<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
TITAN EXPLORATION, INC.
(Exact name of Registrant as specified in its charter)
------------------
<TABLE>
<S> <C> <C>
DELAWARE 1311 75-2671582
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
500 WEST TEXAS, SUITE 500
MIDLAND, TEXAS 79701
(915) 682-6612
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------
JACK HIGHTOWER
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
TITAN EXPLORATION, INC.
500 WEST TEXAS, SUITE 500
MIDLAND, TEXAS 79701
(915) 682-6612
(Name, address, including zip code, and telephone number, including area code,
of Registrant's agent for service)
------------------
Copies of Communication to:
<TABLE>
<S> <C>
JOE DANNENMAIER ROBERT L. KIMBALL
THOMPSON & KNIGHT, P.C. VINSON & ELKINS L.L.P.
1700 PACIFIC AVENUE, SUITE 3300 2001 ROSS AVENUE, SUITE 3700
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share.................... $172,500,000 $52,273
=================================================================================================
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated for purposes of calculating registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
Shares
Titan Exploration, Inc.
Common Stock
($.01 par value)
------------------
Of the shares offered hereby, shares are being sold by Titan
Exploration, Inc. (the "Company") and shares are being sold by
the Selling Stockholder named herein under "Principal and Selling Stockholder."
The Company will not receive any of the proceeds of Shares sold by the Selling
Stockholder. Prior to this offering, there has been no public market for the
Common Stock. It is anticipated that the initial public offering price will be
between $ and $ per share. For information relating to the factors
to be considered in determining the initial offering price to the public, see
"Underwriting." Application will be made to list the Common Stock on the New
York Stock Exchange.
------------------
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF
THIS PROSPECTUS.
------------------
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 AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) the Company(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at
$ .
(3) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ , and Proceeds to
the Company will be $ .
------------------
The Shares are offered by the several Underwriters when, as and if issued
by the Company, delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that the Shares
will be ready for delivery on or about , 1996.
CS First Boston
Donaldson, Lufkin & Jenrette
Securities Corporation
Howard, Weil, Labouisse, Friedrichs
Incorporated
J.P. Morgan & Co.
Petrie Parkman & Co.
The date of this Prospectus is , .
<PAGE> 3
[MAP OF THE COMPANY'S PRODUCING PROPERTIES]
---------------------
The Company intends to furnish its stockholders annual reports containing
consolidated financial statements certified by its independent auditors and
quarterly reports for each of the first three quarters of each fiscal year
containing unaudited financial information.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK OF THE COMPANY PURSUANT TO EXEMPTIONS
FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. The pro forma information gives effect to the reorganization
of the Company, the 1995 Acquisition and the 1996 Acquisition. See "The
Company." Unless otherwise indicated, the information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option. Certain terms relating
to the oil and gas industry are defined in "Glossary of Oil and Gas Terms." As
noted in the glossary, PV-10 is calculated without giving effect to income
taxes.
THE COMPANY
Titan is an independent oil and gas company engaged in the exploration,
development and acquisition of oil and gas properties. Since its inception in
March 1995, the Company has experienced significant growth in reserves,
production and cash flow by acquiring and exploiting producing properties
primarily in the Permian Basin of west Texas and southeastern New Mexico.
In December 1995, the Company acquired a concentrated group of Permian
Basin producing oil and gas properties from a large independent company for
approximately $40.6 million (the "1995 Acquisition"). On October 31, 1996, the
Company acquired additional Permian Basin producing properties from a major
integrated company for approximately $170 million (subject to purchase price
adjustments) (the "1996 Acquisition"). As of September 30, 1996, the Company had
pro forma estimated net proved reserves of approximately 24.7 MMBbls of oil and
283.8 Bcf of natural gas, or an aggregate of 72.0 MMBOE with a PV-10 of $328.9
million. Approximately 65% of these reserves were classified as proved
developed. The Company acquired, explored for and developed its reserves for an
average reserve replacement cost of approximately $2.93 per BOE through June 30,
1996, assuming the 1996 Acquisition was consummated on June 30, 1996. Pro forma
production for the six months ended June 30, 1996 was 13,486 BOE per day,
resulting in an annualized pro forma proved reserves to production ratio of 13.0
to one.
The Company prefers to acquire properties over which it can exercise
operating control. The Company operated 456 gross wells (389 net wells) on a pro
forma basis at September 30, 1996, and these operated properties represented
approximately 62% of its pro forma proved developed producing PV-10 and 74% of
the Company's pro forma proved PV-10 at September 30, 1996. Controlling the
operation of its properties enables the Company to manage expenses, capital
allocation and other aspects of development and exploration.
The Company's oil and gas properties are located in 58 fields in the
Permian Basin, one of the most prolific oil and gas producing regions in North
America. Approximately 74% of the Company's PV-10 of total proved reserves is
concentrated in 13 principal properties located in this region. The region is
characterized by complex geology with numerous known producing horizons and
provides significant opportunities to increase reserves, production and ultimate
recoveries through development, exploratory and horizontal drilling,
recompletions, secondary and tertiary recovery methods, and use of 3-D seismic
and other advanced technologies.
The Company believes that its personnel provide it with competitive
advantages for exploiting these opportunities in the Permian Basin and other
complex producing basins in North America. Members of the Company's management
team have an average of 25 years experience in the oil and gas industry and have
operating experience in all aspects of the industry, in particular deep well and
horizontal drilling. They have formulated and supervised acquisitions,
exploration projects, development drilling programs and production enhancement
plans, including workovers and enhanced recovery projects. In addition,
management has a significant equity investment in the Company. Giving effect to
this offering and assuming the exercise by management of all of their options to
acquire Common Stock, management will beneficially own an aggregate of % of
the Company's outstanding Common Stock.
3
<PAGE> 5
BUSINESS STRATEGY
The Company's strategy is to grow reserves, production and net income per
share through (i) the acquisition of producing properties that provide
significant development and exploratory drilling potential, (ii) the
exploitation and development of its reserve base, (iii) the exploration for oil
and gas reserves, (iv) the implementation of a low operating and overhead cost
structure, and (v) the preservation of the Company's financial flexibility.
- Acquisitions. The Company seeks to acquire oil and gas properties that
provide opportunities for the addition of reserves, production and value
through low risk exploitation and development, high-potential exploration
and control of operations. The Company believes that these criteria can be
met in the Permian Basin and in other North American basins that could be
established as new core areas. At June 30, 1996, the Company had acquired
and developed 63.8 MMBOE of proved oil and gas reserves at an average
reserve replacement cost of $2.93 per BOE, assuming the 1996 Acquisition
was consummated on June 30, 1996, which compares to an average reserve
replacement cost of $4.85 per BOE (for 1993 through 1995) for the 184
independent oil and gas companies included in the Arthur Andersen 1996 Oil
and Gas Reserve Disclosures.
- Exploitation of Reserve Base. The Company engages in horizontal and
infill drilling activities, major workovers, recompletions, secondary and
tertiary recovery operations, and other production enhancement techniques
in order to increase reserves and production. On a pro forma basis, the
Company has identified 88 drilling locations on Company-operated
properties, which include 24 proved locations and 64 unproven locations.
In drilling a portion of these wells in 1997, the Company expects to spend
approximately $20.1 million to develop proved locations and $11.1 million
to develop unproven locations. The Company has also identified an
additional 120 unproven drilling locations on Company-owned, but
nonoperated, properties.
- Exploration Activities. The Company seeks to apply management's extensive
geological and drilling expertise and 3-D seismic technology to identify
and develop exploration projects. As part of its exploration strategy, the
Company attempts to reduce the costs and risks of its exploration
activities by, in selected circumstances, applying 3-D seismic technology,
drilling wells with multiple pay objectives in known producing areas and
selling interests in its exploration prospects to industry partners. A
large portion of the Company's efforts have focused on deep well
opportunities in historically prolific fields.
- Low Cost Structure. The Company has implemented and plans to maintain a
low overhead and operating cost structure to enhance the profitability and
the exploitation potential of its properties. The Company provides
incentive compensation to its senior management team in lieu of higher
salary in order to align management's interests with stockholders, reduce
general and administrative expenses and increase the amount of cash flow
available for reinvestment by the Company. The Company also seeks to be an
efficient operator and achieve reductions in labor and other field-level
costs from those incurred by previous operators of its properties. By
operating a significant portion of its daily production, the Company
believes it is well positioned to control the expenses and timing of
development and exploitation of such properties and to better manage such
cost reduction efforts.
