and gas under the terms and
provisions of any renewal, extension or new lease, to
the extent such renewal, extension or new lease
covers all or any portion of any lands covered by the
expired lease which was subject to HUBER's Overriding
Royalty Interest or is within the Prospect plat, and
provided, however, that any such renewal, extension
or new lease shall have been acquired by or for the
benefit of COMPANY, either prior to or within one (1)
year after the expiration of the expired lease.
6.7.3 Except as otherwise provided in this paragraph 6, in
no event shall HUBER ever be liable or responsible in
any way for payment of any part of any exploration,
drilling or production costs or liabilities incurred
by COMPANY or its assigns or other lessees
attributable to the lease or leases in a Prospect or
to the production therefrom, it being the intent of
the parties that HUBER's Overriding Royalty Interest
shall constitute a non-participating royalty interest
for all purposes.
6.7.4 COMPANY will conduct and carry on the development,
maintenance and operation of any lease subject to
HUBER's Overriding Royalty Interest in a manner which
it deems in its sole judgment to be reasonable and
prudent and in accordance with good oil and gas field
practices, and it will drill such wells as it
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deems proper in its sole judgment from time to time
in order to protect such lease from drainage;
provided, however, (a) nothing herein contained
shall obligate COMPANY to conduct any drilling
operations whatsoever upon such lease, or to continue
to operate any well or to operate or maintain in
force or attempt to maintain in force such lease by
payment of delay rentals, compensatory royalties or
other payments or by the drilling of any wells upon
said lease, or in any other manner, and the extent
and duration of all operations, as well as the
preservation of each of such leases by delay rental
payments or otherwise, shall be solely at the will of
COMPANY, and (b) COMPANY shall have the right at any
time to surrender, abandon or otherwise terminate any
such lease in whole or in part without liability to
HUBER.
6.7.5 COMPANY shall have the right to sell all production
attributable to HUBER's Overriding Royalty Interest
on the same basis upon which the production
attributable to COMPANY's interest in the same
production is sold, and shall account to HUBER on
that basis. In no event shall HUBER be entitled to
receive payments for production attributable to his
Overriding Royalty Interest calculated on a basis
higher than that upon which COMPANY's interest in the
same production is calculated or computed on a higher
price than that payable to COMPANY on account of
production attributable to its interest, and in no
event shall HUBER be entitled to receive payments on
amounts suspended by purchasers of the production
pending determination of the authorized price by
governmental entities. However, if COMPANY sells any
such production to an affiliate of COMPANY, the price
therefor shall not be less than would have been
reasonably obtainable in a sale to a non-affiliated
purchaser.
6.7.6 There shall be deducted from the production, before
HUBER's Overriding Royalty Interest is computed, any
production lost in the production from the leases, or
any lands pooled therewith, or used for drilling,
operating, development or production or in plant
operations (including gas injection, secondary
recovery, pressure maintenance, repressuring, cycling
operations, plant fuel or shrinkage) conducted for
the purpose of producing or processing production
from lands covered by the leases or from any lands
pooled with the leases.
6.7.7 COMPANY shall have the right and option, but not the
obligation, to process gas produced and saved from
the leases. If COMPANY elects to process or have
processed, such gas in a gas processing plant or
other facility, whether or not owned by COMPANY, then
in such event HUBER shall be paid his percentage
share provided
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for herein of the proceeds of sale of all gasoline or
other liquid hydrocarbons or other products
manufactured or extracted from such gas as a result
of such processing (collectively, the "Products"),
less the costs of extraction or manufacture (which
may consist of a portion of the Products). COMPANY
shall also pay to HUBER the same percentage share of
the proceeds of sale of all residue gas sold by
COMPANY, less expenses incurred by COMPANY in
transporting any such gas to point of delivery and
for dehydration and/or compression of gas at or prior
to such delivery and other expenses and fees
typically borne by royalty owners (excluding expenses
or fees for capital projects funded by COMPANY to the
extent such expenses or fees have been included in
the Payout calculation for the well from which such
gas is produced).
6.7.8 HUBER's Overriding Royalty Interest shall bear its
proportionate share of all other costs of marketing
and transporting production from the leases or from
any lands pooled therewith which are typically borne
by royalty owners (excluding expenses or fees for
capital projects funded by COMPANY to the extent such
expenses or fees have been included in the Payout
calculation for the well from which such production
is produced).
6.7.9 HUBER's Overriding Royalty Interest shall also bear
its share of all ad valorem, production, severance,
sales, gathering and other taxes typically borne by
royalty owners (whether state, federal or otherwise)
assessed or levied on or in connection with the
Overriding Royalty Interest or the production from
the leases.
6.7.10 COMPANY or its assigns shall have the right and
power, without any approval by HUBER, to pool or
unitize any lease which is subject to HUBER's
Overriding Royalty Interest, and to alter, change,
amend or terminate any pooling or unitization
agreements heretofore or hereafter entered into, as
to all or any part of a Prospect, as to any one or
more of the formations or horizons thereunder, upon
such terms and provisions as COMPANY shall in its
sole discretion determine. If and whenever through
the exercise of such right and power, or pursuant to
any law now existing or hereafter enacted, or any
rule, regulation or order of any governmental body
now or hereafter promulgated, any of the leases of
COMPANY are pooled or unitized in any manner, HUBER's
Overriding Royalty Interest shall also be pooled and
unitized, and in such event HUBER's Overriding
Royalty shall only be paid on that portion of the
production from the unit or units so pooled, which is
attributable to said leases under and by virtue of
the pooling and unitization.
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6.7.11 COMPANY may withhold payment to HUBER of any funds
attributable to HUBER's Overriding Royalty Interest
which COMPANY, in its sole discretion, deems to be
subject to a risk of refund or recoupment pursuant to
any rule, regulation or order of any governmental
authority or any adverse claims by third parties.
During such suspense period, HUBER shall not be
entitled to interest on sums so withheld.
6.7.12 In the event COMPANY's Working Interest in any lease
in which HUBER is entitled to an Overriding Royalty
Interest covers less than all of the full and entire
undivided interest in and to the land described
therein, and in and to all the oil and gas rights
relating thereto, then in that event the Overriding
Royalty Interest as to that portion of the leased
premises in which COMPANY's Working Interest in such
lease does not cover such full and entire undivided
interest shall be reduced proportionately (i.e., in
the proportion that the undivided interest in and to
said land and oil and gas rights covered by such
lease bears to such full and entire undivided
interest).
6.7.13 Notwithstanding anything contained in this paragraph
6 to the contrary, HUBER's Overriding Royalty
Interest in any Net Profit Share Lease ("NPSL") shall
be reduced at the same time and in the same
percentage as COMPANY's net revenue interest in said
NPSL is reduced pursuant to the provisions of said
NPSL.
6.7.14 COMPANY and HUBER further undertake and agree
promptly to execute and deliver, upon request of
either party, all assignments, reassignments,
transfer orders, division orders, releases and any
other documents as may be necessary to implement this
paragraph 6 or otherwise to more fully assure to each
party the rights and interests of such party provided
for in this paragraph 6.
7.
CONFIDENTIAL RELATIONSHIP
All information and data (including studies, maps and
interpretations) received by HUBER from COMPANY or prepared or obtained by
HUBER for COMPANY shall be and forever remain the sole and exclusive property
of COMPANY and shall be and remain confidential, and the same shall not be
divulged or disclosed by HUBER to any other person or concern.
In any area described in a Deepwater Prospect submitted by
HUBER to COMPANY pursuant to paragraph 1 or in any area in which COMPANY elects
to attempt to acquire oil, gas and mineral leases or interests therein, HUBER
will not
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compete with COMPANY, directly or indirectly, in the acquisition thereof during
the term of this Agreement or any extension thereof and for twelve (12) months
after the expiration of the term of this Agreement.
8.
INDEMNITY
HUBER shall be solely liable for and agrees to hold COMPANY harmless
of and from each and every claim, liability, suit, action, and judgment for
damage to or loss of property, or for injury to or death of any person or
persons caused by or arising out of the negligence or misconduct of HUBER in
the performance of work under the terms of this Agreement.
9.
INDEPENDENT CONTRACTOR
This Agreement is for the performance of services by HUBER as an
independent contractor and is not a contract of employment. While COMPANY may
indicate the scope and scheduling of such services to be performed hereunder,
the manner and means of accomplishing all such services are entirely under the
direction and control of HUBER.
No partnership or relationship of principal and agent or employer and
employee is hereby created or shall arise as a result of the execution of this
Agreement or the acquisition of properties hereunder, and no party hereto shall
have any right, power or authority to contract on behalf of any other party or
obligate any other party or any commitment or undertaking.
10.
NONCOMPETITION OBLIGATIONS
10.1 As part of the consideration for the compensation and
benefits to be paid to HUBER hereunder, and as an
additional incentive for COMPANY to enter into this
Agreement, COMPANY and HUBER agree to the
non-competition obligations hereunder. Except for
services to be provided by HUBER to COMPANY under
this Agreement, HUBER will not, directly or
indirectly for HUBER or for others engage in any oil
or gas exploration, development, or production
activity in the United States Gulf of Mexico.
10.2 These non-competition obligations shall commence upon
the date of execution of this Agreement and extend
until the expiration of the term of this Agreement
(or any extended term).
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10.3 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
business activities in the United States Gulf of
Mexico during the term of this Agreement, but
acknowledges that Employee will receive sufficiently
high renumeration and other benefits under this
Agreement to justify such restriction. HUBER
acknowledges that money damages would not be
sufficient remedy for any breach of this paragraph 10
by HUBER, and COMPANY shall be entitled to enforce
the provisions of this Agreement and/or to specific
performances and injunctive relief as remedies for
such breach or any threatened breach. Such remedies
shall not be deemed the exclusive remedies for a
breach of this paragraph 10, but shall be in addition
to all remedies available at law or in equity to
COMPANY, including, without limitation, the recovery
of damages from HUBER and HUBER's agents involved in
such breach and remedies available to COMPANY
pursuant to other agreements with HUBER.
10.4 It is expressly understood and agreed that COMPANY
and HUBER consider the restrictions contained in this
paragraph 10 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
11.
CERTAIN ADDITIONAL PAYMENTS BY COMPANY
11.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by COMPANY or any of
its affiliates to or for the benefit of HUBER,
whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions
being individually referred to herein as a "Payment,"
and any two or more of such payments or distributions
being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest
thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax,
and any interest in respect of such penalties,
additions to tax or additional amounts, being
collectively referred herein to as the "Excise Tax"),
then HUBER shall be entitled to receive an additional
payment or payments
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(individually referred to herein as a "Gross-Up
Payment" and any two or more of such additional
payments being referred to herein as "Gross-Up
Payments") in an amount such that after payment by
HUBER of all taxes (as defined in paragraph 11.11)
imposed upon the Gross-Up Payment, HUBER retains an
amount of such Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
11.2 Subject to the provisions of paragraph 11.3 through
11.11, any determination (individually, a
"Determination") required to be made under this
paragraph 11, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment,
shall initially be made, at COMPANY'S expense, by
nationally recognized tax counsel mutually acceptable
to COMPANY and HUBER ("Tax Counsel"). Tax Counsel
shall provide detailed supporting legal authorities,
calculations, and documentation both to COMPANY and
HUBER within 15 business days of the termination of
HUBER'S employment, if applicable, or such other time
or times as is reasonably requested by COMPANY or
HUBER. If Tax Counsel makes the initial
Determination that no Excise Tax is payable by HUBER
with respect to a Payment or Payments, it shall
furnish HUBER with an opinion reasonably acceptable
to HUBER that no Excise Tax will be imposed with
respect to any such Payment or Payments. HUBER shall
have the right to dispute any Determination (a
"Dispute") within 15 business days after delivery of
Tax Counsel's opinion with respect to such
Determination. The Gross-Up Payment, if any, as
determined pursuant to such Determination shall be
paid by COMPANY to HUBER within five business days of
HUBER'S receipt of such Determination. The existence
of a Dispute shall not in any way affect HUBER'S
right to receive the Gross-Up Payment in accordance
with such Determination. If there is no Dispute,
such Determination shall be binding, final and
conclusive upon COMPANY and HUBER, subject in all
respects, however, to the provisions of paragraphs
11.3 through 11.11 below. As a result of the
uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have
been made by COMPANY should have been made
("Underpayment"), and if upon any reasonable written
request from HUBER or COMPANY to Tax Counsel, or upon
Tax Counsel's own initiative, Tax Counsel, at
COMPANY'S expense, thereafter determines that HUBER
is required to make a payment of any Excise Tax or
any additional Excise Tax, as the case may be, Tax
Counsel shall, at COMPANY'S expense, determine the
amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by COMPANY
to HUBER.
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11.3 COMPANY shall defend, hold harmless, and indemnify
HUBER on a fully grossed-up after tax basis from and
against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of HUBER resulting from any Final
Determination (as defined in paragraph 11.10) that
any Payment is subject to the Excise Tax.
11.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a claim
by HUBER against COMPANY under this paragraph 11
("Claim"), including, but not limited to, a claim for
indemnification of HUBER by COMPANY under paragraph
11.3, then such party shall promptly notify the other
party hereto in writing of such Claim ("Tax Claim
Notice").