- Financial Flexibility. The Company is committed to maintaining financial
flexibility in order to pursue exploration and development activities and
take advantage of acquisition opportunities. This offering will enhance
the Company's financial flexibility by reducing long-term debt.
Immediately following the completion of this offering, the Company expects
to have approximately $152.2 million available under a line of credit,
stockholders' equity of approximately $173.0 million and long-term debt
that will be approximately 10% of its PV-10. See "Use of Proceeds."
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered:
By the Company......................................... Shares
By the Selling Stockholder............................. Shares
Common Stock to be outstanding after this offering....... Shares(1)
Use of Proceeds by the Company........................... For exploration, development and
acquisition activities and other
general corporate purposes.
Pending use of the net proceeds in
this manner, the Company intends
to use the net proceeds for
repayment of indebtedness incurred
in connection with the 1996
Acquisition. See "Use of
Proceeds."
Proposed New York Stock Exchange Symbol.................. TNX
</TABLE>
- ---------------
(1) Does not include (i) 3,631,350 shares of Common Stock issuable upon exercise
of outstanding employee stock options, with an exercise price of $2.08 per
share and (ii) 85,000 shares of Common Stock issuable upon exercise of
outstanding employee stock options, with an exercise price equal to the
Price to Public on the cover page of this Prospectus. See "Capitalization,"
"Management" and Note 9 of Notes to Consolidated Financial Statements.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------- --------------------------
PRO FORMA AS PRO FORMA AS
HISTORICAL ADJUSTED(1) HISTORICAL ADJUSTED(1)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 985 $ 57,962 $6,789 $ 31,820
-------- ------- ------ -------
Expenses:
Oil and gas production.................... 304 23,406 2,992 12,109
General and administrative................ 1,546 4,625 958 2,313
Amortization of stock option awards....... 868 4,394 578 2,197
Exploration and abandonment............... 490 490 81 81
Depletion, depreciation and
amortization............................ 299 19,828 1,760 9,032
Interest.................................. 97 2,620 711 1,299
Other..................................... (796) (97) (246) (3)
-------- ------- ------ -------
Total expenses............................... 2,808 55,266 6,834 27,028
-------- ------- ------ -------
Net income (loss)............................ (1,823) 1,752 (45) 3,114
Net income (loss) per share.................. (.13) --
Weighted average shares outstanding.......... 14,051 18,828
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in):
Operating activities...................... $ (1,764) $2,049
Investing activities...................... (47,563) 675
Financing activities...................... 55,540 --
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures......................... $ 43,811 $4,325
EBITDAX(2)................................... (69) $ 30,028 3,085 $ 17,401
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
PRO FORMA AS
HISTORICAL ADJUSTED(1)
---------- ------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 8,937 $ --
Working capital...................................................... 9,671 734
Oil and gas properties, net.......................................... 45,531 206,531
Total assets......................................................... 58,690 211,253
Total debt........................................................... 20,000 32,763
Total stockholders' equity........................................... 33,218 173,018
</TABLE>
- ---------------
(1) Assumes the 1995 Acquisition, the 1996 Acquisition, the Conversion (see "The
Company"), the offering and the application of the proceeds therefrom had
taken place on January 1, 1995 for purposes of the Consolidated Statement of
Operations Data, Consolidated Statement of Cash Flows Data and Other
Consolidated Financial Data and on June 30, 1996 for purposes of the
Consolidated Balance Sheet Data.
(2) EBITDAX is presented because of its wide acceptance as a financial indicator
of a company's ability to service or incur debt. EBITDAX (as used herein) is
calculated by adding interest, income taxes, depletion, depreciation and
amortization, amortization of stock option awards, and exploration and
abandonment costs to net income (loss). Interest includes interest expense
accrued and amortization of deferred financing costs. EBITDAX should not be
considered as an alternative to earnings (loss) or operating earnings
(loss), as defined by generally accepted accounting principles, as an
indicator of the Company's financial performance or to cash flow as a
measure of liquidity.
6
<PAGE> 8
SUMMARY RESERVE INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996 SEPTEMBER 30, 1996
-------------------------- ----------------------- --------------------------
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA HISTORICAL PRO FORMA(1)
---------- ------------ ---------- --------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ESTIMATED PROVED
RESERVES(2):
Oil (MBbls)............. 6,146 23,820 6,281 23,737 6,563 24,651
Gas (MMcf).............. 134,995 245,064 135,013 239,935 179,565 283,849
MBOE (6 Mcf per Bbl).... 28,645 64,664 28,783 63,726 36,491 71,959
Proved developed reserves
as a percentage of
proved reserves......... 47% 69% 47% 70% 42% 65%
PV-10(3).................. $ 89,753 $269,278 $ 107,172 $ 261,815 $ 144,532 $328,877
Standardized Measure of
Discounted Future Net
Cash Flows(4)........... $ 61,258 $215,470 $ 82,845 $ 211,579
</TABLE>
- ---------------
(1) Gives effect to the 1995 Acquisition and the 1996 Acquisition as if those
transactions had occurred on January 1, 1995.
(2) The reserve and present value data at December 31, 1995 have been prepared
by the Company. The reserve and present value data at September 30, 1996
have been prepared by Williamson Petroleum Consultants, Inc. ("Williamson"),
independent petroleum engineering consultants. For additional information
relating to the Company's oil and gas reserves, see "Business and
Properties -- Oil and Natural Gas Reserves" and Note 14 of the Notes to the
Consolidated Financial Statements of the Company. Summaries of the October
1, 1996 reserve reports and the letter of Williamson with respect thereto
are included as Appendix A to this Prospectus.
(3) The present value of future net revenue attributable to the Company's
reserves was prepared using prices in effect at the end of the respective
periods presented, discounted at 10% per annum on a pre-tax basis. These
amounts reflect the effects of the Company's hedging activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Other Matters."
(4) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the present value of future net revenues after income
taxes discounted at 10%. These amounts reflect the effects of the Company's
hedging activities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Other Matters."
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
PERIOD ENDED SIX MONTHS
DECEMBER 31, 1995 ENDED JUNE 30, 1996
--------------------------- ---------------------------
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
PRODUCTION:
Oil (MBbls)............................... 30 2,398 256 1,128
Gas (MMcf)................................ 245 18,157 1,698 7,959
Total (MBOE).............................. 71 5,424 539 2,455
AVERAGE SALES PRICE PER UNIT(2):
Oil (per Bbl)............................. $16.80 $15.28 $17.16 $17.04
Gas (per Mcf)............................. .97 1.16 1.33 1.57
BOE....................................... 10.46 10.64 12.35 12.91
EXPENSES PER BOE:
Production costs, including production
taxes.................................. $ 4.29 $ 4.32 $ 5.55(3) $ 4.93(3)
General and administrative................ 21.77 .85 1.78 .94
Depletion, depreciation and
amortization........................... 4.21 3.66 3.27 3.68
</TABLE>
- ---------------
(1) Gives effect to the 1995 Acquisition and the 1996 Acquisition as if those
transactions had occurred on January 1, 1995.
(2) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Other Matters."
(3) Includes approximately $.72 per BOE of production costs attributable to
necessary nonrecurring maintenance operations on the 1995 Acquisition
properties.
7
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"will," "could," "may" and similar expressions are intended to identify
forward-looking statements. These statements include information regarding oil
and gas reserves, future drilling and operations, future production of oil and
gas and future net cash flows. Such statements reflect the Company's current
views with respect to future events and financial performance and involve risks
and uncertainties, including without limitation the risks described in "Risk
Factors." Should one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, actual results may vary materially and
adversely from those anticipated, believed, estimated or otherwise indicated.
Investors should carefully consider the following risk factors, in addition to
other information contained in this Prospectus, before purchasing the shares of
Common Stock offered hereby.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenues, operating results and future rate of growth are
highly dependent upon the prices received for the Company's oil and gas.
Historically, the markets for oil and gas have been volatile and may continue to
be volatile in the future. Revenues generated from the oil and gas operations of
the Company will be highly dependent on the future prices of oil and gas.