11.5 If a Claim is asserted against HUBER ("HUBER Claim"),
HUBER shall take or cause to be taken such action in
connection with contesting such HUBER Claim as
COMPANY shall reasonably request in writing from time
to time, including the retention of counsel and
experts as are reasonably designated by COMPANY (it
being understood and agreed by the parties hereto
that the terms of any such retention shall expressly
provide that COMPANY shall be solely responsible for
the payment of any and all fees and disbursements of
such counsel and any experts) and the execution of
powers of attorney, provided that:
11.5.1 within 30 calendar days after COMPANY
receives or delivers, as the case may be, the
Tax Claim Notice relating to such HUBER Claim
(or such earlier date that any payment of the
taxes claimed is due from HUBER, but in no
event sooner than five calendar days after
COMPANY receives or delivers such Tax Claim
Notice), COMPANY shall have notified HUBER in
writing ("Election Notice") that COMPANY does
not dispute its obligations (including, but
not limited to, its indemnity obligations)
under this Agreement and that COMPANY elects
to contest, and to control the defense or
prosecution of, such HUBER Claim at COMPANY'S
sole risk and sole cost and expense; and
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11.5.2 COMPANY shall have advanced to HUBER on an
interest-free basis, the total amount of the
tax claimed in order for HUBER, at COMPANY'S
request, to pay or cause to be paid the tax
claimed, file a claim for refund of such tax
and, subject to the provisions of the last
sentence of paragraph 11.7, sue for a refund
of such tax if such claim for refund is
disallowed by the appropriate taxing
authority (it being understood and agreed by
the parties hereto that COMPANY shall only be
entitled to sue for a refund and COMPANY
shall not be entitled to initiate any
proceeding in, for example, United States Tax
Court) and shall indemnify and hold HUBER
harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to
such advance or with respect to any imputed
income with respect to such advance; and
11.5.3 COMPANY shall reimburse HUBER for any and all
costs and expenses resulting from any such
request by COMPANY and shall indemnify and
hold HUBER harmless, on fully grossed- up
after-tax basis, from any tax imposed as a
result of such reimbursement.
11.6 Subject to the provisions of paragraph 11.5 hereof,
COMPANY shall have the right to defend or prosecute,
at the sole cost, expense and risk of COMPANY, such
HUBER Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by COMPANY to a Final Determination;
provided, however, that (i) COMPANY shall not,
without HUBER'S prior written consent, enter into any
compromise or settlement of such HUBER Claim that
would adversely affect HUBER, (ii) any request from
COMPANY to HUBER regarding any extension of the
statute of limitations relating to assessment,
payment, or collection of taxes for the taxable year
of HUBER with respect to which the contested issues
involved in, and amount of, the HUBER Claim relate is
limited solely to such contested issues and amount,
and (iii) COMPANY'S control of any contest or
proceeding shall be limited to issues with respect to
the HUBER Claim and HUBER shall be entitled to settle
or contest, in his sole and absolute discretion, any
other issue raised by the Internal Revenue Service or
any other taxing authority. So long as COMPANY is
diligently defending or prosecuting such HUBER Claim,
HUBER shall provide or cause to be provided to
COMPANY any information reasonably requested by
COMPANY that relates to such HUBER Claim, and shall
otherwise cooperate with COMPANY and its
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representatives in good faith in order to contest
effectively such HUBER Claim. COMPANY shall keep
HUBER informed of all developments and events
relating to any such HUBER Claim (including, without
limitation, providing to HUBER copies of all written
materials pertaining to any such HUBER Claim), and
HUBER or his authorized representatives shall be
entitled, at HUBER'S expense, to participate in all
conferences, meetings and proceedings relating to any
such HUBER Claim.
11.7 If, after actual receipt by HUBER of an amount of a
tax claimed (pursuant to an HUBER Claim) that has
been advanced by COMPANY pursuant to paragraph 11.5.2
hereof, the extent of the liability of COMPANY
hereunder with respect to such tax claimed has been
established by a Final Determination, HUBER shall
promptly pay or cause to be paid to COMPANY any
refund actually received by, or actually credited to,
HUBER with respect to such tax (together with any
interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such
taxing authority related thereto), except to the
extent that any amounts are then due and payable by
COMPANY to HUBER, whether under the provisions of
this Agreement or otherwise. If, after the receipt
by HUBER of an amount advanced by COMPANY pursuant to
paragraph 11.5.2, a determination is made by the
Internal Revenue Service or other appropriate taxing
authority that HUBER shall not be entitled to any
refund with respect to such tax claimed and COMPANY
does not notify HUBER in writing of its intent to
contest such denial of refund prior to the expiration
of 30 days after such determination, then such
advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of any
Gross-Up Payments and other payments required to be
paid hereunder.
11.8 With respect to any HUBER Claim, if COMPANY fails to
deliver an Election Notice to HUBER within the period
provided in paragraph 11.5.1 hereof or, after
delivery of such Election Notice, COMPANY fails to
comply with the provisions of paragraph 11.5.2,
11.5.3 or 11.6 hereof, then HUBER shall at any time
thereafter have the right (but not the obligation),
at his election and in his sole and absolute
discretion, to defend or prosecute, at the sole cost,
expense and risk of COMPANY, such HUBER Claim. HUBER
shall have full control of such defense or
prosecution and such proceedings, including any
settlement or compromise thereof. If requested by
HUBER, COMPANY shall cooperate, and shall cause its
affiliates to cooperate, in good faith with HUBER and
his authorized representatives in order to contest
effectively such
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HUBER Claim. COMPANY may attend, but not participate
in or control, any defense, prosecution, settlement
or compromise of any HUBER Claim controlled by HUBER
pursuant to this paragraph 11.8 and shall bear its
own costs and expenses with respect thereto. In the
case of any HUBER Claim that is defended or
prosecuted by HUBER, HUBER shall, from time to time,
be entitled to current payment, on a fully grossed-up
after tax basis, from COMPANY with respect to costs
and expenses incurred by HUBER in connection with
such defense or prosecution.
11.9 In the case of any HUBER Claim that is defended or
prosecuted to a Final Determination pursuant to the
terms of this paragraph 11.9, COMPANY shall pay, on a
fully grossed-up after tax basis, to HUBER in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such HUBER Claim that have not
theretofore been paid by COMPANY to HUBER, together
with the costs and expenses, on a fully grossed-up
after tax basis, incurred in connection therewith
that have not theretofore been paid by COMPANY to
HUBER, within ten calendar days after such Final
Determination. In the case of any HUBER Claim not
covered by the preceding sentence, COMPANY shall pay,
on a fully grossed-up after tax basis, to HUBER in
immediately available funds the full amount of any
taxes arising or resulting from or incurred in
connection with such HUBER Claim at least ten
calendar days before the date payment of such taxes
is due from HUBER, except where payment of such taxes
is sooner required under the provisions of this
paragraph 11.9, in which case payment of such taxes
(and payment, on a fully grossed-up after tax basis,
of any costs and expenses required to be paid under
this paragraph 11.9) shall be made within the time
and in the manner otherwise provided in this
paragraph 11.9.
11.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim for
refund or credit in respect to an overpayment of tax
unless a suit is filed on a timely basis; or (D) any
final disposition by reason of the expiration of all
applicable statutes of limitations.
11.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever
(including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes),
Consulting Services Agreement for David S. Huber
-35-
<PAGE> 36
together with any interest thereon, any penalties,
additions to tax, or additional amounts with respect
to such taxes and any interest in respect of such
penalties, additions to tax, or additional amounts.
12.
ENTIRE AGREEMENT
This Agreement sets forth the entire agreement between COMPANY and
HUBER. Any amendment of this Agreement must be made in writing and executed by
both COMPANY and HUBER.
13.
AGREEMENT BINDING UPON ASSIGNS
This Agreement, as amended, shall be binding upon the heirs,
administrators, or executors and the successors and assigns of each party to
this Agreement.
14.
ACCRUED RIGHTS AND BENEFITS
Except as otherwise expressly provided herein, nothing contained in
this Agreement shall limit or otherwise affect any rights or benefits which are
vested in, accrued to, or earned by HUBER, or for which HUBER is entitled to,
prior to the Effective Date whether under any prior Consulting Services
Agreement or otherwise.
15.
TERMINATION OF CHANGE IN CONTROL AGREEMENT
ON THE EFFECTIVE DATE, THAT CERTAIN CHANGE IN CONTROL AGREEMENT DATED
FEBRUARY 12, 1996, BETWEEN COMPANY AND HUBER SHALL TERMINATE AND BE FROM THE
EFFECTIVE DATE NULL, VOID AND OF NO FURTHER FORCE OR EFFECT WHATSOEVER.
Consulting Services Agreement for David S. Huber
-36-
<PAGE> 37
IN WITNESS WHEREOF, this instrument has been executed effective as of
the Effective Date.
COMPANY:
MARINER ENERGY, INC. (formerly known
as Hardy Oil & Gas USA Inc.)
By: /s/ ROBERT E. HENDERSON
--------------------------------
Printed Name: Robert E. Henderson
------------------------
Printed Title: President and Chief
------------------------
Executive Officer
------------------------
HUBER:
/s/ DAVID S. HUBER
---------------------------------------
DAVID S. HUBER
Consulting Services Agreement for David S. Huber
-37-
<PAGE> 38
EXHIBIT "A"
9.5.2 Within sixty (60) days after the end of each fiscal
year of COMPANY, COMPANY may in its sole discretion
elect to reduce the Overriding Royalty Interest set
forth in paragraph 9.2 with respect to Prospects
subject to this Agreement that were acquired by
COMPANY during such fiscal year (which election, if
timely made as above provided, shall be effective as
of the beginning of such fiscal year) based on actual
Exploration and Development Costs incurred by COMPANY
Group during such fiscal year in respect of all
Prospects subject to this Agreement, as follows (with
linear interpolation between indicated levels of
costs):
Total E & D
Costs Level Permitted Reduction
----------- -------------------
under $35 million no reduction
$70 million 25.00%
$105 million 33.33%
$140 million 38.33%
$175 million 41.67%
over $175 million **
**Permitted Reduction shall be determined in the sole discretion of COMPANY.
The Total Exploration and Development Costs Levels
and resultant ranges and escalation increments
provided for above are "Base Year" figures for fiscal
year 1996-1997, and shall be adjusted annually on a
compound basis beginning with the fiscal year
commencing April 1, 1997, according to the then
current Council of Petroleum Accountants Societies'
(COPAS) adjustment rate (based upon the percentage
increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers as of
April 1 as published by the United States Department
of Labor, Bureau of Labor Statistics).
The "Permitted Reduction" shall mean the percentage
by which Employee's Overriding Royalty Interest (both
before and after Payout) may be adjusted downward.
Each such adjustment shall determine Employee's
Overriding Royalty Interest for the fiscal year in
question, and shall be uniform on Prospects acquired
during that period (subject to paragraphs 9.5.1 and
9.5.3). Without limiting the foregoing, a Permitted
Reduction shall apply to any Major Prospect subject
to this Agreement that was acquired by COMPANY during
such fiscal year, whether or not an adjustment of
Employee's Overriding Royalty Interest in such Major
Prospect shall have been made pursuant to paragraph
9.5.3.
A-1
<PAGE> 39
All leases acquired in those Prospects, whether
during the same fiscal year or thereafter, shall be
subject to the same Employee's Overriding Royalty
Interest established at the time the Prospect was
acquired, subject, however, to adjustment as provided
for in this paragraph 9. A Permitted Reduction in
Employee's Overriding Royalty Interest for a
particular fiscal year, however, shall not operate to
reduce Employee's Overriding Royalty Interest stated
in paragraph 9.2 in respect of any Prospects acquired
by COMPANY in any subsequent fiscal year during the
term or extended term hereof.
9.5.2(a) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploitation Prospects acquired by
COMPANY during a fiscal year of
COMPANY for which COMPANY's estimate
of Exploration and Development Costs
incurred or to be incurred by
COMPANY Group in respect of all
FPF/TLP Exploitation Prospects
acquired in such fiscal year exceeds
$30 million through the end of the
respective primary development
periods for the fields comprising
such FPF/TLP Exploitation Prospects
(which periods, solely for purposes
of the adjustment provided for in
this paragraph, shall not exceed
five (5) years), an alternative
calculation will be made prior to
determining the applicable
"Permitted Reduction" of Employee's
Overriding Royalty Interest with
respect to such FPF/TLP Exploitation
Prospects. Such alternative
calculation shall be based upon the
assumptions that the total
Exploration and Development Costs to
be incurred by COMPANY Group in
respect of all such FPF/TLP
Exploitation Prospects will be
incurred over a two (2) year period
and that such Exploration and
Development Costs will be in
addition to a "base level" of $70
million in Exploration and
Development Costs to be incurred by
COMPANY Group exclusive of the
identified FPF/TLP Exploitation
Prospects. Such alternative
Exploration and Development Costs
level shall be determined as
follows:
The alternative E&D Costs Level shall
be the sum of:
(i) One-half of COMPANY's estimate
of Exploration and
Development Costs incurred or
to be incurred by COMPANY
Group through the end of the
respective primary
development periods in
respect of all FPF/TLP
A-2
<PAGE> 40
Exploitation Prospects
acquired in such fiscal year,
plus
(ii) $70 million.
The Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such FPF/TLP Exploitation
Prospects (both before and after
Payout) may, in COMPANY's sole
discretion, be reduced by the
greater of (x) the "Permitted
Reduction" percentage set forth in
the table above in this paragraph
for the actual "Total E & D Costs
Level" for such fiscal year and (y)
the "Permitted Reduction" percentage
set forth in the table above that
would be applicable if the "Total E
& D Costs Level" for such fiscal
year were equal to such "Alternative
E & D Costs Level".
If the Overriding Royalty Interest
set forth in paragraph 9.2 with
respect to such FPF/TLP Exploitation
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, COMPANY may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two- thirds (before and after
Payout, respectively) of such
Overriding Royalty Interest set
forth in paragraph 9.2. Further, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploitation
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, COMPANY
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such FPF/TLP
Exploitation Prospect to a
percentage (before and after Payout,
respectively) that, when multiplied
times COMPANY's Working Interest in
such FPF/TLP Exploitation Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
A-3
<PAGE> 41
9.5.2(b) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploitation Prospects acquired by
COMPANY during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploitation Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths, COMPANY may, in its sole
discretion, further reduce such
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploitation
Prospect to a percentage (before and
after Payout, respectively) that,
when multiplied times COMPANY's
Working Interest in such Subsea
Tieback Exploitation Prospect, would
equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(c) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any FPF/TLP
Exploration Prospects acquired by
COMPANY during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospects, when reduced pursuant to
the foregoing provisions of this
paragraph, exceeds two-thirds of the
Overriding Royalty Interest set
forth in paragraph 9.2, COMPANY may,
in its sole discretion, further
reduce such Overriding Royalty
Interest to an interest equal to
two-thirds (before and after Payout,
respectively) of such Overriding
Royalty Interest set forth in
paragraph 9.2. Further, if the
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such FPF/TLP Exploration
Prospect, when reduced to such
two-thirds level pursuant to the
foregoing provisions of this
paragraph, exceeds the Overriding
Royalty Interest in such Prospect
that would result from multiplying
the Overriding Royalty Interest
percentage set forth in paragraph
9.2 times a Working Interest
percentage of 50% of 8/8ths, COMPANY
may, in its sole discretion, further
reduce such Overriding Royalty
Interest set forth in paragraph 9.2
with respect to such FPF/TLP
Exploration Prospect to a percentage
(before and after Payout,
respectively) that, when multiplied
A-4
<PAGE> 42
times COMPANY's Working Interest in
such FPF/TLP Exploration Prospect,
would equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.2(d) Notwithstanding the foregoing
provisions of this paragraph 9.5.2,
with respect to any Subsea Tieback
Exploration Prospects acquired by
COMPANY during such fiscal year, if
the Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to any such Subsea Tieback
Exploration Prospects, when reduced
pursuant to the foregoing provisions
of this paragraph, exceeds the
Overriding Royalty Interest in such
Prospect that would result from
multiplying the Overriding Royalty
Interest percentage set forth in
paragraph 9.2 times a Working
Interest percentage of 50% of
8/8ths, COMPANY may, in its sole
discretion, further reduce such
Overriding Royalty Interest set
forth in paragraph 9.2 with respect
to such Subsea Tieback Exploration
Prospect to a percentage (before and
after Payout, respectively) that,
when multiplied times COMPANY's
Working Interest in such Subsea
Tieback Exploration Prospect, would
equal the Overriding Royalty
Interest percentage (before and
after Payout, respectively) set
forth in paragraph 9.2 times a
Working Interest percentage of 50%
of 8/8ths.
9.5.3 With respect to any Major Prospect, COMPANY may in
its sole discretion elect to adjust the Overriding
Royalty Interest set forth in paragraph 9.2,
effective as of the date of COMPANY's acquisition of
such Major Prospect, as follows:
Employee's before-Payout interest shall be reduced by
the following formula:
<TABLE>
<S> <C> <C>
ORIGINAL BEFORE-PAYOUT INTEREST
------------------------------- = REDUCED BEFORE-PAYOUT INTEREST
X
--
Y
</TABLE>
where "X" equals the total amount estimated by
COMPANY for Exploration and Development Costs to be
incurred by COMPANY Group in respect of such Major
Prospect through the end of the primary development
period for the field comprising such Major Prospect
(which period, solely for purposes of
A-5
<PAGE> 43
such adjustment calculation, shall not exceed five
(5) years), and
where "Y" equals $30 million.
Employee's after-Payout interest shall be increased
by adding thereto the full amount of the percentage
interest so deducted from Employee's before-Payout
interest until 2.5 times Payout is reached, at which
time Employee's after-Payout interest shall be
reduced by subtracting therefrom the same percentage
interest that was previously added thereto pursuant
to this sentence.
Such election may be made by COMPANY whether or not
Employee's Overriding Royalty Interest in such Major
Prospect shall have been reduced pursuant to
paragraph 9.5.2. In the case of any such prior
reduction pursuant to paragraph 9.5.2, the term
"original before-Payout interest" as used above in
this paragraph shall refer to Employee's
before-Payout interest as previously reduced pursuant
to paragraph 9.5.2.
A-6
<PAGE> 1
EXHIBIT 10.12
MARINER HOLDINGS, INC.
1996 STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The MARINER HOLDINGS, INC. 1996 STOCK OPTION PLAN (the "Plan") is
intended to provide a means whereby certain employees of MARINER HOLDINGS,
INC., a Delaware corporation (the "Company"), and its subsidiaries may develop
a sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
grant to certain employees ("Optionees") the option ("Option") to purchase
shares of the common stock of the Company ("Stock"), as hereinafter set forth.
Options granted under the Plan may be either incentive stock options, within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), ("Incentive Stock Options") or options which do not constitute
Incentive Stock Options.
II. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee") of,
and appointed by, the Board of Directors of the Company (the "Board");
provided, however, that if and when the Company becomes subject to Section 16
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Committee shall be constituted so as to permit the Plan to comply with Rule
16b-3, as then in effect or as thereafter modified or amended ("Rule 16b-3"),
promulgated under the 1934 Act. The Committee shall have sole authority to
select the Optionees from among those individuals eligible hereunder and to
establish the number of shares which may be issued under each Option. In
selecting the Optionees from among individuals eligible hereunder and in
establishing the number of shares that may be issued under each Option, the
Committee may take into account the nature of the services rendered by such
individuals, their present and potential contributions to the Company's success
and such other factors as the Committee in its discretion shall deem relevant.
The Committee is authorized to interpret the Plan and may from time to time
adopt such rules and regulations, consistent with the provisions of the Plan,
as it may deem advisable to carry out the Plan. All decisions made by the
Committee in selecting the Optionees, in establishing the number of shares
which may be issued under each Option and in construing the provisions of the
Plan shall be final.
III. OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between
the Company and the Optionee ("Option Agreement") which shall contain such
terms and conditions as may be approved by the Committee. The terms and
conditions of the respective Option Agreements need not be identical.
Specifically, an Option Agreement may provide for the surrender of the right to
purchase shares under the Option in
<PAGE> 2
return for a payment in cash or shares of Stock or a combination of cash and
shares of Stock equal in value to the excess of the fair market value of the
shares with respect to which the right to purchase is surrendered over the
option price therefor ("Stock Appreciation Rights"), on such terms and
conditions as the Committee in its sole discretion may prescribe; provided,
that, except as provided in Subparagraph VIII(c) hereof, the Committee shall
retain final authority (i) to determine whether an Optionee shall be permitted,
or (ii) to approve an election by an Optionee, to receive cash in full or
partial settlement of Stock Appreciation Rights. Moreover, an Option Agreement
may provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a fair
market value equal to such option price.
(b) For all purposes under the Plan, the fair market value of a
share of Stock on a particular date shall be equal to the mean of the high and
low sales prices of the Stock (i) reported by the National Market System of
NASDAQ on that date or (ii) if the Stock is listed on a national stock
exchange, reported on the stock exchange composite tape on that date; or, in
either case, if no prices are reported on that date, on the last preceding date
on which such prices of the Stock are so reported. If the Stock is traded over
the counter at the time a determination of its fair market value is required to
be made hereunder, its fair market value shall be deemed to be equal to the
average between the reported high and low or closing bid and asked prices of
Stock on the most recent date on which Stock was publicly traded. In the event
Stock is not publicly traded at the time a determination of its value is
required to be made hereunder, the determination of its fair market value shall
be made by the Committee in such manner as it deems appropriate.
(c) Each Option and all rights granted thereunder shall not be
transferable other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder, and shall be exercisable during the Optionee's lifetime
only by the Optionee or the Optionee's guardian or legal representative.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are employees [or
consultants] (including officers and directors who are also employees) of the
Company or any parent or subsidiary corporation (as defined in section 424 of
the Code) of the Company at the time the Option is granted. Options may be
granted to the same individual on more than one occasion. No Incentive Stock
Option shall be granted to [(i) an individual who is not an employee of the
Company or (ii)] an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the fair
market value of the Stock subject to the Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of
grant. To the extent that the aggregate fair market value (determined at the
time the respective Incentive Stock Option is granted)
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<PAGE> 3
of stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year under all incentive stock
option plans of the Company and its parent and subsidiary corporations exceeds
$100,000, such excess Incentive Stock Options shall be treated as Options which
do not constitute Incentive Stock Options. The Committee shall determine, in
accordance with applicable provisions of the Code, Treasury Regulations and
other administrative pronouncements, which of an Optionee's Incentive Stock
Options will not constitute Incentive Stock Options because of such limitation
and shall notify the Optionee of such determination as soon as practicable
after such determination.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options
granted under the Plan shall not exceed 142,800 shares of Stock. Such shares
may consist of authorized but unissued shares of Stock or previously issued
shares of Stock reacquired by the Company. Any of such shares which remain
unissued and which are not subject to outstanding Options at the termination of
the Plan shall cease to be subject to the Plan, but, until termination of the
Plan, the Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan. Should any Option hereunder
expire or terminate prior to its exercise in full, the shares theretofore
subject to such Option may again be subject to an Option granted under the Plan
(but only to the extent permitted under Rule 16b-3 with respect to shares
subject to an Option that expires or terminates on or after the time the
Company becomes subject to Section 16 of the 1934 Act). The aggregate number
of shares which may be issued under the Plan shall be subject to adjustment in
the same manner as provided in Paragraph VIII hereof with respect to shares of
Stock subject to Options then outstanding. Exercise of an Option in any
manner, including an exercise involving a Stock Appreciation Right, shall
result in a decrease in the number of shares of Stock which may thereafter be
available, both for purposes of the Plan and for sale to any one individual, by
the number of shares as to which the Option is exercised. Separate stock
certificates shall be issued by the Company for those shares acquired pursuant
to the exercise of an Incentive Stock Option and for those shares acquired
pursuant to the exercise of any Option which does not constitute an Incentive
Stock Option.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be
determined by the Committee, but in the case of an Incentive Stock Option, such
purchase price shall not be less than the fair market value of Stock subject to
the Option on the date the Option is granted.
VII. TERM OF PLAN
The Plan shall be effective upon the date of its adoption by the
Board, provided the Plan is approved by the shareholders of the Company within
twelve months thereafter. Notwithstanding any provision in this Plan or in any
Option Agreement, no Option shall be exercisable prior to such shareholder
approval. Except with respect
-3-
<PAGE> 4
to Options then outstanding, if not sooner terminated under the provisions of
Paragraph IX, the Plan shall terminate upon and no further Options shall be
granted after the expiration of ten years from the date of its adoption by the
Board.
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder
shall not affect in any way the right or power of the Board or the shareholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities, the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of its assets or
business or any other corporate act or proceeding.
(b) The shares with respect to which Options may be granted are
shares of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Stock or the payment of a stock
dividend on Stock without receipt of consideration by the Company, the number
of shares of Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(c) If the Company recapitalizes, reclassifies its capital stock,
or otherwise changes its capital structure (a "recapitalization"), the number
and class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If (i) the Company shall not be
the surviving entity in any merger, consolidation or other reorganization (or
survives only as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company), (ii) the Company sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary of the Company), or (iii) the Company is to be
dissolved and liquidated, (each such event is referred to herein as a
"Corporate Change"), no later than ten days after the approval by the
shareholders of the Company of such merger, consolidation, reorganization,
sale, lease or exchange of assets or dissolution, the Committee, acting in its
sole discretion without the consent or approval of any Optionee, shall act to
effect one or more of the following alternatives, which may vary among
individual Optionees and which may vary among Options held by any individual
Optionee: (1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Corporate Change)
fixed by the Committee, after which specified date all unexercised Options and
all rights of Optionees thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected Optionees of some or all of the
-4-
<PAGE> 5
outstanding Options held by such Optionees (irrespective of whether such
Options are then exercisable under the provisions of the Plan) as of a date,
before or after such Corporate Change, specified by the Committee, in which
event the Committee shall thereupon cancel such Options and the Company shall
pay to each Optionee an amount of cash per share equal to the excess, if any,
of the amount calculated in Subparagraph (d) below (the "Change of Control
Value") of the shares subject to such Option over the exercise price(s) under
such Options for such shares, (3) make such adjustments to Options then
outstanding as the Committee deems appropriate to reflect such Corporate Change
(provided, however, that the Committee may determine in its sole discretion
that no adjustment is necessary to Options then outstanding) or (4) provide
that the number and class of shares of Stock covered by an Option theretofore
granted shall be adjusted so that such Option shall thereafter cover the number
and class of shares of stock or other securities or property (including,
without limitation, cash) to which the Optionee would have been entitled
pursuant to the terms of the agreement of merger, consolidation or sale of
assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution, the Optionee had been the holder of record of
the number of shares of Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the
"Change of Control Value" shall equal the amount determined in clause (i), (ii)
or (iii), whichever is applicable, as follows: (i) the per share price offered
to shareholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to shareholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if such Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Committee as of the date determined by the
Committee to be the date of cancellation and surrender of such Options. In the
event that the consideration offered to shareholders of the Company in any
transaction described in this Subparagraph (d) or Subparagraph (c) above
consists of anything other than cash, the Committee shall determine the fair
cash equivalent of the portion of the consideration offered which is other than
cash.