Various factors beyond the control of the Company will affect prices of oil and
gas, including the worldwide and domestic supplies of oil and gas, the ability
of the members of the Organization of Petroleum Exporting Countries ("OPEC") to
agree to and maintain oil price and production controls, political instability
or armed conflict in oil-producing regions, the price and level of foreign
imports, the level of consumer demand, the price and availability of alternative
fuels, the availability of pipeline capacity, weather conditions, domestic and
foreign governmental regulations and taxes and the overall economic environment.
Recent political instability in the Middle East has had a significant
effect on world oil markets. In the third quarter of 1996, prices of oil
experienced substantial price fluctuations, including large price escalations,
resulting in part from Iraq's attack against the Kurdish rebels in Northern Iraq
and the subsequent United States response. On June 30, 1996, the posted price
for West Texas Intermediate Crude was $19.50 per Bbl, as posted by the Company's
major purchaser. On September 30, 1996, the price of West Texas Intermediate
Crude was $22.75 per Bbl, as posted by the Company's major purchaser. The
Company is unable to predict the long-term effects of these and other conditions
on the prices of oil. Moreover, it is possible that prices for any oil the
Company produces will be lower than current prices received by the Company.
Historically, the market for natural gas has been volatile and is likely to
continue to be volatile in the future. Prices for natural gas are subject to
wide fluctuation in response to market uncertainty, changes in supply and demand
and a variety of additional factors, all of which are beyond the Company's
control.
Any significant decline in the price of oil or gas would adversely affect
the Company's revenues and operating income and may require a reduction in the
carrying value of the Company's oil and gas properties. See "Risk
Factors -- Uncertainty of Reserve Information and Future Net Revenue Estimates,"
"Business and Properties -- Competition" and "Business and
Properties -- Governmental Regulation."
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES
There are numerous uncertainties inherent in estimating quantities of
proved reserves and their values, including many factors beyond the Company's
control. The reserve information set forth in this Prospectus represents
estimates only. Although the Company believes such estimates to be reasonable,
reserve estimates are imprecise.
8
<PAGE> 10
Petroleum engineering is not an exact science. Information relating to the
Company's proved reserves is based upon engineering estimates. Estimates of
economically recoverable oil and gas reserves and of future net cash flows
necessarily depend upon a number of variable factors and assumptions, such as
historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and 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. Any significant variance in the
assumptions could materially affect the estimated quantity and value of the
reserves set forth in this Prospectus. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, and such variances may be material. See "Business and
Properties -- Oil and Natural Gas Reserves."
RISK OF HEDGING ACTIVITIES
The Company's use of energy swap arrangements to reduce its sensitivity to
oil and gas price volatility is subject to a number of risks. If the Company's
reserves are not produced at the rates estimated by the Company due to
inaccuracies in the reserve estimation process, operational difficulties or
regulatory limitations, the Company would be required to satisfy its obligations
under fixed price sales and hedging contracts on potentially unfavorable terms
without the ability to hedge that risk through sales of comparable quantities of
its own production. Further, the terms under which the Company enters into fixed
price sales and hedging contracts are based on assumptions and estimates of
numerous factors such as cost of production and pipeline and other
transportation costs to delivery points. Substantial variations between the
assumptions and estimates used by the Company and actual results experienced
could materially adversely affect the Company's anticipated profit margins and
its ability to manage the risk associated with fluctuations in oil and gas
prices. Additionally, the fixed price sales and hedging contracts limit the
benefits the Company will realize if actual prices rise above the contract
prices.
In addition, fixed price sales and hedging contracts are subject to the
risk that the other party may prove unable or unwilling to perform its
obligations under such contracts. Any significant nonperformance could have a
material adverse financial effect on the Company.
As of September 30, 1996, excluding the effects of the 1996 Acquisition,
the Company had approximately 59% of its oil production and approximately 80% of
its gas production (based on first and second quarter production) committed to
hedging contracts through December 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Other Matters."
LIMITED OPERATING HISTORY; RAPID GROWTH
The Company, which began operations in March 1995, has a brief operating
history upon which investors may base their evaluation of the Company's
performance. As a result of its brief operating history and rapid growth, the
operating results from the Company's historical periods are not readily
comparable and may not be indicative of future results. There can be no
assurance that the Company will continue to experience growth in, or maintain
its current level of, revenues or oil and gas reserves or production. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's rapid growth has placed significant demands on its
administrative, operational and financial resources. Any future growth of the
Company's oil and gas reserves, production and operations would place
significant further demands on the Company's financial, operational and
administrative resources. The Company plans to hire 20 to 25 additional
employees following the 1996 Acquisition. The Company's future performance and
profitability will depend in part on its ability to successfully integrate the
administrative and financial functions of acquired properties into the Company's
operations, to hire additional personnel and to implement necessary enhancements
to its management systems to respond to changes in its business. There
9
<PAGE> 11
can be no assurance that the Company will be successful in these efforts. The
inability of the Company to integrate acquired properties, to hire additional
personnel or to enhance its management systems could have a material adverse
effect on the Company's results of operations.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the exploration, development, acquisition and production of its
oil and gas reserves. The Company intends to finance such capital expenditures
primarily with funds provided by operations and borrowings under its $250
million Credit Agreement, which currently has a borrowing base of $185 million.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The cost of the 1995 Acquisition
was approximately $40.6 million, and the cost of the 1996 Acquisition was
approximately $170 million (subject to purchase price adjustments). The
Company's direct capital expenditures for oil and gas producing activities,
excluding property acquisitions, were $2.0 million for the nine months ended
December 31, 1995 and $3.6 million for the six months ended June 30, 1996.
If revenues decrease as a result of lower oil or gas prices or otherwise,
the Company may have limited ability to expend the capital necessary to replace
its reserves or to maintain production at current levels, resulting in a
decrease in production over time. If the Company's cash flow from operations is
not sufficient to satisfy its capital expenditure requirements, there can be no
assurance that additional debt or equity financing will be available to meet
these requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
RESERVE REPLACEMENT RISK
The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of the Company will generally decline as reserves are depleted,
except to the extent that the Company conducts successful exploration or
development activities or acquires properties containing proved reserves, or
both. In order to increase reserves and production, the Company must continue
its development and exploration drilling and recompletion programs or undertake
other replacement activities. The Company's current strategy includes increasing
its reserve base through acquisitions of producing properties, continued
exploitation of its existing properties and exploration of new and existing
properties. There can be no assurance, however, that the Company's planned
development and exploration projects and acquisition activities will result in
significant additional reserves or that the Company will have continuing success
drilling productive wells at low finding and development costs. Furthermore,
while the Company's revenues may increase if prevailing oil and gas prices
increase significantly, the Company's finding costs for additional reserves
could also increase. For a discussion of the Company's reserves, see "Business
and Properties -- Oil and Natural Gas Reserves."
DRILLING AND OPERATING RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
gas may involve unprofitable efforts, not only from dry wells, but from wells
that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, many of which are beyond the Company's control, including economic
conditions, mechanical problems, title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the delivery of
equipment and services. The Company's future drilling activities may not be
successful and, if unsuccessful, such failure may have a material adverse effect
on the Company's future results of operations and financial condition.
10
<PAGE> 12
In addition, the Company's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. There can be no assurance
that the Company's drilling program will be successful or that unsuccessful
drilling efforts will not have a material adverse effect on the Company.
The Company's operations are subject to hazards and risks inherent in
drilling for and producing and transporting of oil and gas, such as fires,
natural disasters, explosions, encountering formations with abnormal pressures,
blowouts, cratering, pipeline ruptures and spills, any of which can result in
the loss of hydrocarbons, environmental pollution, personal injury claims and
other damage to properties of the Company and others.
The Company expects to drill a number of deep vertical and horizontal wells
in the future. The Company's deep and/or horizontal drilling activities involve
greater risk of mechanical problems than other drilling operations. Future
drilling activity may be significantly more expensive than such activity to
date.
As protection against operating hazards, the Company maintains insurance
coverage against some, but not all, potential losses. In certain circumstances
in which insurance may be available, the Company may elect to self-insure
instead. The occurrence of an event that is not covered, or not fully covered,
by insurance could have a material adverse effect on the Company's financial
condition and results of operations.
ACQUISITION RISKS
The Company's rapid growth since its inception in March 1995 has been
largely the result of acquisitions of producing properties. The Company expects
to continue to evaluate and pursue acquisition opportunities available on terms
management considers favorable to the Company. The successful acquisition of
producing properties requires an assessment of recoverable reserves, future oil
and gas prices, operating costs, potential environmental and other liabilities
and other factors beyond the Company's control. This assessment is necessarily
inexact and its accuracy is inherently uncertain. In connection with such an
assessment, the Company performs a review of the subject properties it believes
to be generally consistent with industry practices. This review, however, will
not reveal all existing or potential problems, nor will it permit a buyer to
become sufficiently familiar with the properties to assess fully their
deficiencies and capabilities. Inspections may not be performed on every well,
and structural and environmental problems are not necessarily observable even
when an inspection is undertaken. The Company is generally not entitled to
contractual indemnification for preclosing liabilities, including environmental
liabilities, and generally acquires interests in the properties on an "as is"
basis. There can be no assurance that the Company's acquisitions will be
successful. Any unsuccessful acquisition could have a material adverse effect on
the Company.
COMPLIANCE WITH GOVERNMENT REGULATIONS
The Company's business is subject to federal, state and local laws and
regulations relating to the exploration for, and the development, production and
transportation of, oil and gas, as well as safety matters. Although the Company
believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by such laws and regulations are
frequently changed and subject to interpretation, and the Company is unable to
predict the ultimate cost of compliance with these requirements or their effect
on its operations. Significant expenditures may be required to comply with
governmental laws and regulations and may have a material adverse effect on the
Company's financial condition and results of operations. See "Business and
Properties -- Governmental Regulation."
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company's operations are subject to complex and constantly changing
environmental laws and regulations adopted by federal, state and local
governmental authorities. The implementation of new, or the modification of
existing, laws or regulations, including regulations which may be promulgated
under the Oil Pollution Act of 1990, could have a material adverse effect on the
Company. The discharge of oil, gas or other pollutants into the air, soil or
water may give rise to significant liabilities on the part of the Company to the
government and third parties and may require the Company to incur substantial
costs of remediation. Moreover, the Company has agreed to indemnify sellers of
producing properties purchased by the Company against certain liabilities for
environmental claims associated with such properties, including, without
11
<PAGE> 13
limitation, in connection with both the 1995 Acquisition and the 1996
Acquisition. No assurance can be given that existing environmental laws or
regulations, as currently interpreted or reinterpreted in the future, or future
laws or regulations, including regulations that may be promulgated under the Oil
Pollution Act of 1990, will not materially adversely affect the Company's
results of operations and financial condition or that material indemnity claims
will not arise against the Company with respect to properties acquired by the
Company. See "Business and Properties -- Environmental Matters."
MARKETABILITY OF PRODUCTION
The marketability of the Company's production depends in part upon the
availability, proximity and capacity of natural gas gathering systems, pipelines
and processing facilities. Most of the Company's natural gas is delivered
through gas gathering systems and gas pipelines that are not owned by the
Company. Federal and state regulation of oil and gas production and
transportation, tax and energy policies, changes in supply and demand and
general economic conditions all could adversely affect the Company's ability to
produce and market its oil and gas. Any dramatic change in market factors could
have a material adverse effect on the Company.
The PV-10 referred to in this Prospectus should not be construed as the
current market value of the estimated oil and gas reserves attributable to the
Company's properties. In accordance with applicable requirements, the estimated
discounted future net cash flows from proved reserves are generally based on
prices and costs as of the date of the estimate, whereas actual future prices
and costs may be materially higher or lower. Actual future net cash flows also
will be affected by factors such as the amount and timing of actual production,
supply and demand for oil and gas, curtailments or increases in consumption by
gas purchasers and changes in governmental regulations or taxation. The timing
of actual future net cash flows from proved reserves, and thus their actual
present value, will be affected by the timing of both the production and the
incurrence of expenses in connection with development and production of oil and
gas properties. In addition, the 10% discount factor, which is required to be
used to calculate discounted future net cash flows for reporting purposes, is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company or the oil and
gas industry in general.
DEPENDANCE ON KEY PERSONNEL
The Company's success has been and will continue to be highly dependent on
Jack Hightower, its Chairman of the Board and Chief Executive Officer, and a
limited number of other senior management personnel. Loss of the services of Mr.
Hightower or any of those other individuals could have a material adverse effect
on the Company's operations. In addition, as a result of the 1996 Acquisition,
the Company plans to employ 20 to 25 new employees and will face competition for
such personnel from other companies. There can be no assurance that the Company
will be successful in hiring or retaining key personnel. The Company's failure
to hire additional personnel or retain its key personnel could have a material
adverse effect on the Company.
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this offering, directors, executive officers and
principal stockholders of the Company, and certain of their affiliates, will
beneficially own approximately % of the Company's outstanding Common Stock
(approximately % if the Underwriters exercise their over-allotment option
in full). Accordingly, these stockholders, as a group, will be able to control
the outcome of stockholder votes, including votes concerning the election of
directors, the adoption or amendment of provisions in the Company's Certificate
of Incorporation or Bylaws and the approval of mergers and other significant
corporate transactions. The existence of these levels of ownership concentrated
in a few persons make it unlikely that any other holder of Common Stock will be
able to affect the management or direction of the Company. These factors may
also have the effect of delaying or preventing a change in the management or
voting control of the Company. See "Principal and Selling Stockholders."
12
<PAGE> 14
COMPETITION
The Company operates in the highly competitive areas of oil and gas
exploration, development, acquisition and production with other companies, many
of which have substantially larger financial resources, staffs and facilities.
In seeking to acquire desirable producing properties or new leases for future
exploration and in marketing its oil and gas production, the Company faces
intense competition from both major and independent oil and gas companies. Many
of these competitors have financial and other resources substantially in excess
of those available to the Company. See "Business and Properties -- Competition."
The effects of this highly competitive environment could have a material adverse
effect on the Company.
CUMULATIVE VOTING; BLANK CHECK PREFERRED STOCK
The Company's Certificate of Incorporation (i) provides for cumulative
voting of directors and (ii) authorizes the Board of Directors of the Company to
issue up to 10,000,000 shares of preferred stock without stockholder approval
and to set the rights, preferences and other designations, including voting
rights, of those shares as the Board of Directors may determine. These
provisions, alone or in combination with each other and with the matters
described in "Risk Factors -- Control by Existing Stockholders," may discourage
transactions involving actual or potential changes of control of the Company,
including transactions that otherwise could involve payment of a premium over
prevailing market prices to holders of Common Stock. The Company also is subject
to provisions of the Delaware General Corporation Law that may make some
business combinations more difficult. See "Description of Capital
Stock -- Delaware Law Provisions."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company does not currently intend to pay regular cash dividends on the
Common Stock. In addition, the Credit Agreement prohibits the payment of cash
dividends. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Common Stock. The Company believes all of the shares of Common Stock currently
outstanding will be eligible for sale under Rule 144 on October 1, 1998, based
on current Securities and Exchange Commission (the "Commission") rules and
subject to compliance with the manner-of-sale, volume and other limitations of
Rule 144. The Commission has proposed an amendment to Rule 144 that, if adopted,
could permit those shares to be sold earlier. Some investors have the right to
require the Company to register the public resale of their shares before that
time. See "Shares Eligible for Future Sale" and "Description of Capital
Stock -- Registration Rights."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock in the offering will experience an immediate
and substantial dilution in pro forma net tangible book value per share. These
investors will also experience additional dilution upon the exercise of
outstanding options. See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Before this offering, there has been no public market for the Common Stock,
and an active public market for the Common Stock may not develop or be
sustained. The initial public offering price will be determined through
negotiation between the Company and the Representatives of the Underwriters
based on several factors that may not be indicative of future market prices. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The trading price of the Common Stock and the
price at which the Company may sell securities in the future could be subject to
large fluctuations in response to changes in government regulations, quarterly
variations in operating results, litigation, general market conditions, the
prices of oil and gas, the liquidity of the Company and the Company's ability to
raise additional funds and other events.