(e) Any adjustment provided for in Subparagraphs (b) or (c) above
shall be subject to any required shareholder action.
(f) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Options theretofore granted or the
purchase price per share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to
-5-
<PAGE> 6
any shares for which Options have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time
to time; provided, that no change in any Option theretofore granted may be made
which would impair the rights of the Optionee without the consent of such
Optionee; and provided, further, that (i) the Board may not make any alteration
or amendment on or after the time the Company becomes subject to Section 16 of
the 1934 Act that would decrease any authority granted to the Committee
hereunder in contravention of Rule 16b-3 and (ii) the Board may not make any
alteration or amendment that would materially increase the benefits accruing to
participants under the Plan, change the aggregate number of shares which may be
issued pursuant to the provisions of the Plan, change the class of individuals
eligible to receive Options under the Plan or extend the term of the Plan,
without the approval of the shareholders of the Company.
X. SECURITIES LAWS
(a) The Company shall not be obligated to issue any Stock pursuant
to any Option granted under the Plan at any time when the offering of the
shares covered by such Option have not been registered under the Securities Act
of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the offering and sale of such
shares.
(b) From and after the time the Company becomes subject to Section
16 of the 1934 Act, it is intended that the Plan and any grant of an Option
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Option
would disqualify the Plan or such Option under, or would otherwise not comply
with, Rule 16b-3, such provision or Option shall be construed or deemed amended
to conform to Rule 16b-3.
-6-
<PAGE> 1
EXHIBIT 10.13
FORM OF INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made this 27th day of June, 1996, between MARINER HOLDINGS,
INC., a Delaware corporation (the "Company"), and _______________ ("Employee").
To carry out the purposes of the MARINER HOLDINGS, INC. 1996 STOCK
OPTION PLAN (the "Plan"), by affording Employee the opportunity to purchase
shares of the common stock of the Company ("Stock"), and in consideration of
the mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Employee the right and option ("Option") to purchase all or any part of an
aggregate of ______ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. Exercise of this Option is subject to, and contingent
upon, approval of the Plan by the shareholders of the Company on or before 12
months after the date the Plan was adopted by the Board of Directors of the
Company. This Option is intended to constitute an incentive stock option,
within the meaning of section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), to the extent that it is exercised within the periods
described in sections 422(a)(2), 422(c)(6) and 421(c) of the Code, as
applicable, and, to the extent that it is not so exercised, it is not intended
to constitute an incentive stock option within the meaning of section 422(b) of
the Code.
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $100.00 per share, which has
been determined to be not less than the fair market value of the Stock at the
date of grant of this Option. For all purposes of this Agreement, fair market
value of Stock shall be determined in accordance with the provisions of the
Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Chief Executive Officer at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full
Incentive Stock Option Agreement
-1-
<PAGE> 2
years from the date of grant hereof to the date of such exercise, in accordance
with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
<S> <C>
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years or more 100%
</TABLE>
The foregoing schedule notwithstanding, this Option shall become exercisable in
full upon the occurrence of an "Initial Public Offering" (as such term is
defined in D.2(d) of the Stockholders' Agreement, dated April 2, 1996, between
Enron Capital & Trade Resources Corp., Mystery Acquisition, Inc. (now known as
Mariner Holdings, Inc.) and certain other parties.) In addition,
notwithstanding the terms of the Plan or this Agreement (including, but not
limited to, the foregoing schedule), Employee shall be entitled to exercise any
unvested portion of this Option to the extent, but only to the extent,
necessary to allow Employee to sell shares of Stock Employee is actually
selling pursuant to Section D.3(c) of that certain Stockholders' Agreement,
dated April 2, 1996, between Enron Capitol & Trade Resources Corp., Mystery
Acquisition, Inc. (now known as Mariner Holdings, Inc.) and certain other
parties, as amended (it being the intent of the parties that Employee first
sell shares of Stock he already owns, then shares of Stock issuable on exercise
of any portion of this Option then vested, and finally, if necessary, shares of
Stock issuable on exercise of any portion of this Option not then vested).
This Option may be exercised only while Employee remains an employee or
consultant of the Company, except that:
(a) If Employee dies, becomes disabled, retires, is
terminated by the Company without "Cause" or voluntarily
terminates his employment for "Good Reason", this Option shall
immediately become exercisable in full and shall remain fully
exercisable until the expiration of the seven year Option
period described below.
(b) If Employee voluntarily terminates his employment
other than for "Good Reason", this Option shall remain
exercisable at any time during the thirty day period
immediately following such termination of employment but only
as to the number of shares Employee was entitled to purchase
hereunder as of the date Employee's employment so terminates
and at the end of such thirty day period this Option shall
terminate and cease to be exercisable.
Incentive Stock Option Agreement
-2-
<PAGE> 3
(c) If Employee's employment is terminated by the Company
for "Cause" this Option shall terminate immediately and shall
cease to be exercisable.
This Option, after it becomes exercisable, whether partially or fully, may be
exercised by Employee or Employee's estate or the person who acquires this
Option by will or the laws of descent and distribution as to all or any part of
the Option that is exercisable at any time and from time to time until all of
the Options or Stock available for exercise under this Agreement has been
exercised or the Option has terminated under another provision of this
Agreement. This Option shall terminate and shall not be exercisable in any
event after the seventh anniversary of the date of its grant. As used in this
paragraph, the terms "Cause" and "Good Reason" shall have the same meanings as
such terms are defined in the employment contract between Employee and Mariner
Energy, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company, as of the date of grant of this Option.
The purchase price of shares as to which this Option is exercised
shall be paid in full at the time of exercise (a) in cash (including check,
bank draft or money order payable to the order of the Company), or (b) by
delivering to the Company shares of Stock having a fair market value equal to
the purchase price, or (c) a combination of cash and Stock. No fraction of a
share of Stock shall be issued by the Company upon exercise of an Option or
accepted by the Company in payment of the exercise price thereof; rather,
Employee shall provide a cash payment for such amount as is necessary to effect
the issuance and acceptance of only whole shares of Stock. Unless and until a
certificate or certificates representing such shares shall have been issued by
the Company to Employee, Employee (or the person permitted to exercise this
Option in the event of Employee's death) shall not be or have any of the rights
or privileges of a shareholder of the Company with respect to shares acquirable
upon an exercise of this Option.
4. TAX GROSS-UP; WITHHOLDING OF TAX.
(a) As soon as administratively practicable after the date of any
exercise of this Option which does not qualify as the exercise of an incentive
stock option within the meaning of section 422(b) of the Code, the Company
shall pay to Employee in cash an amount such that after payment by Employee of
Federal income taxes on such amount (which taxes shall be assumed to be
assessed at the highest ordinary income tax rate applicable to individuals on
such date), Employee retains a portion of the payment equal to the difference,
if any, between (i) the amount of Federal income tax payable on the difference
between the fair market value on such date of the Stock acquired by such
exercise over the purchase price paid therefor (the "Spread") at the highest
ordinary income tax rate applicable to individuals on such date and (ii) the
amount of Federal income tax payable on the Spread at the highest long-term
capital gains tax rate applicable to individuals on such date; provided,
however, that the Company shall have no obligation to make any such payment if
a change in Federal tax laws enacted after the date of grant of this Option
eliminates the Company's right to deduct the Spread from its taxable income.
Incentive Stock Option Agreement
-3-
<PAGE> 4
(b) To the extent that the exercise of this Option or the disposition
of shares of Stock acquired by exercise of this Option results in compensation
income to Employee for federal or state income tax purposes, Employee shall
deliver to the Company at the time of such exercise or disposition such amount
of money or shares of Stock as the Company may require to meet its obligation
under applicable tax laws or regulations, and, if Employee fails to do so, the
Company is authorized to withhold from any cash or Stock remuneration then or
thereafter payable to Employee any tax required to be withheld by reason of
such resulting compensation income. Upon an exercise of this Option, the
Company is further authorized in its discretion to satisfy any such withholding
requirement out of any cash or shares of Stock distributable to Employee upon
such exercise.
5. STOCKHOLDER AGREEMENT. Shares of Stock purchased pursuant to
the exercise of this Option shall be subject to the terms of any Stockholder
Agreement among the Company and/or all or certain of its shareholders, as the
same may be amended or restated from time to time (each, a "Stockholder
Agreement"), relating to such shares of Stock, including, but not limited to,
the transfer thereof. Employee agrees that Employee and Employee's spouse, if
any, will, on the first date of exercise of this Option, execute and deliver to
the Company such documents and instruments as the Board of Directors of the
Company, in its discretion, may require to evidence such persons' agreement to
be bound by the terms of any Stockholder Agreement.
6. STATUS OF STOCK. Employee understands that at the time of the
execution of this Agreement the shares of Stock to be issued upon exercise of
this Option have not been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities law, and that the Company does not
currently intend to effect any such registration. Until the shares of Stock
acquirable upon the exercise of the Option have been registered for issuance
under the Act, the Company will not issue such shares unless the holder of the
Option provides the Company with a written opinion of legal counsel, who shall
be satisfactory to the Company, addressed to the Company and satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
issuance of such shares to such Option holder may be made without registration
under the Act. In the event exemption from registration under the Act is
available upon an exercise of this Option, Employee (or the person permitted to
exercise this Option in the event of Employee's death or incapacity), if
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option shall be acquired for investment without a view to
distribution, within the meaning of the Act, and shall not be sold,
transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Act and applicable state
securities laws or an applicable exemption from the registration requirements
of the Act and any applicable state securities laws. Employee also agrees that
the shares of Stock which Employee may acquire by exercising this Option will
not be sold or otherwise disposed of in any manner which would constitute a
violation of any applicable securities laws, whether federal or state.
Incentive Stock Option Agreement
-4-
<PAGE> 5
In addition, Employee agrees that (i) the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee (as such term is defined in the Plan) deems appropriate in
order to assure compliance with the Stockholder Agreement and applicable
securities laws, (ii) the Company may refuse to register the transfer of the
shares of Stock purchased under this Option on the stock transfer records of
the Company if such proposed transfer would in the opinion of counsel
satisfactory to the Company constitute a violation of the Stockholder Agreement
or any applicable securities law, and (iii) the Company may give related
instructions to its transfer agent, if any, to stop registration of the
transfer of the shares of Stock purchased under this Option.
7. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Employee shall be considered to be in the employment of the Company as long as
Employee remains an employee of either the Company, a parent or subsidiary
corporation (as defined in section 424 of the Code) of the Company, or a
corporation or a parent or subsidiary of such corporation assuming or
substituting a new option for this Option. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee and its determination shall
be final.
8. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
9. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
MARINER HOLDINGS, INC.
By:
------------------------------------------
Printed Name:
-----------------------------------
Printed Title:
----------------------------------
EMPLOYEE:
------------------------------------------------
Incentive Stock Option Agreement
-5-
<PAGE> 1
EXHIBIT 10.14
Executive Officers who are Parties
to an Incentive Stock Option Agreement
Number of Shares of Mariner
Holdings, Inc. Common Stock
Executive Officer Subject to Stock Option Agreement
- ------------------------------------- -------------------------------------
[S] [C]
Richard R. Clark 5,000
James M. Fitzpatrick III 5,000
Gregory K. Harless 3,570
Robert E. Henderson 5,000
W. Hunt Hodge 5,000
Clinton D. Smith 5,000
Michael W. Strickler 5,000
<PAGE> 1
EXHIBIT 10.15
FORM OF NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the 27th day of June, 1996, between MARINER
HOLDINGS, INC., a Delaware corporation (the "Company"), and _______________
("Employee").