13
<PAGE> 15
THE COMPANY
Titan Exploration, Inc. is an independent energy company engaged in the
exploration, development and acquisition of oil and gas properties. Titan was
formed in 1996 for the purpose of becoming the holding company for Titan
Resources, L.P. (the "Partnership") pursuant to the terms of an Exchange
Agreement and Plan of Reorganization dated September 30, 1996 (the "Exchange
Agreement"). The Partnership was formed in March 1995 and has grown through
acquisitions of oil and gas properties and the exploitation of these properties.
See "Business and Properties -- Principal Oil and Gas Properties." Under the
Exchange Agreement, effective September 30, 1996, (i) the limited partners of
the Partnership transferred all of their limited partnership interests to the
Company in exchange for an aggregate of 19,318,199 shares of Common Stock, and
(ii) the shareholders of Titan Resources I, Inc., a Texas corporation that is
the general partner of the Partnership, transferred all of the issued and
outstanding stock of that corporation to the Company in exchange for an
aggregate of 231,814 shares of Common Stock. These transactions are referred to
in this Prospectus as the "Conversion." As a result of the Conversion, Titan
Exploration, Inc. owns, directly or indirectly, all the partnership interests in
the Partnership and conducts its active business operations through the
Partnership. References to the "Company" or to "Titan" are to Titan Exploration,
Inc. and its predecessors and subsidiaries, including the Partnership.
Titan's principal executive offices are located at 500 West Texas, Suite
500, Midland, Texas 79701 and its telephone number is (915) 682-6612.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company are estimated to be approximately $139.8
million ($160.9 million if the Underwriters exercise their over-allotment option
in full), based on the initial public offering price of $ per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses.
The Company intends to use the net proceeds for exploration, development
and acquisition activities and other general corporate purposes. Pending use of
the net proceeds in this manner, the Company intends to use the net proceeds to
repay indebtedness under the Company's Amended and Restated Credit Agreement,
dated October , 1996 (the "Credit Agreement"), incurred in connection with the
1996 Acquisition. At June 30, 1996, on a pro forma basis, the outstanding
principal balance of indebtedness under the Credit Agreement would have been
$172.6 million, a substantial amount of which was incurred in connection with
the 1996 Acquisition. As of June 30, 1996, the Credit Agreement had an average
interest rate of 6.78% per annum, and the indebtedness has a final maturity of
January 1, 2001. As a result of an interest rate swap agreement, the Company
effectively has a fixed interest rate of 6.72% on $10 million of the revolving
portion of the Credit Agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for a description of the Credit Agreement. Affiliates of J.P. Morgan
Securities Inc. (one of the Underwriters) and First Union Corporation (an owner
of in excess of 5% of the Common Stock) are participants in that indebtedness
and will be entitled to receive 20% and 20%, respectively, of any repayments of
that indebtedness. See "Certain Transactions" and "Underwriting."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and anticipates that all future earnings will be retained for development of its
business. In addition, the Credit Agreement prohibits the payment of cash
dividends on Common Stock. The Board of Directors of the Company may review the
Company's dividend policy from time to time in light of, among other things, the
Company's earning and financial position and limitations imposed by the
Company's debt instruments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources."
14
<PAGE> 16
DILUTION
The Company's net tangible book value at June 30, 1996 was $32,638,000, or
approximately $1.73 per share of Common Stock. Net tangible book value per share
represents the amount of total tangible assets of the Company reduced by the
amount of the Company's total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the Company's receipt of the
estimated net proceeds from the sale of shares of Common Stock in this
offering at an assumed initial public offering price of $ per share,
the Company's pro forma net tangible book value as of June 30, 1996 would have
been $ , or $ per share. This represents an immediate increase
in pro forma net tangible book value of $ per share to the Company's
stockholders and an immediate dilution in pro forma net tangible book value of
$ per share to new investors purchasing shares in this offering. The
following table illustrates the per share dilution in pro forma net tangible
book value to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share of Common Stock at
June 30, 1996................................................. $
Increase per share of Common Stock attributable to new
investors.....................................................
------
Pro forma as adjusted net tangible book value per share of Common
Stock after the Offering.........................................
--------
Pro forma dilution per share to new investors...................... $
========
</TABLE>
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid, and the average price
per share paid by existing stockholders and to be paid (at an assumed initial
public offering price of $ per share) by purchasers of shares offered
hereby (before deducting estimated underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------- ---------- -------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 18,828 % $35,540 % $1.89
New investors................
------ ---------- ------- ---------- ------
Total.............. 100.0% $ 100.0% $
====== ======== ======= ======== ==========
</TABLE>
The preceding tables assume no exercises of any stock options to purchase
Common Stock outstanding at June 30, 1996. The preceding table excludes
3,387,676 shares of Common Stock issuable upon exercise of options outstanding
at June 30, 1996, with an exercise price of $2.08 per share. After June 30,
1996, the Company granted options to purchase an additional 243,674 shares of
Common Stock at an exercise price of $2.08 per share. In addition, the Company
has reserved 850,000 shares for future issuance under the Company's 1996
Incentive Plan, of which, 85,000 shares are issuable upon exercise of options
that have been granted with an exercise price equal to the Price to Public set
forth on the cover page of this Prospectus. See "Management -- Employee Benefit
Plans -- 1996 Incentive Plan" and Note 9 of Notes to Consolidated Financial
Statements.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, (ii) pro forma to reflect the matters identified in footnote 1 to
the table, and (iii) pro forma as adjusted to reflect the estimated net proceeds
from the Company's sale of shares of Common Stock pursuant to this
offering. This table should be read in conjunction with the Consolidated
Financial Statements and related notes in the Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
PRO FORMA
AS
HISTORICAL PRO FORMA(1) ADJUSTED(1)(3)
---------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt(2)............................. $ 20,000 $172,563 $ 32,763
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000
shares authorized; no shares outstanding
actual, pro forma and pro forma as
adjusted................................. -- -- --
Common Stock, $.01 par value, 60,000,000
shares authorized; 18,827,567 shares
issued and outstanding actual; 18,827,567
shares issued and outstanding pro forma;
and shares issued and
outstanding pro forma as
adjusted(3).............................. 188 188
Additional paid-in capital.................. 36,213 36,213
Deferred compensation....................... (3,183) (3,183)
------- -------- --------
Total stockholders' equity.................... 33,218 33,218 173,018
------- -------- --------
Total capitalization................ $ 53,218 $205,781 $205,781
======= ======== ========
</TABLE>
- ---------------
(1) Gives effect to the 1995 Acquisition and the 1996 Acquisition as if those
transactions had occurred on June 30, 1996.
(2) See Note 4 of Notes to Consolidated Financial Statements.
(3) Common Stock pro forma as adjusted excludes 3,387,676 shares of Common Stock
issuable upon exercise of outstanding options at June 30, 1996, with an
exercise price of $2.08 per share. After June 30, 1996, the Company granted
options to purchase an additional 243,674 shares of Common Stock at an
exercise price of $2.08 per share. In addition, the Company has reserved
850,000 shares of Common Stock for future issuance under the Company's 1996
Incentive Plan, of which, 85,000 shares are issuable upon exercise of
options that have been granted with an exercise price equal to the Price to
Public set forth on the cover page of this Prospectus. See
"Management -- Employee Benefit Plans -- 1996 Incentive Plan" and Note 9 of
Notes to Consolidated Financial Statements.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and related notes included elsewhere in this Prospectus. The consolidated
statement of operations data, consolidated statement of cash flows data and
other consolidated financial data for the period from inception (March 31, 1995)
through December 31, 1995, and the consolidated balance sheet data and
consolidated operating data at December 31, 1995, are derived from, and are
qualified by reference to, the consolidated financial statements included
elsewhere in this Prospectus that have been audited by KPMG Peat Marwick, LLP,
independent accountants. The unaudited consolidated financial data as of June
30, 1995 and June 30, 1996, and for the three months ended June 30, 1995 and for
the six months ended June 30, 1996 have been prepared on a basis consistent with
the audited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition and results of operations
for the periods presented. The pro forma consolidated financial data is derived
from, and is qualified by reference to, the Company's pro forma condensed
financial statements and related notes included elsewhere in this Prospectus.
The results for the six months ended June 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996.