To carry out the purposes of the MARINER HOLDINGS, INC. 1996 STOCK
OPTION PLAN (the "Plan"), by affording Employee the opportunity to purchase
shares of common stock of the Company ("Stock"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Employee the right and option ("Option") to purchase all or any part of an
aggregate of _______ shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. Exercise of this Option is subject to, and contingent
upon, approval of the Plan by the stockholders of the Company on or before 12
months after the date the Plan was adopted by the Board of Directors of the
Company. This Option shall not be treated as an incentive stock option within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $100.00 per share, which has
been determined to be not less than the fair market value of the Stock at the
date of grant of this Option. For all purposes of this Agreement, fair market
value of Stock shall be determined in accordance with the provisions of the
Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Chief Executive Officer, at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
Nonstatutory Stock Option Agreement
-1-
<PAGE> 2
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years or more 100%
The foregoing schedule notwithstanding, this Option shall become exercisable in
full upon the occurrence of an "Initial Public Offering" (as such term is
defined in D.2(d) of the Stockholders' Agreement, dated April 2, 1996, between
Enron Capital & Trade Resources Corp., Mystery Acquisition, Inc. (now known as
Mariner Holdings, Inc.) and certain other parties.) In addition,
notwithstanding the terms of the Plan or this Agreement (including, but not
limited to, the foregoing schedule), Employee shall be entitled to exercise any
unvested portion of this Option to the extent, but only to the extent,
necessary to allow Employee to sell shares of Stock Employee is actually
selling pursuant to Section D.3(c) of that certain Stockholders' Agreement,
dated April 2, 1996, between Enron Capitol & Trade Resources Corp., Mystery
Acquisition, Inc. (now known as Mariner Holdings, Inc.) and certain other
parties, as amended (it being the intent of the parties that Employee first
sell shares of Stock he already owns, then shares of Stock issuable on exercise
of any portion of this Option then vested, and finally, if necessary, shares of
Stock issuable on exercise of any portion of this Option not then vested).
This Option may be exercised only while Employee remains an employee or
consultant of the Company, except that:
(a) If Employee dies, becomes disabled, retires, is
terminated by the Company without "Cause" or voluntarily
terminates his employment for "Good Reason", this Option shall
immediately become exercisable in full and shall remain fully
exercisable until the expiration of the seven year Option
period described below.
(b) If Employee voluntarily terminates his employment
other than for "Good Reason", this Option shall remain
exercisable at any time during the thirty day period
immediately following such termination of employment but only
as to the number of shares Employee was entitled to purchase
hereunder as of the date Employee's employment so terminates
and at the end of such thirty day period this Option shall
terminate and cease to be exercisable.
(c) If Employee's employment is terminated by the Company
for "Cause" this Option shall terminate immediately and shall
cease to be exercisable.
Nonstatutory Stock Option Agreement
-2-
<PAGE> 3
This Option, after it becomes exercisable, whether partially or fully, may be
exercised by Employee or Employee's estate or the person who acquires this
Option by will or the laws of descent and distribution as to all or any part of
the Option that is exercisable at any time and from time to time until all of
the Options or Stock available for exercise under this Agreement has been
exercised or the Option has terminated under another provision of this
Agreement. This Option shall terminate and shall not be exercisable in any
event after the seventh anniversary of the date of its grant. As used in this
paragraph, the terms "Cause" and "Good Reason" shall have the same meanings as
such terms are defined in the employment contract between Employee and Mariner
Energy, Inc., a Delaware corporation and wholly-owned subsidiary of the
Company, as of the date of grant of this Option.
The purchase price of shares as to which this Option is exercised
shall be paid in full at the time of exercise (a) in cash (including check,
bank draft or money order payable to the order of the Company), (b) by
delivering to the Company shares of Stock having a fair market value equal to
the purchase price, or (c) any combination of cash or Stock. No fraction of a
share of Stock shall be issued by the Company upon exercise of an Option or
accepted by the Company in payment of the purchase price thereof; rather,
Employee shall provide a cash payment for such amount as is necessary to effect
the issuance and acceptance of only whole shares of Stock. Unless and until a
certificate or certificates representing such shares shall have been issued by
the Company to Employee, Employee (or the person permitted to exercise this
Option in the event of Employee's death) shall not be or have any of the rights
or privileges of a shareholder of the Company with respect to shares acquirable
upon an exercise of this Option.
4. TAX GROSS-UP; WITHHOLDING OF TAX.
(a) As soon as administratively practicable after the date of each
exercise of this Option, the Company shall pay to Employee in cash an amount
such that after payment by Employee of Federal income taxes on such amount
(which taxes shall be assumed to be assessed at the highest ordinary income tax
rate applicable to individuals on such date), Employee retains a portion of the
payment equal to the difference, if any, between (i) the amount of Federal
income tax payable on the difference between the fair market value on such date
of the Stock acquired by such exercise over the purchase price paid therefor
(the "Spread") at the highest ordinary income tax rate applicable to
individuals on such date and (ii) the amount of Federal income tax payable on
the Spread at the highest long-term capital gains tax rate applicable to
individuals on such date; provided, however, that the Company shall have no
obligation to make any such payment if a change in Federal tax laws enacted
after the date of grant of this Option eliminates the Company's right to deduct
the Spread from its taxable income.
(b) To the extent that the exercise of this Option or the disposition
of shares of Stock acquired by exercise of this Option results in compensation
income to Employee for federal or state income tax purposes, Employee shall
deliver to the Company at the time of such exercise or disposition such amount
of money or shares of Stock as the Company may require to meet its obligation
under applicable tax laws or regulations, and, if Employee fails to do so, the
Company is authorized to withhold from any cash
Nonstatutory Stock Option Agreement
-3-
<PAGE> 4
or Stock remuneration then or thereafter payable to Employee any tax required
to be withheld by reason of such resulting compensation income. Upon an
exercise of this Option, the Company is further authorized in its discretion to
satisfy any such withholding requirement out of any cash or shares of Stock
distributable to Employee upon such exercise.
5. STOCKHOLDER AGREEMENT. Shares of Stock purchased pursuant to
the exercise of this Option shall be subject to the terms of any Stockholder
Agreement among the Company and/or all or certain of its shareholders, as the
same may be amended or restated from time to time (each, a "Stockholder
Agreement"), relating to such shares of Stock, including, but not limited to,
the transfer thereof. Employee agrees that Employee and Employee's spouse, if
any, will, on the first date of exercise of this Option, execute and deliver to
the Company such documents and instruments as the Board of Directors of the
Company, in its discretion, may require to evidence such persons' agreement to
be bound by the terms of any Stockholder Agreement.
6. STATUS OF STOCK. Employee understands that at the time of the
execution of this Agreement the shares of Stock to be issued upon exercise of
this Option have not been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities law, and that the Company does not
currently intend to effect any such registration. Until the shares of Stock
acquirable upon the exercise of the Option have been registered for issuance
under the Act, the Company will not issue such shares unless the holder of the
Option provides the Company with a written opinion of legal counsel, who shall
be satisfactory to the Company, addressed to the Company and satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
issuance of such shares to such Option holder may be made without registration
under the Act. In the event exemption from registration under the Act is
available upon an exercise of this Option, Employee (or the person permitted to
exercise this Option in the event of Employee's death), if requested by the
Company to do so, will execute and deliver to the Company in writing an
agreement containing such provisions as the Company may require to assure
compliance with applicable securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option shall be acquired for investment without a view to
distribution, within the meaning of the Act, and shall not be sold,
transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Act and applicable state
securities laws or an applicable exemption from the registration requirements
of the Act and any applicable state securities laws. Employee also agrees that
the shares of Stock which Employee may acquire by exercising this Option will
not be sold or otherwise disposed of in any manner which would constitute a
violation of any applicable securities laws, whether federal or state.
In addition, Employee agrees that (i) the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee (as such term is defined in the Plan) deems appropriate in
order to assure compliance with the Stockholder Agreement and applicable
securities laws, (ii) the Company may refuse to register the transfer of the
shares of Stock purchased under this Option on
Nonstatutory Stock Option Agreement
-4-
<PAGE> 5
the stock transfer records of the Company if such proposed transfer would in
the opinion of counsel satisfactory to the Company constitute a violation of
the Stockholder Agreement or any applicable securities law, and (iii) the
Company may give related instructions to its transfer agent, if any, to stop
registration of the transfer of the shares of Stock purchased under this
Option.
7. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Employee shall be considered to be in the employment of the Company as long as
Employee remains either a consultant or an employee of either the Company, a
parent or subsidiary corporation (as defined in section 424 of the Code) of the
Company, or a corporation or a parent or subsidiary of such corporation
assuming or substituting a new option for this Option. Any question as to
whether and when there has been a termination of such employment, and the cause
of such termination, shall be determined by the Committee, and its
determination shall be final.
8. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
9. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
MARINER HOLDINGS, INC.
By:
--------------------------------------
Printed Name:
-------------------------------
Printed Title:
------------------------------
EMPLOYEE:
--------------------------------------------
Nonstatutory Stock Option Agreement
-5-
<PAGE> 1
EXHIBIT 10.16
Executive Officers who are Parties
to a Nonstatutory Stock Option Agreement
Number of Shares of Mariner
Holdings, Inc. Common Stock
Executive Officer Subject to Stock Option Agreement
- ------------------------------------- -------------------------------------
[S] [C]
Richard R. Clark 8,994
James M. Fitzpatrick III 3,925
Robert E. Henderson 14,885
W. Hunt Hodge 1,115
Clinton D. Smith 3,925
Michael W. Strickler 8,994
<PAGE> 1
EXHIBIT 10.17
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the 27 day of June, 1996, between MARINER
HOLDINGS, INC., a Delaware corporation (the "Company"), and DAVID S. HUBER
("Consultant").
To carry out the purposes of the MARINER HOLDINGS, INC. 1996 STOCK
OPTION PLAN (the "Plan"), by affording Consultant the opportunity to purchase
shares of common stock of the Company ("Stock"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Consultant hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to
Consultant the right and option ("Option") to purchase all or any part of an
aggregate of 13,548 shares of Stock, on the terms and conditions set forth
herein and in the Plan, which Plan is incorporated herein by reference as a
part of this Agreement. Exercise of this Option is subject to, and contingent
upon, approval of the Plan by the stockholders of the Company on or before 12
months after the date the Plan was adopted by the Board of Directors of the
Company. This Option shall not be treated as an incentive stock option within
the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $100.00 per share, which has
been determined to be not less than the fair market value of the Stock at the
date of grant of this Option. For all purposes of this Agreement, fair market
value of Stock shall be determined in accordance with the provisions of the
Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Chief Executive Officer, at any time and from time to time after the date of
grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
Nonstatutory Stock Option Agreement -- David S. Huber
-1-
<PAGE> 2
PERCENTAGE OF SHARES
NUMBER OF FULL YEARS THAT MAY BE PURCHASED
-------------------- ---------------------
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years or more 100%
The foregoing schedule notwithstanding, this Option shall become exercisable in
full upon the occurrence of an "Initial Public Offering" (as such term is
defined in D.2(d) of the Stockholders' Agreement, dated April 2, 1996, between
Enron Capital & Trade Resources Corp., Mystery Acquisition, Inc. (now known as
Mariner Holdings, Inc.) and certain other parties). In addition,
notwithstanding the terms of the Plan or this Agreement (including, but not
limited to, the foregoing schedule), Consultant shall be entitled to exercise
any unvested portion of this Option to the extent, but only to the extent,
necessary to allow Consultant to sell shares of Stock Consultant is actually
selling pursuant to Section D.3(c) of that certain Stockholders' Agreement,
dated April 2, 1996, between Enron Capitol & Trade Resources Corp., Mystery
Acquisition, Inc. (now known as Mariner Holdings, Inc.) and certain other
parties, as amended (it being the intent of the parties that Consultant first
sell shares of Stock he already owns, then shares of Stock issuable on exercise
of any portion of this Option then vested, and finally, if necessary, shares of
Stock issuable on exercise of any portion of this Option not then vested).
This Option may be exercised only while Consultant remains an employee or
consultant of the Company, except that:
(a) If Consultant dies or becomes disabled, or if the
Company terminates the consulting services agreement or
arrangement then in effect between Consultant and the Company
and there has not occurred an event constituting "Cause" (as
hereinafter defined) prior to the date of such termination,
this Option shall immediately become exercisable in full and
shall remain fully exercisable until the expiration of the
seven year Option period described below.
(b) If Consultant terminates the consulting services
agreement or arrangement then in effect between Consultant and
the Company and there has not occurred an event constituting
"Cause" prior to the date of such termination, this Option
shall remain exercisable at any time during the thirty day
period immediately following the date of such termination but
only as to the number of shares Consultant was entitled to
purchase hereunder as of the date of such termination and at
the end of such thirty day period this Option shall terminate
and cease to be exercisable.
Nonstatutory Stock Option Agreement -- David S. Huber
-2-
<PAGE> 3
(c) If the consulting services agreement or arrangement
then in effect between Consultant and the Company is
terminated by either Consultant or the Company and there has
occurred an event constituting "Cause" prior to the date of
such termination, this Option shall terminate immediately and
shall cease to be exercisable.