<TABLE>
<CAPTION>
THREE
PERIOD ENDED MONTHS SIX MONTHS ENDED
DECEMBER 31, 1995 ENDED JUNE 30, 1996
----------------------------------- JUNE 30, -----------------------------------
PRO FORMA 1995 PRO FORMA
PRO AS ADJUSTED ---------- PRO AS ADJUSTED
HISTORICAL FORMA(1) (1)(2) HISTORICAL HISTORICAL FORMA(1) (1)(2)
---------- -------- ----------- ---------- ---------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Operating revenues............... $ 743 $57,720 $57,720 $ -- $ 6,654 $31,685 $ 31,685
Other revenues................... 242 242 242 80 135 135 135
---------- -------- ----------- ---------- ---------- -------- -----------
Total revenues............... 985 57,962 57,962 80 6,789 31,820 31,820
---------- -------- ----------- ---------- ---------- -------- -----------
Expenses:
Oil and gas production........... 304 23,406 23,406 -- 2,992 12,109 12,109
General and administrative....... 1,546 4,625 4,625 327 958 2,313 2,313
Amortization of stock option
awards......................... 868 4,394 4,394 -- 578 2,197 2,197
Exploration and abandonment...... 490 490 490 -- 81 81 81
Depletion, depreciation and
amortization................... 299 19,828 19,828 26 1,760 9,032 9,032
Interest......................... 97 11,973 2,620 -- 711 5,926 1,299
Other............................ (796) (97) (97) (221) (246) (3) (3)
---------- ------- ----------- ---------- ---------- -------- -----------
Total expenses............... 2,808 64,619 55,266 132 6,834 31,655 27,028
---------- ------- ----------- ---------- ---------- -------- -----------
Net income (loss).................. (1,823) (6,657) 1,752 (52) (45) 107 3,114
Net income (loss) per share........ (.13) (.45) -- -- --
Weighted average shares
outstanding...................... 14,051 14,697 13,661 18,828 18,828
CONSOLIDATED STATEMENT OF CASH FLOWS
DATA:
Net cash provided by (used in):
Operating activities............. $ (1,764) $ -- $ -- $ (716) $ 2,049 $ -- $ --
Investing activities............. (47,563) -- -- (6,230) 675 -- --
Financing activities............. 55,540 -- -- 20,540 -- -- --
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures............... $ 43,811 $ -- $ -- $ 1,230 $ 4,325 $ -- $ --
EBITDAX(3)......................... (69) 30,028 30,028 (26) 3,085 17,401 17,401
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED DECEMBER 31, 1995 JUNE 30, 1996
-------------------------------- --------------------------------
PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(1)(2) HISTORICAL AS ADJUSTED(1)(2)
---------- ----------------- ---------- -----------------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Production:
Oil (MBbls)...................................... 30 2,398 256 1,128
Gas (MMcf)....................................... 245 18,157 1,698 7,959
Total (MBOE)..................................... 71 5,424 539 2,455
Average Sales Prices Per Unit(4):
Oil (per Bbl).................................... $ 16.80 $ 15.28 $ 17.16 $ 17.04
Gas (per Mcf).................................... .97 1.16 1.33 1.57
BOE.............................................. 10.46 10.64 12.35 12.91
Expenses per BOE:
Production costs, including production taxes..... 4.28 4.32 5.55(5) 4.93(5)
General and administrative....................... 21.77 .85 1.78 .94
Depreciation, depletion and amortization......... 4.21 3.66 3.27 3.68
CONSOLIDATED BALANCE SHEET DATA (AS OF PERIOD END):
Cash and cash equivalents........................ $ 6,213 $ -- $ 8,937 $ --
Working capital.................................. 11,905 -- 9,671 734
Oil and gas assets, net.......................... 42,869 -- 45,531 206,531
Total assets..................................... 57,487 -- 58,690 211,253
Total debt....................................... 20,000 -- 20,000 32,763
Stockholders' equity............................. 34,074 -- 33,218 173,018
</TABLE>
- ---------------
(1) Assumes the 1995 Acquisition, the 1996 Acquisition and the Conversion had
taken place on January 1, 1995 for purposes of the Consolidated Statement of
Operations Data, Consolidated Statement of Cash Flows Data, Other
Consolidated Financial Data and Consolidated Operating Data and on June 30,
1996 for purposes of the Consolidated Balance Sheet Data.
(2) Assumes this offering and the application of the proceeds therefrom had
taken place on January 1, 1995 for purposes of the Consolidated Statement of
Operations Data, Consolidated Statement of Cash Flows Data, Other
Consolidated Financial Data and Consolidated Operating Data June 30, 1996
for purposes of the Consolidated Balance Sheet Data.
(3) EBITDAX is presented because of its wide acceptance as a financial indicator
of a company's ability to service or incur debt. EBITDAX (as used herein) is
calculated by adding interest, income taxes, depletion, depreciation and
amortization, amortization of stock option awards, and exploration and
abandonment costs to net income (loss). Interest includes interest expense
accrued and amortization of deferred financing costs. EBITDAX should not be
considered as an alternative to earnings (loss) or operating earnings
(loss), as defined by generally accepted accounting principles, as an
indicator of the Company's financial performance or to cash flow as a
measure of liquidity.
(4) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Other Matters."
(5) Includes approximately $.72 per BOE of production costs attributable to
necessary nonrecurring maintenance operations on the 1995 Acquisition
properties.
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<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Titan is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. The Company's strategy is
to grow reserves, production and net income per share through (i) the
acquisition of producing properties that provide significant development and
exploratory drilling potential, (ii) the exploitation and development of its
reserve base, (iii) the exploration for oil and gas reserves, (iv) the
implementation of a low operating and overhead structure and (v) the
preservation of the Company's financial flexibility. The Company has grown
rapidly through the acquisition and exploitation of oil and gas properties,
consummating the 1995 Acquisition for a purchase price of approximately $40.6
million and the 1996 Acquisition for approximately $170.0 million (subject to
purchase price adjustments).
The Company's growth resulting from acquisitions has impacted its reported
financial results in a number of ways. Acquired properties frequently have not
received focused attention prior to sale. After acquisition, certain of these
properties are in need of maintenance, workovers, recompletions and other
remedial activity not constituting capital expenditures, which initially serves
to increase lease operating expenses. The Company may dispose of certain of the
properties if it determines they are outside the Company's strategic focus. The
increased production and revenue resulting from the rapid growth of the Company
has required it to develop operating, accounting and administrative personnel
compatible with its increased size. The Company believes that as a result of the
1996 Acquisition it will need to employ 20 to 25 new employees, in addition to
its 20 employees at September 30, 1996. As a result, the Company anticipates a
corresponding increase in its general and administrative expense. The Company
believes that with its current inventory of drilling locations and the
anticipated additional staff it will be well positioned to follow a more
balanced program of exploration and exploitation activities to complement its
acquisition efforts.
Titan uses the successful efforts method of accounting for its oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that result in proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not result in proved reserves, geological and
geophysical costs, and costs of carrying and retaining properties that do not
contain proved reserves are expensed. Costs of significant nonproducing
properties, wells in the process of being drilled and significant development
projects are excluded from depletion until such time as the related project is
developed and proved reserves are established or impairment is determined.
The Company's predecessor was classified as a partnership for federal
income tax purposes. Therefore, no income taxes were paid by the Company prior
to the Conversion. Future tax amounts, if any, will be dependent upon several
factors, including but not limited to the Company's results of operations.
RESULTS OF OPERATIONS
The financial statements of the Company, which began operations on March
31, 1995, include the results of the nine months ended December 31, 1995 and the
six months ended June 30, 1996. As a result of the Company's limited operating
history and rapid growth, its financial statements are not readily comparable
and may not be indicative of future results. Furthermore, because the period
from inception of the Company to June 30, 1995 was only three months in length,
a comparison of results from that period to the six months ended June 30, 1996
would not be meaningful.
Six Months Ended June 30, 1996
For the six months ended June 30, 1996, the Company's revenues from the
sale of oil and gas (excluding the effects of hedging activities) were $4.8
million and $2.7 million, respectively. During the period, the Company produced
256 MBbls of oil and 1,698 MMcf of gas, with total oil and gas production of 539
MBOE. The revenues and production are primarily attributable to the 1995
Acquisition.