This Option, after it becomes exercisable, whether partially or fully, may be
exercised by Consultant or Consultant's estate or the person who acquires this
Option by will or the laws of descent and distribution as to all or any part of
the Option that is exercisable at any time and from time to time until all of
the Options or Stock available for exercise under this Agreement has been
exercised or the Option has terminated under another provision of this
Agreement. This Option shall terminate and shall not be exercisable in any
event after the seventh anniversary of the date of its grant. As used in this
paragraph, the term "Cause" means (i) Consultant is found guilty of, admits in
writing facts amounting to, or is held civilly liable for fraud, embezzlement
or dishonesty, (ii) Consultant is convicted of a felony involving a crime of
moral turpitude or any other felony if the Board of Directors of the Company in
good faith determines that the continued engagement or retention of Consultant
would be materially detrimental to the Company (in any case which felony
through lapse of time or otherwise is not subject to appeal), (iii) Consultant
knowingly discloses trade secrets or confidential Company matters to
unauthorized persons, (iv) Consultant willfully breaches or habitually neglects
any duties he is required to perform under the terms of the consulting services
agreement or arrangement then in effect between Consultant and the Company and
any such breach or neglect is not cured within thirty (30) days after the
Company has provided Consultant with written notice of such breach or neglect,
and (v) Consultant materially breaches any of the other material terms of the
consulting services agreement or arrangement then in effect between Consultant
and the Company and any such breach is not cured within thirty (30) days after
the Company has provided Consultant with written notice of such breach.
The purchase price of shares as to which this Option is exercised
shall be paid in full at the time of exercise (a) in cash (including check,
bank draft or money order payable to the order of the Company), (b) by
delivering to the Company shares of Stock having a fair market value equal to
the purchase price, or (c) any combination of cash or Stock. No fraction of a
share of Stock shall be issued by the Company upon exercise of an Option or
accepted by the Company in payment of the purchase price thereof; rather,
Consultant shall provide a cash payment for such amount as is necessary to
effect the issuance and acceptance of only whole shares of Stock. Unless and
until a certificate or certificates representing such shares shall have been
issued by the Company to Consultant, Consultant (or the person permitted to
exercise this Option in the event of Consultant's death) shall not be or have
any of the rights or privileges of a shareholder of the Company with respect to
shares acquirable upon an exercise of this Option.
4. TAX GROSS-UP. As soon as administratively practicable after
the date of each exercise of this Option, the Company shall pay to Consultant
in cash an amount
Nonstatutory Stock Option Agreement -- David S. Huber
-3-
<PAGE> 4
such that after payment by Consultant of Federal income taxes on such amount
(which taxes shall be assumed to be assessed at the highest ordinary income tax
rate applicable to individuals on such date), Consultant retains a portion of
the payment equal to the difference, if any, between (i) the amount of Federal
income tax payable on the difference between the fair market value on such date
of the Stock acquired by such exercise over the purchase price paid therefor
(the "Spread") at the highest ordinary income tax rate applicable to
individuals on such date and (ii) the amount of Federal income tax payable on
the Spread at the highest long-term capital gains tax rate applicable to
individuals on such date; provided, however, that the Company shall have no
obligation to make any such payment if a change in Federal tax laws enacted
after the date of grant of this Option eliminates the Company's right to deduct
the Spread from its taxable income.
5. STOCKHOLDER AGREEMENT. Shares of Stock purchased pursuant to
the exercise of this Option shall be subject to the terms of any Stockholder
Agreement among the Company and/or all or certain of its shareholders, as the
same may be amended or restated from time to time (each, a "Stockholder
Agreement"), relating to such shares of Stock, including, but not limited to,
the transfer thereof. Consultant agrees that Consultant and Consultant's
spouse, if any, will, on the first date of exercise of this Option, execute and
deliver to the Company such documents and instruments as the Board of Directors
of the Company, in its discretion, may require to evidence such persons'
agreement to be bound by the terms of any Stockholder Agreement.
6. STATUS OF STOCK. Consultant understands that at the time of
the execution of this Agreement the shares of Stock to be issued upon exercise
of this Option have not been registered under the Securities Act of 1933, as
amended (the "Act"), or any state securities law, and that the Company does
not currently intend to effect any such registration. Until the shares of
Stock acquirable upon the exercise of the Option have been registered for
issuance under the Act, the Company will not issue such shares unless the
holder of the Option provides the Company with a written opinion of legal
counsel, who shall be satisfactory to the Company, addressed to the Company and
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed issuance of such shares to such Option holder may be made without
registration under the Act. In the event exemption from registration under the
Act is available upon an exercise of this Option, Consultant (or the person
permitted to exercise this Option in the event of Consultant's death), if
requested by the Company to do so, will execute and deliver to the Company in
writing an agreement containing such provisions as the Company may require to
assure compliance with applicable securities laws.
Consultant agrees that the shares of Stock which Consultant may
acquire by exercising this Option shall be acquired for investment without a
view to distribution, within the meaning of the Act, and shall not be sold,
transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Act and applicable state
securities laws or an applicable exemption from the registration requirements
of the Act and any applicable state securities laws. Consultant also agrees
that the shares of Stock which Consultant may acquire by
Nonstatutory Stock Option Agreement -- David S. Huber
-4-
<PAGE> 5
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state.
In addition, Consultant agrees that (i) the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee (as such term is defined in the Plan) deems appropriate in
order to assure compliance with the Stockholder Agreement and applicable
securities laws, (ii) the Company may refuse to register the transfer of the
shares of Stock purchased under this Option on the stock transfer records of
the Company if such proposed transfer would in the opinion of counsel
satisfactory to the Company constitute a violation of the Stockholder Agreement
or any applicable securities law, and (iii) the Company may give related
instructions to its transfer agent, if any, to stop registration of the
transfer of the shares of Stock purchased under this Option.
7. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement,
Consultant shall be considered to be in the employment of the Company as long
as Consultant remains either a consultant or an employee of either the Company,
a parent or subsidiary corporation (as defined in section 424 of the Code) of
the Company, or a corporation or a parent or subsidiary of such corporation
assuming or substituting a new option for this Option. Any question as to
whether and when there has been a termination of such employment, and the cause
of such termination, shall be determined by the Committee, and its
determination shall be final.
8. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Consultant.
9. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Consultant has executed
this Agreement, all as of the day and year first above written.
MARINER HOLDINGS, INC.
By: /s/ ROBERT E. HENDERSON
------------------------------------------
Printed Name: Robert E. Henderson
-----------------------------------
Printed Title: President and Chief
Executive Officer
----------------------------------
CONSULTANT:
/s/ DAVID S. HUBER
------------------------------------------------
David S. Huber
Nonstatutory Stock Option Agreement -- David S. Huber
-5-
<PAGE> 1
MARINER ENERGY, INC
Exhibit 12.1
Statement of Computation of Ratio of Earnings to Fixed Charges
(in thousands, except ratios)
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Pretax earnings (loss) from
continuing operations ($15,886) $221 ($3,441) ($2,611) $4,798
Add:
Interest on indebtedness 4,113 4,940 7,358 8,125 12,772
--------- ------- -------- -------- --------
Earnings as adjusted ($11,773) $5,161 $3,917 $5,514 $17,570
========= ====== ======== ======== ========
FIXED CHARGES:
Interest on indebtedness $4,113 $4,940 $7,358 $8,125 $12,772
Capitalized interest 939 1,015 916 558 1,266
--------- ------- -------- -------- --------
Fixed charges $5,052 $5,955 $8,274 $8,683 $14,038
========= ====== ======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES (1) (2) 0.9 0.5 0.6 1.3
====== ======== ======== ========
<CAPTION>
Predecessor Company
--------------------------------------
Six Months Three Months Three Months
Ended June 30, Ended March 31, Ended June 30,
1995 1996 1996
-------------- --------------- --------------
<S> <C> <C> <C>
EARNINGS:
Pretax earnings (loss) from
continuing operations 1,155 $2,661 ($21,869)
Add:
Interest on indebtedness 6,453 3,391 3,692
-------------- --------------- --------------
Earnings as adjusted $7,608 $6,052 ($18,177)
============== =============== ==============
FIXED CHARGES:
Interest on indebtedness $6,453 $3,391 $3,692
Capitalized interest 573 98 100
-------------- --------------- --------------
Fixed charges $7,026 $3,489 $3,792
============== =============== ==============
RATIO OF EARNINGS TO FIXED
CHARGES (1) 1.1 1.7 (2)
============== ===============
</TABLE>
- ------------
(1) For purposes of calculating this ratio, earnings consist of earnings
before income taxes and fixed charges (excluding capitalized interest).
Fixed charges consist of interest expense, and capitalized interest.
(2) For the year ended December 31, 1991, earnings were insufficient to cover
fixed charges by $16.8 million. For the three months ended June 30,
1996, earnings were insufficient to cover fixed charges by $22.0 million.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Mariner Energy,
Inc. on Form S-4 of our report dated July 12, 1996 (August 14, 1996 with respect
to Note 10), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Independent Auditors" in such Prospectus.
DELOITTE & TOUCHE LLP
Houston, Texas
September 25, 1996
<PAGE> 1
EXHIBIT 23.3
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We consent to the use of the name of this firm and of certain
information contained in our reserve report dated March 31, 1996, prepared for
Mariner Energy, Inc. (the "Company"), in the Registration Statement on Form S-4
of the Company relating to the registration under the Securities Act of 1933 of
an aggregate principal amount of $100,000,000 of the Company's 10 1/2% Senior
Subordinated Notes, Series B. We also consent to the reference to us as an
expert in petroleum engineering under the heading "Independent Petroleum
Engineers" in such Registration Statement.
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
September 23, 1996
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Robert E. Henderson constitutes
and appoints James M. Fitzpatrick his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any Registration
Statement of Mariner Energy, Inc., a Delaware corporation (the "Company"),
relating to the registration of up to $100,000,000 in aggregate principal
amount of the Company's 10 1/2% Senior Subordinated Notes Due 2006, and any or
all pre- and post-effective amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 20, 1996
/s/ ROBERT E. HENDERSON
----------------------------------
Robert E. Henderson
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Richard R. Clark constitutes and
appoints Robert E. Henderson and James M. Fitzpatrick, and each of them,
either one of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any Registration Statement of Mariner Energy, Inc., a
Delaware corporation (the "Company"), relating to the registration of up to
$100,000,000 in aggregate principal amount of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, and any or all pre- and post-effective amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 20, 1996
/s/ RICHARD R. CLARK
--------------------------------
Richard R. Clark
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that James V. Derrick, Jr. constitutes
and appoints Robert E. Henderson and James M. Fitzpatrick, and each of them,
either one of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any Registration Statement of Mariner Energy, Inc., a
Delaware corporation (the "Company"), relating to the registration of up to
$100,000,000 in aggregate principal amount of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, and any or all pre- and post-effective amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 11, 1996
/s/ JAMES V. DERRICK, JR.
-------------------------------------
James V. Derrick, Jr.
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Andrew S. Fastow constitutes and
appoints Robert E. Henderson and James M. Fitzpatrick, and each of them,
either one of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any Registration Statement of Mariner Energy, Inc., a
Delaware corporation (the "Company"), relating to the registration of up to
$100,000,000 in aggregate principal amount of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, and any or all pre- and post-effective amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 11, 1996
/s/ ANDREW S. FASTOW
---------------------------------
Andrew S. Fastow
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Gene E. Humphrey constitutes and
appoints Robert E. Henderson and James M. Fitzpatrick, and each of them,
either one of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any Registration Statement of Mariner Energy, Inc., a
Delaware corporation (the "Company"), relating to the registration of up to
$100,000,000 in aggregate principal amount of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, and any or all pre- and post-effective amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 11, 1996
/s/ GENE E. HUMPHREY
--------------------------------
Gene E. Humphrey
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Jere C. Overdyke, Jr. constitutes
and appoints Robert E. Henderson and James M. Fitzpatrick, and each of them,
either one of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any Registration Statement of Mariner Energy, Inc., a
Delaware corporation (the "Company"), relating to the registration of up to
$100,000,000 in aggregate principal amount of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, and any or all pre- and post-effective amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 11, 1996
/s/ JERE C. OVERDYKE, JR.
-------------------------------------
Jere C. Overdyke, Jr.
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Frank Stabler constitutes and
appoints Robert E. Henderson and James M. Fitzpatrick, and each of them,
either one of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any Registration Statement of Mariner Energy, Inc., a
Delaware corporation (the "Company"), relating to the registration of up to
$100,000,000 in aggregate principal amount of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, and any or all pre- and post-effective amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 11, 1996
/s/ FRANK STABLER
---------------------------------
Frank Stabler
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Michael W. Strickler constitutes
and appoints Robert E. Henderson and James M. Fitzpatrick, and each of them,
either one of whom may act without joinder of the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any Registration Statement of Mariner Energy, Inc., a
Delaware corporation (the "Company"), relating to the registration of up to
$100,000,000 in aggregate principal amount of the Company's 10 1/2% Senior
Subordinated Notes Due 2006, and any or all pre- and post-effective amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, or the substitute or
substitutes of any or all of them, may lawfully do or cause to be done by
virtue hereof.
September 20, 1996
/s/ MICHAEL W. STRICKLER
-------------------------------------
Michael W. Strickler
<PAGE> 1
EXHIBIT 25.1
FORM T-1
=========================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) ____
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
MARINER ENERGY, INC.
(Exact name of obligor as specified in its charter)
Delaware 86-0460233
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
580 WestLake Park Blvd. 77079
Suite 1300 (Zip Code)
Houston, TX
(Address of principal executive offices)
------------------
10 1/2% Senior Subordinated Notes due 2006
(Title of the indenture securities)
=========================================
<PAGE> 2
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Mariner Energy, Inc. currently is not in default under any of its
outstanding securities for which United States Trust Company of New York
is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11,
12, 13, 14 and 15 of Form T-1 are not required under General Instruction
B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the
State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration
No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 3
- 3 -
16. LIST OF EXHIBITS
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b)
of the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of September 13, 1996, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
-------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 13th day
of September, 1996.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ CHRISTINE C. COLLINS
-------------------------
<PAGE> 4
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: S/Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1996
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
- ------
Cash and Due from Banks $ 77,810
Short-Term Investments 18,306
Securities, Available for Sale 867,513
Loans 1,333,282
Less: Allowance for Credit Losses 12,858
----------
Net Loans 1,320,424
Premises and Equipment 57,561
Other Assets 132,888
----------
TOTAL ASSETS $2,474,502
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 469,797
Interest Bearing 1,545,026
---------
Total Deposits 2,014,823
Short-Term Credit Facilities 170,747
Accounts Payable and Accrued Liabilities 136,595
----------
TOTAL LIABILITIES $2,322,165
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 42,394
Retained Earnings 96,902
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes (1,954)
----------
TOTAL STOCKHOLDER'S EQUITY 152,337
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,474,502
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkman, SVP & Controller
September 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 APR-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 5,456 10,396
<SECURITIES> 0 0
<RECEIVABLES> 11,659 14,430
<ALLOWANCES> 25 25
<INVENTORY> 36 36
<CURRENT-ASSETS> 17,245 25,558
<PP&E> 345,633 184,232
<DEPRECIATION> 218,983 30,845
<TOTAL-ASSETS> 250,726 180,606
<CURRENT-LIABILITIES> 18,351 13,992
<BONDS> 162,500 92,000
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 69,257 73,875
<TOTAL-LIABILITY-AND-EQUITY> 250,726 180,606
<SALES> 33,309 15,949
<TOTAL-REVENUES> 33,309 15,949
<CGS> 7,331 2,629
<TOTAL-COSTS> 7,331 2,629
<OTHER-EXPENSES> 15,635 30,909
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,772 3,692
<INCOME-PRETAX> 4,798 (21,869)
<INCOME-TAX> 338 0
<INCOME-CONTINUING> 4,460 (21,869)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,460 (21,869)
<EPS-PRIMARY> 0 (21,869)
<EPS-DILUTED> 0 (21,869)
</TABLE>
<PAGE> 1
LETTER OF TRANSMITTAL
MARINER ENERGY, INC.
Offer to Exchange all outstanding 10 1/2% Senior Subordinated Notes Due 2006,
Series A, for 10 1/2% Senior Subordinated Notes Due 2006, Series B
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 1996,
UNLESS EXTENDED
- -------------------------------------------------------------------------------
Deliver to United States Trust Company of New York
(the "Exchange Agent")
<TABLE>
<S> <C> <C>
BY HAND DELIVERY: BY OVERNIGHT COURIER: BY REGISTERED OR CERTIFIED
United States Trust Company United States Trust Company MAIL:
of New York of New York United States Trust Company
111 Broadway 770 Broadway of New York
Lower Level 13th Floor Box 843
New York, NY 10005 New York, NY 10003 Peter Cooper Station
Attn: Corporate Trust Attn: Corporate Trust Service New York, NY 10276
Window Attn: Corporate Trust
BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY):
United States Trust Company of New York
(212) 420-6152
Confirm: (800) 548-6565
For Information:
(800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONES LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1996 (the "Prospectus") of Mariner Energy, Inc. (the "Company")
and this Letter of Transmittal, which together constitute the Company's offer
(the "Exchange Offer") to exchange an aggregate principal amount of $1,000,000
of its 10 1/2% Senior Subordinated Notes Due 2006, Series B (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for an equal principal amount of its outstanding 10 1/2%
Senior Subordinated Notes Due 2006, Series A (the "Outstanding Notes"), in
integral multiples of $1,000. The term "Expiration Date" shall mean 12:00
midnight, New York City time, on , 1996, unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the term shall mean
the latest date and time to which the Exchange Offer is extended. Capitalized
terms used but not defined herein have the meaning given to them in the
Prospectus.
<PAGE> 2
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS RELATING TO THE PROCEDURE FOR TENDERING AND REQUESTS FOR ADDITIONAL
COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE
EXCHANGE AGENT. QUESTIONS RELATING TO THE EXCHANGE OFFER AND REQUESTS FOR
ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF
TRANSMITTAL MAY BE DIRECTED TO THE COMPANY.
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space indicated below is inadequate, additional information
should be listed on a separately signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED HEREBY
- ------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) AMOUNT PRINCIPAL
EXACTLY AS NAME(S) APPEAR(S) ON NOTE(S) NOTE REPRESENTED BY AMOUNT
(PLEASE FILL IN) NUMBERS* OUTSTANDING NOTES TENDERED**
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the full aggregate principal
amount represented by such Outstanding Notes. All tenders must be in integral multiples of $1,000.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used (i) if certificates of Outstanding
Notes are to be forwarded herewith, (ii) if delivery of Outstanding Notes is to
be made by book-entry transfer to an account maintained by the Exchange Agent at
The Depository Trust Company ("DTC"), pursuant to the procedures set forth in
"The Exchange Offer -- Procedures for Tendering" in the Prospectus or (iii)
tender of the Outstanding Notes is to be made according to the guaranteed
delivery procedures described in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures". See Instruction 2. Delivery of
documents to a book-entry transfer facility does not constitute delivery to the
Exchange Agent. It is understood that participants in DTC's book-entry system
(the "Book-Entry Transfer Facility") will, in accordance with DTC's Automated
Tender Offer Program procedures and in lieu of physical delivery to the Exchange
Agent of a Letter of Transmittal, electronically acknowledge receipt of, and
agree to be bound by, the terms of this Letter of Transmittal.
<PAGE> 3
The term "Holder" with respect to the Exchange Offer means any person in
whose name Outstanding Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Outstanding
Notes must complete this letter in its entirety.
/ / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution __________________________________________________
/ / The Depository Trust Company
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
Holders whose Outstanding Notes are not immediately available or who cannot
deliver their Outstanding Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Outstanding
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures". See
Instruction 2.
/ / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ________________________________________________
Date of Execution of Notice of Guaranteed Delivery _____________________________
Name of Eligible Institution that Guaranteed Delivery _________________________
If delivered by book-entry transfer:
Account Number ______________________________________________________________
Transaction Code Number _____________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name ___________________________________________________________________________
Address ________________________________________________________________________
<PAGE> 4
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the
Outstanding Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of such Outstanding Notes tendered hereby, the
undersigned hereby exchanges, assigns and transfers to, or upon the order of,
the Company all right, title and interest in and to such Outstanding Notes as
are being tendered hereby, including all rights to accrued and unpaid interest
thereon as of the Expiration Date. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent
acts as the agent of the Company in connection with the Exchange Offer) to cause
the Outstanding Notes to be assigned, transferred and exchanged. The undersigned
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Outstanding Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Outstanding Notes, and that
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Outstanding Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. If the undersigned or the person
receiving the Exchange Notes covered hereby is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of the Exchange Notes. If the undersigned or the person
receiving the Exchange Notes covered hereby is a broker-dealer that is receiving
the Exchange Notes for its own account in exchange for Outstanding Notes that
were acquired as a result of market-making activities or other trading
activities, the undersigned acknowledges that it or such other person will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. The undersigned and any such other person acknowledge that,
if they are participating in the Exchange Offer for the purpose of distributing
the Exchange Notes, (i) they cannot rely on the position of the staff of the
Securities and Exchange Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991) or similar no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the resale transaction and
(ii) failure to comply with such requirements in such instance could result in
the undersigned or any such other person incurring liability under the
Securities Act for which such persons are not indemnified by the Company. If the
undersigned or the person receiving the Exchange Notes covered by this letter is
an affiliate (as defined under Rule 405 of the Securities Act) of the Company,
the undersigned represents to the Company that (i) the undersigned understands
and acknowledges that such Exchange Notes may not be offered for resale, resold
or otherwise transferred by the undersigned or such other person without
registration under the Securities Act or an exemption therefrom and (ii) the
undersigned or such other person will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Outstanding Notes or transfer ownership of such Outstanding Notes on
the account books maintained by the Book-Entry Transfer Facility. The
undersigned further agrees that acceptance of any tendered Outstanding Notes by
the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Agreement and that the Company shall have no further obligations or
liabilities thereunder for the registration of the Outstanding Notes or the
Exchange Notes.
<PAGE> 5
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions". The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Outstanding Notes
tendered hereby and, in such event, the Outstanding Notes not exchanged will be
returned to the undersigned at the address shown below the signature of the
undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Outstanding Notes may be withdrawn at
any time prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Outstanding Notes, and any Outstanding Notes delivered herewith but not
exchanged, will be registered in the name of the undersigned and shall be
delivered to the undersigned at the address shown below the signature of the
undersigned. If an Exchange Note is to be issued to a person other than the
person(s) signing this Letter of Transmittal, or if the Exchange Note is to be
mailed to someone other than the person(s) signing this Letter of Transmittal or
to the person(s) signing this Letter of Transmittal at an address different than
the address shown on this Letter of Transmittal, the appropriate boxes of this
Letter of Transmittal should be completed. IF OUTSTANDING NOTES ARE SURRENDERED
BY HOLDER(S) THAT HAVE COMPLETED EITHER THE BOX ENTITLED "SPECIAL REGISTRATION
INSTRUCTIONS" OR THE BOX ENTITLED "SPECIAL DELIVERY INSTRUCTIONS" IN THIS LETTER
OF TRANSMITTAL, SIGNATURE(S) ON THIS LETTER OF TRANSMITTAL MUST BE GUARANTEED BY
AN ELIGIBLE INSTITUTION (SEE INSTRUCTION 4).
<PAGE> 6
- ----------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTION 5)
To be completed ONLY if the
Exchange Notes are to be issued in
the name of someone other than the
undersigned.
Issue Exchange Note to:
Name: ___________________________________________________
Address: ________________________________________________
__________________________________________________________
(PLEASE PRINT OR TYPE)
- ----------------------------------------------------------
- ----------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 5)
To be completed ONLY if the
Exchange Notes are to be sent to
someone other than the undersigned,
or to the undersigned at an address
other than that shown under
"Description of Outstanding Notes
Tendered Hereby."
Mail Exchange Note to:
Name: ___________________________________________________
Address: ________________________________________________
(PLEASE PRINT OR TYPE)
- ----------------------------------------------------------
- -------------------------------------------------------------------------------
REGISTERED HOLDER(S) OF OUTSTANDING NOTES SIGN HERE
(In addition, complete Substitute Form W-9 Below)
X _____________________________________________________________________________
X _____________________________________________________________________________
(Signature(s) of Registered Holder(s))
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
the Outstanding Notes or on a security position listing as the owner of the
Outstanding Notes or by person(s) authorized to become registered holder(s) by
properly completed bond powers transmitted herewith. If signature is by
attorney-in-fact, trustee, executor, administrator, guardian, officer of a
corporation or other person acting in a fiduciary capacity, please provide the
following information. (Please Print or Type):
Name and Capacity (full title): ______________________________________________
Address (including zip): _____________________________________________________
Area Code and Telephone Number: ______________________________________________
Dated: _______________________________________________________________________
SIGNATURE GUARANTY (If required -- See Instruction 4)
Authorized Signature: ________________________________________________________
(Signature of Representative of Signature Guarantor)
Name and Title: ______________________________________________________________
Name of Firm: ________________________________________________________________
Area Code and Telephone Number: ______________________________________________
(Please Print or Type)
Dated: ________________________________
- --------------------------------------------------------------------------------
<PAGE> 7
PAYOR'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
Please provide your social security number or other taxpayer identification
number on the following Substitute Form W-9 and certify therein that you are not
subject to backup withholding.
<TABLE>
<C> <S> <C>
- ----------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- Please provide your TIN in the
FORM W-9 box at right and certify by signing and
Department of the Treasury dating below.
Internal Revenue Service ----------------------
PART 2 -- CERTIFICATION: Under penalties Social Security
Payor's Request for Taxpayer of perjury, I certify (1) that the number Number or Employer
Identification Number ("TIN") shown on this form is my correct taxpayer Identification Number
identification number and (2) that I am ----------------------
not subject to backup withholding under
the provisions of Section 3406(a)(1)(C) of PART 3 --
the Internal Revenue Code either because
(a) I have not been notified that I am Exempt from backup
subject to backup withholding as a result withholding / /
of failure to report all interest or ----------------------
dividends or (b) the Internal Revenue
Service has notified me that I am no PART 4 --
longer subject to backup withholding. / /
Awaiting TIN / /
Signature:__________ Dated:__________
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY INTEREST OR OTHER REPORTABLE PAYMENTS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 4 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number. Moreover, I understand that during this 60-day
period, 31% of all reportable interest payments made to me will be withheld
commencing 7 business days after the payor receives this Certificate of
Awaiting Tax Identification Number and terminating on the date I provide a
certified TIN to the payor.
<TABLE>
<S> <C>
- ---------------------------------------------------------- -----------------------------------
Signature Date
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Outstanding Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Outstanding Notes tendered by book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth herein on or prior to the Expiration Date (as defined in the Prospectus).