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<PAGE> 21
As a result of hedging activities in the six months ended June 30, 1996,
oil revenues were reduced $577,000 ($2.25 per Bbl) to $17.16 per Bbl and gas
revenues were reduced $338,000 ($.20 per Mcf) to $1.33 per Mcf for a total
reduction of $915,000.
Oil and gas production costs, including production taxes, were $3.0 million
($5.55 per BOE) for the six months ended June 30, 1996. These costs included
$388,000 ($.72 per BOE) that are attributable to rework expenses incurred with
respect to the 1995 Acquisition properties.
Exploration and abandonment costs were $81,000 for the six months ended
June 30, 1996.
General and administrative expenses were $958,000 ($1.78 per BOE) for the
six months ended June 30, 1996.
For the six months ended June 30, 1996, depletion, depreciation and
amortization expense was $1.8 million ($3.27 per BOE), which primarily
represents the depletion, depreciation and amortization relating to the
production from the 1995 Acquisition.
Interest expense was $711,000 for the six months ended June 30, 1996. The
interest expense was attributable to bank financing incurred to fund the 1995
Acquisition.
Nine Months Ended December 31, 1995
For the nine months ended December 31, 1995, the Company's revenues from
the sale of oil and gas were $504,000 and $239,000, respectively. During the
period, the Company produced 30 MBbls of oil and 245 MMcf of gas, with total
production of 71 MBOE. The revenues and production are primarily attributable to
the 1995 Acquisition which was consummated December 11, 1995.
Oil and gas production costs, including production taxes, were $304,000
($4.28 per BOE) for the nine months ended December 31, 1995.
Exploration and abandonment costs were $490,000 for the nine months ended
December 31, 1995.
General and administrative expenses were $1.5 million ($21.77 per BOE) for
the nine months ended December 31, 1995.
For the nine months ended December 31, 1995, depletion, depreciation and
amortization expense was $299,000 ($4.21 per BOE).
LIQUIDITY AND CAPITAL RESOURCES
Capital Sources
Funding for the Company's business activities has been provided by its
initial capitalization, bank financing, cash flow from operations and private
equity sales. The 1995 Acquisition was funded with cash from the Company's
initial capitalization, additional private equity sales and bank financing. The
1996 Acquisition was funded with bank financing to be partially repaid with the
proceeds of this offering and the issuance of equity capital in a private
placement in September 1996.
While the Company regularly engages in discussions relating to potential
acquisitions of oil and gas properties, the Company has no present agreement,
commitment or understanding with respect to any such acquisition, other than the
acquisition of oil and gas properties and interests in its normal course of
business. Any future acquisition may require additional financing and will be
dependent upon financing arrangements available at the time.
The Company believes that availability under the Credit Agreement and cash
flow from operations will be sufficient for anticipated operating and capital
expenditure requirements in 1997. However, because future cash flows and the
availability of financing are subject to a number of variables beyond the
Company's control, there can be no assurance that the Company's capital
resources will be sufficient to maintain currently planned levels of capital
expenditures.
20
<PAGE> 22
Although certain of the Company's costs and expenses may be affected by
inflation, inflationary costs have not had a significant effect on the Company's
results of operations.
Net Cash Provided by (Used in) Operating Activities. For the nine months
ended December 31, 1995, net cash used by operations was $1.8 million primarily
due to initiation of the Company's operations. For the six months ended June 30,
1996, net cash provided by operating activities increased to $2.0 million due
primarily to the 1995 Acquisition and the increase in results of operations
therefrom.
Net Cash Provided by Investing Activities. For the nine months ended
December 31, 1995, net cash used in investing activities was $47.6 million of
which $39.9 million was primarily attributable to the 1995 Acquisition. Net cash
provided by investing activities for the six months ended June 30, 1996 was
$675,000, which was the result of the redemption of $5.0 million in short-term
investments and additions to oil and gas properties of $4.2 million and other
property and equipment of $41,000. An additional $3.8 million was expended in
other acquisition, exploration and development activities, along with the
purchase of a $5.0 million short-term investment.
Net Cash Provided by Financing Activities. Net cash provided by financing
activities was $55.5 million for the nine months ended December 31, 1995. This
included $20.0 million of proceeds from the issuance of long-term debt and $35.5
million of capital contributions. No cash was provided by or used in financing
activities in the six months ended June 30, 1996.
Credit Agreement. The Credit Agreement establishes a four year revolving
credit facility, up to the maximum amount of $250 million, subject to a
borrowing base to be determined semi-annually by the lenders based on certain
proved oil and gas reserves and other assets of the Company. Initially, the
borrowing base is established at $185 million. To the extent that the borrowing
base is less than the aggregate principal amount of all outstanding loans and
letters of credit under the Credit Agreement, such deficiency must be cured by
the Company within 30 days, by either prepaying a portion of the outstanding
amounts under the Credit Agreement or pledging additional collateral to the
lenders. A portion of the credit facility is available for the issuance of
letters of credit. The Company borrowed $ million of the $185 million
available under the Credit Agreement at the closing of the 1996 Acquisition.
Pending other uses of the net proceeds of this offering, intends to use the net
proceeds to repay indebtedness under the Credit Agreement. See "Use of
Proceeds."
All outstanding amounts under the Credit Agreement are due and payable in
full on January 1, 2001.
At the Company's option, borrowings under the Credit Agreement bear
interest at either (i) the "Alternate Base Rate" (i.e., the higher of the
agent's prime commercial lending rate, or the federal funds rate plus .5% per
annum) or (ii) the Eurodollar rate plus a margin ranging from 1% to 1.50% per
annum that depends on the level of the Company's aggregate outstanding
borrowings under the Credit Agreement. In addition, the Company is committed to
pay quarterly in arrears a fee ranging from .30% to .375% of the unused portion
of the borrowing base.
The loan documents governing the Credit Agreement contain certain covenants
and restrictions relating to the Company's operations that are customary in the
oil and gas industry. In addition, the line of credit is secured by a first lien
on properties that represented at least 80% of the value of the Company's proved
oil and gas properties (based on PV-10 as of June 30, 1996), which lien will be
released upon completion of this offering if the gross proceeds from the
offering are at least $125 million. See Note 12 of Notes to Consolidated
Financial Statements.
Capital Expenditures
The Company requires capital primarily for the exploration, development and
acquisition of oil and gas properties, the repayment of indebtedness and general
working capital needs.
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<PAGE> 23
The following table sets forth costs incurred by the Company in its
exploration, development and acquisition activities during the periods
indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Development costs.................................. $ 1,580 $3,563
Exploration costs.................................. 448 78
Acquisition costs:
Unproved properties.............................. 1,040 314
Proved properties................................ 40,873 794
------- ------
Total.................................... $43,941 $4,749
======= ======
</TABLE>
OTHER MATTERS
Stock Options and Compensation Expense
In connection with the Conversion, the Company issued options to purchase
3,631,350 shares of Common Stock to certain of its officers and employees in
substitution for options issued by the Partnership. Of the options issued by the
Partnership, approximately 93% were issued on March 31, 1995, the date of
inception, and approximately 7% were issued as of September 1, 1996. The options
issued by the Company have an exercise price of $2.08 per share. Options to
purchase 803,576 shares of Common Stock are currently vested and an additional
1,190,841, 1,209,966 and 426,967 shares will vest on March 31 of each of 1997,
1998 and 1999, respectively. Based in part on selling prices of interests in the
Partnership in December 1995 and September 1996, the Company expects to record a
noncash compensation expense of approximately $579,000 per month for a period of
30 months beginning in the fourth quarter of 1996 to reflect the estimated value
of the revised option plan on September 30, 1996.
Hedging Activities
The Company uses swap agreements in an attempt to reduce the risk of
fluctuating oil and gas prices and interest rates. In December 1995, the Company
entered into a Master Energy Price Swap Agreement for natural gas with Enron
Capital & Trade Resources Corp., an affiliate of Joint Energy Development
Investments Limited Partnership ("JEDI"), an owner of in excess of 5% of the
outstanding Common Stock and with First Union Capital Market, an affiliate of
First Union National Bank of North Carolina, another owner of in excess of 5% of
the outstanding Common Stock. Pursuant to these agreements, the Company enters
into energy price swap arrangements from time to time. In December 1995, the
Company also entered into a crude oil swap agreement with Chemical Bank.