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING NOTES AND
ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
BE USED.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Outstanding Notes for exchange.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH HEREIN, OR INSTRUCTIONS VIA
A FACSIMILE NUMBER OTHER THAN THE ONES SET FORTH HEREIN, WILL NOT CONSTITUTE A
VALID DELIVERY.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Outstanding
Notes and (i) whose Outstanding Notes are not immediately available or (ii) who
cannot deliver their Outstanding Notes, this Letter of Transmittal or any other
required documents to the Exchange Agent (or complete the procedures for
book-entry transfer) prior to the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the registration
number(s) of such Outstanding Notes and the principal amount of Outstanding
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, this Letter of Transmittal (or facsimile thereof),
together with the certificate(s) representing the Outstanding Notes (or a
confirmation of book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility) and any other
documents required by this Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Outstanding Notes in proper
form for transfer (or a confirmation of book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility) and all other documents required by this Letter of
Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above. Any Holder who wishes to tender
Outstanding Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Outstanding Notes prior to the Expiration Date. Failure to
complete the guaranteed delivery procedures
<PAGE> 9
outlined above will not, of itself, affect the validity or effect a revocation
of any Letter of Transmittal form properly completed and executed by a Holder
who attempted to use the guaranteed delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Outstanding Notes evidenced by
a submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered" of
the box entitled "Description of Outstanding Notes Tendered Hereby". A newly
issued Outstanding Note for the principal amount of Outstanding Notes submitted
but not tendered will be sent to such Holder as soon as practicable after the
Expiration Date. All Outstanding Notes delivered to the Exchange Agent will be
deemed to have been tendered in full unless otherwise indicated. Tenders of
Outstanding Notes will be accepted only in integral multiples of $1,000.
Outstanding Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date, after which tenders of Outstanding
Notes are irrevocable. To be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Outstanding Notes to be withdrawn (the "Depositor"), (ii) identify
the Outstanding Notes to be withdrawn (including the note number(s) and
principal amount of such Outstanding Notes, or, in the case of Outstanding Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the Holder in
the same manner as the original signature on this Letter of Transmittal
(including any required signature guaranties) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Outstanding Notes
register the transfer of such Outstanding Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Outstanding
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Outstanding Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no Exchange Notes will be issued with respect thereto unless the Outstanding
Notes so withdrawn are validly retendered. Any Outstanding Notes that have been
tendered but not accepted for exchange, will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS;
GUARANTY OF SIGNATURES.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of the Outstanding Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the certificates
without alteration or enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the holder of the Outstanding Notes.
If any of the Outstanding Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Outstanding Notes registered in different names are
tendered, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Outstanding Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the
Outstanding Notes tendered hereby are tendered (i) by a registered Holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Outstanding Notes (which term, for the purposes described herein, shall
include a participant in the Book-Entry Transfer Facility whose
<PAGE> 10
name appears on a security listing as the holder of the Outstanding Notes)
listed and tendered hereby, no endorsements of the tendered Outstanding Notes or
separate written instruments of transfer or exchange are required. In any other
case, the registered Holder (or acting Holder) must either properly endorse the
Outstanding Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the Outstanding Notes, and, with respect to a participant
in the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Outstanding Notes, exactly as the name of the
participant appears on such security position listing), with the signature on
the Outstanding Notes or bond power guaranteed by an Eligible Institution
(except where the Outstanding Notes are tendered for the account of an Eligible
Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Book-Entry Transfer Facility) in which the Exchange
Notes or substitute Outstanding Notes for principal amounts not tendered or not
accepted for exchange are to be issued (or deposited), if different from the
names and addresses or accounts of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the employer
identification number or social security number of the person named must also be
indicated and the tendering Holder should complete the applicable box.
If no instructions are given, the Exchange Notes (and any Outstanding Notes
not tendered or not accepted) will be issued in the name of and sent to the
acting Holder of the Outstanding Notes or deposited at such Holder's account at
the Book-Entry Transfer Facility.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
and exchange of Outstanding Notes to it or its order pursuant to the Exchange
Offer. If, however, certificates representing the Exchange Notes or the
Outstanding Notes for the principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the person signing this Letter of Transmittal, or if a transfer tax
is imposed for any other reason, other than the transfer and exchange of
Outstanding Notes to the Company or its order pursuant to the Exchange Offer,
the amount of any such transfer taxes (whether imposed on the registered Holder
or any other person) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exception therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Outstanding Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or in part, any
of the conditions to the Exchange Offer set forth in the Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES.
Any Holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
<PAGE> 11
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to the Company at 580 WestLake Park Blvd., Suite
1300, Houston, Texas 77079, Attention: James M. Fitzpatrick (telephone: (713)
584-5500).
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders as soon as practicable following the Expiration
Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder receiving interest on Exchange Notes
is required to provide the payor of interest with such Holder's correct TIN on
Substitute Form W-9 herein. If such Holder is an individual, the TIN is the
Holder's social security number. The Certificate of Awaiting Taxpayer
Identification Number should be completed if the Holder has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future. The payor is required to report to the Internal Revenue Service the
amount of reportable interest paid to the Holder on Exchange Notes. If the payor
is not provided with the correct TIN, the Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, interest payments that are
made to such Holder on Exchange Notes may be subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign individuals and foreign entities) are not subject to these backup
withholding and reporting requirements. For a foreign Holder to qualify as an
exempt recipient, that Holder must submit to the payor of interest a properly
completed Internal Revenue Service Form W-8, signed under penalties of perjury,
attesting to that Holder's exempt status. Such forms can be obtained from the
Exchange Agent.
If backup withholding applies, the payor is required to withhold 31% of any
amounts otherwise payable to the Holder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be applied for with the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on interest payments to be made to a Holder
with respect to Exchange Notes, the Holder is required to notify the payor of
his or her correct TIN by completing the form herein
<PAGE> 12
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
Holder is awaiting a TIN) and that (i) such Holder has not been notified by the
Internal Revenue Service that he or she is subject to backup withholding as a
result of failure to report all interest or dividends or (ii) the Internal
Revenue Service has notified such Holder that he or she is no longer subject to
backup withholding.
WHAT NUMBER TO GIVE THE PAYOR
Each Holder is required to give the payor the social security number or
employer identification number of the record Holder(s) of the Exchange Notes. If
Exchange Notes are in more than one name or are not in the name of the actual
Holder, consult the attached Guidelines for Certifying TIN, for additional
guidance on which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the Holder of Exchange Notes has not been issued a TIN and has applied
for a number or intends to apply for a number in the near future, write "Applied
For" in the space for the TIN on Substitute Form W-9, check the box in Part 4,
sign and date the form and the Certificate of Awaiting Taxpayer Identification
Number and return them to the Exchange Agent. If such certificate is completed
and the payor of interest on the Exchange Notes is not provided with the TIN
within 60 days, the payor will withhold 31% of all payments made thereafter
until a TIN is provided to the payor. Moreover, even if a TIN is provided within
such 60-day period, the payor is required to withhold 31% of any reportable
interest payments made to the payee 7 days following receipt by the payor of the
Certificate of Awaiting Tax Identification Number. The payor must refund these
amounts withheld if it receives the payee's certified TIN within the 60-day
period and the payee was not otherwise subject to backup withholding during the
period.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
THEREOF (TOGETHER WITH OUTSTANDING NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 13
MARINER ENERGY, INC.
NOTICE OF GUARANTEED DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTY)
As set forth in the Prospectus dated , 1996 (the "Prospectus")
in the section entitled "The Exchange Offer -- Procedures for Tendering" and in
the accompanying Letter of Transmittal (the "Letter of Transmittal") and
Instruction 2 thereto, this form or one substantially equivalent hereto must be
used to accept the Exchange Offer if certificates representing 10 1/2% Senior
Subordinated Notes Due 2006, Series A, of Mariner Energy, Inc. (the "Outstanding
Notes") are not immediately available or time will not permit such holder's
Outstanding Notes or other required documents to reach the Exchange Agent, or
complete the procedures for book-entry transfer, prior to the Expiration Date
(as defined in the Prospectus) of the Exchange Offer. This form may be delivered
by hand or sent by overnight courier, facsimile transmission or registered or
certified mail to the Exchange Agent and must be received by the Exchange Agent
prior to 12:00 midnight, New York City time on , 1996.
To United States Trust Company of New York
(the "Exchange Agent")
BY HAND DELIVERY:
United States Trust Company
of New York
111 Broadway
Lower Level
New York, NY 10005
Attn: Corporate Trust
BY OVERNIGHT COURIER:
United States Trust Company
of New York
770 Broadway
13th Floor
New York, NY 10003
Attn: Corporate Trust Service Window
BY REGISTERED OR CERTIFIED MAIL:
United States Trust Company
of New York
Box 843
Peter Cooper Station
New York, NY 10276
Attn: Corporate Trust
BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY):
United States Trust Company of New York
(212) 420-6152
Confirm: (800) 548-6565
FOR INFORMATION:
(800) 548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTY MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER OF
TRANSMITTAL FOR GUARANTY OF SIGNATURES.
<PAGE> 14
Ladies and Gentlemen:
The undersigned hereby tender(s) to Mariner Energy, Inc., the principal
amount of the Outstanding Notes listed below, upon the terms of and subject to
the conditions set forth in the Prospectus and the related Letter of Transmittal
and the instructions thereto (which together constitute the "Exchange Offer"),
receipt of which is hereby acknowledged, pursuant to the guaranteed delivery
procedures set forth in the Prospectus, as follows:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
AMOUNT OF TENDERED (MUST BE IN INTEGRAL
NOTE NOS. NOTE(S) MULTIPLES OF $1,000)
- ----------------------- ------------------------------ ------------------------------------
<S> <C> <C>
- ----------------------- ------------------------------ ------------------------------------
- ----------------------- ------------------------------ ------------------------------------
- ----------------------- ------------------------------ ------------------------------------
- ----------------------- ------------------------------ ------------------------------------
The Book-Entry Transfer Facility Sign Here
Account Number (if the Outstanding Notes will
be tendered by book-entry transfer)
X
---------------------------------------------
X
---------------------------------------------
Signature(s)
- ---------------------------------------------
Account Number
- --------------------------------------------- ---------------------------------------------
Principal Amount Tendered Number and Street
(must be in integral multiples of $1,000) or P.O. Box
---------------------------------------------
City, State, Zip Code
Dated: ____________________ , 1996
</TABLE>
<PAGE> 15
GUARANTY
(NOT TO BE USED FOR SIGNATURE GUARANTY)
The undersigned, a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office in the United States,
guarantees (a) that the above named person(s) "own(s)" the principal amount of
10 1/2% Senior Subordinated Notes due 2006, Series A, of Mariner Energy, Inc.
(the "Outstanding Notes") tendered hereby within the meaning of Rule 14e-4 under
the Securities Exchange Act of 1934, as amended, (b) that such tender of such
Outstanding Notes complies with Rule 14e-4 and (c) to deliver to the Exchange
Agent the certificates representing the Outstanding Notes tendered hereby or
confirmation of book-entry transfer of such Outstanding Notes into the Exchange
Agent's account at The Depository Trust Company, in proper form for transfer,
together with the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guaranties and any
other required documents, within five New York Stock Exchange trading days after
the Expiration Date.
Name of Firm ___________________________________________
Authorized Signature ___________________________________
Name ___________________________________________________
Please Type or Print
Title __________________________________________________
Address ________________________________________________
Zip Code
Area Code and Telephone No. ____________________________
Dated: _________________________________________ , 1996
NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS FORM. ORIGINAL NOTES SHOULD BE SENT
ONLY WITH A LETTER OF TRANSMITTAL.
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens: i.e,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the Payer.
<TABLE>
<CAPTION>
========================================================
GIVE THE
FOR THIS TYPE SOCIAL SECURITY
OF ACCOUNT: NUMBER OF --
- --------------------------------------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first
individual on the
account(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, the first person
on the account(1)
4. Custodian account of a The minor(2)
minor (Uniform Gifts to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee incompetent person(3)
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(1)
savings trust
account (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid
trust under State law
========================================================
<CAPTION>
========================================================
GIVE THE NAME AND
FOR THIS TYPE EMPLOYER IDENTIFICATION
OF ACCOUNT: NUMBER OF --
- --------------------------------------------------------
<S> <C> <C>
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate, Legal entity (Do not
or pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the name
of a public entity
(such as a State or
local governmental,
school district, or
prison) that receives
agricultural program
payments
=====================================================
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner. You may use either your SSN or EIN.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 17
OBTAINING A TAXPAYER IDENTIFICATION NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4,
Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for one
immediately.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
For interest and dividends, payees listed below are exempt from backup
withholding and no information reporting is required:
- - A corporation
- - A financial institution
- - An organization exempt from the tax under section 501(a), an individual
retirement account or a custodial account under Section 403(b)(7).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries, Inc.
Nominee List.
- - A trust exempt from tax under Section 664 or described in Section 4947.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A foreign central bank of issue.
Exempt payees described above should file Form W-9 with the Payer to avoid
possible erroneous backup withholding. TO FILE THIS FORM WITH THE PAYER: FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, CHECK THE BOX IN PART 3 OF THE FORM, SIGN
AND DATE THE FORM, AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividends and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