Settlement of gains or losses on these oil and gas swap transactions is
generally based on the difference between the contract price and a formula using
New York Mercantile Exchange ("NYMEX") related prices and is reported as a
component of oil and gas revenues as the associated production occurs. The
Company has entered into hedging transactions with respect to a substantial
portion of its estimated production through December 1996, excluding the
production attributable to the 1996 Acquisition. The Company continues to
evaluate whether to enter into additional hedging transactions for 1997 and
future years. The following is a summary of the Company's hedging transactions
in effect as of June 30, 1996. See "Risk Factors -- Risk of Hedging Activities."
Natural Gas. As of June 30, 1996, the Company had hedging transactions
related to 220,000 MMBtu of natural gas per month through December 1996 that
provide for settlements based on prices of natural gas determined by reference
to closing prices of natural gas futures contracts traded on NYMEX. These hedges
include a price swap using a "participating floor" with a price of $1.70 per
MMBtu. In the event that the NYMEX Reference Price for any settlement period is
less than the swap price, the Company will be paid 100% of the difference. In
the event that the NYMEX Reference Price for any settlement period is greater
than the swap price, the Company must pay 47% of the difference.
Since most of the Company's natural gas is sold under spot contracts with
reference to El Paso Permian sales hub prices, the Company entered into a "basis
swap" related to 220,000 MMBtu of natural gas per
22
<PAGE> 24
month for the period May 1996 through December 1996. In the event that the NYMEX
Reference Price for a reference period exceeds the average price per MMBtu for
natural gas delivered to El Paso Permian hub by more than $.325 per MMBtu the
Company receives a payment based on the excess above the $.325 basis. In the
event that the NYMEX Reference Price for a reference period exceeds the El Paso
Permian hub price by less than $.325 per MMBtu (or in the event that the El Paso
Permian hub price exceeds the NYMEX Reference Price), the Company must pay the
deficiency below the $.325 basis.
As a result of its hedging activities, the Company's natural gas revenues
were reduced by $338,000 for the six months ended June 30, 1996.
Crude Oil. As of June 30, 1996, the Company had one hedging transaction
related to 25,000 Bbls of crude oil a month through December 1996 that provides
for settlements based on prices of oil determined by reference to NYMEX future
oil contracts. The swap price for this transaction is $17.18 per Bbl. In the
event that the NYMEX Reference Price for any settlement period is less than the
swap price, the Company receives the difference. In the event that the NYMEX
Reference Price for any settlement period is greater than the swap price, the
Company must pay the difference.
As a result of its hedging activities, the Company's crude oil revenues
were reduced by $577,000 during the six months ended June 30, 1996.
Interest Rates. The Company also uses derivative financial instruments to
manage interest rate risks. Under an interest rate swap agreement, the Company
has an effective rate of 6.72% on $10 million of its revolving line of credit
through December 23, 1996.
Natural Gas Balancing
It is customary in the industry for various working interest partners to
produce more or less than their entitlement share of natural gas from time to
time. The Company's net overproduced position at June 30, 1996 was 561,068 Mcf,
and 689,084 Mcf on a pro forma basis. Under terms of typical natural gas
balancing agreements, the underproduced party can take a certain percentage,
typically 25% to 50% of the overproduced party's entitled share of gas
production in future months, to eliminate such imbalances. During the make-up
period, the overproduced party's gas revenues will be adversely affected. The
Company recognizes revenue and imbalance obligations under the entitlements
method of accounting.
Environmental
The Company's business is subject to certain federal, state and local laws
and regulations relating to the exploration for and the development, production
and transportation of oil and gas, as well as environmental and safety matters.
Many of these laws and regulations have become more stringent in recent years,
often imposing greater liability on a larger number of potentially responsible
parties. Although the Company believes it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation, and the
Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. Any suspension or termination of
environmental permits, or the inability to meet applicable bonding requirements,
could materially and adversely affect the Company's financial condition and
operations. Although significant expenditures may be required to comply with
governmental laws and regulations applicable to the Company, to date such
compliance has not had a material adverse effect on the earnings or competitive
position of the Company. It is possible that such regulations in the future may
add to the cost of, or significantly limit, drilling activity. See "Risk
Factors -- Compliance with Environmental Regulations," "Business and
Properties -- Governmental Regulation," "Business -- Environmental Matters" and
"Business -- Abandonment Costs."
23
<PAGE> 25
Accounting Pronouncements
On October 23, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company adopted this standard in 1996 and will disclose the pro forma net income
(loss) and earnings (loss) per share amounts assuming the fair value method was
adopted on January 1, 1995 in its financial statements as of and for the year
ended December 31, 1996. The adoption of this standard will not impact the
Company's consolidated results of operations or financial position.
24
<PAGE> 26
BUSINESS AND PROPERTIES
GENERAL
Titan is an independent oil and gas company engaged in the exploration,
development and acquisition of oil and gas properties. Since its inception in
March 1995, the Company has experienced significant growth in reserves,
production and cash flow by acquiring and exploiting producing properties
primarily in the Permian Basin of west Texas and southeastern New Mexico.
In December 1995, the Company acquired a concentrated group of Permian
Basin producing oil and gas properties from a large independent company for
approximately $40.6 million (the "1995 Acquisition"). On October 31, 1996, the
Company acquired additional Permian Basin producing properties from a major
integrated company for approximately $170 million (subject to purchase price
adjustments) (the "1996 Acquisition"). As of September 30, 1996, the Company had
pro forma estimated net proved reserves of approximately 24.7 MMBbls of oil and
283.8 Bcf of natural gas, or an aggregate of 72.0 MMBOE with a PV-10 of $328.9
million. Approximately 65% of these reserves were classified as proved
developed. The Company acquired, explored for and developed its reserves for an
average reserve replacement cost of approximately $2.93 per BOE through June 30,
1996, assuming the 1996 Acquisition was consummated on June 30, 1996. Pro forma
production for the six months ended June 30, 1996 was 13,486 BOE per day,
resulting in an annualized pro forma proved reserves to production ratio of 13.0
to one.
The Company prefers to acquire properties over which it can exercise
operating control. The Company operated 456 gross wells (389 net wells) on a pro
forma basis at September 30, 1996, and these operated properties represented
approximately 62% of its pro forma proved developed producing PV-10 and 74% of
the Company's pro forma proved PV-10 at September 30, 1996. Controlling the
operation of its properties enables the Company to manage expenses, capital
allocation and other aspects of development and exploration.
The Company's oil and gas properties are located in 58 fields in the
Permian Basin, one of the most prolific oil and gas producing regions in North
America. Approximately 74% of the Company's PV-10 of total proved reserves is
concentrated in 13 principal properties located in this region. The region is
characterized by complex geology with numerous known producing horizons and
provides significant opportunities to increase reserves, production and ultimate
recoveries through development, exploratory and horizontal drilling,
recompletions, secondary and tertiary recovery methods, and use of 3-D seismic
and other advanced technologies.
The Company believes that its personnel provide it with competitive
advantages for exploiting these opportunities in the Permian Basin and other
complex producing basins in North America. Members of the Company's management
team have an average of 25 years experience in the oil and gas industry and have
operating experience in all aspects of the industry, in particular deep well and
horizontal drilling. They have formulated and supervised acquisitions,
exploration projects, development drilling programs and production enhancement
plans, including workovers and enhanced recovery projects. In addition,
management has a significant equity investment in the Company. Giving effect to
this offering and assuming the exercise by management of all of their options to
acquire Common Stock, management will beneficially own an aggregate of % of
the Company's outstanding Common Stock.
BUSINESS STRATEGY
The Company's strategy is to grow reserves, production and net income per
share through (i) the acquisition of producing properties that provide
significant development and exploratory drilling potential, (ii) the
exploitation and development of its reserve base, (iii) the exploration for oil
and gas reserves, (iv) the implementation of a low operating and overhead cost
structure, and (v) the preservation of the Company's financial flexibility.
- Acquisitions. The Company seeks to acquire oil and gas properties that
provide opportunities for the addition of reserves, production and value
through low risk exploitation and development, high-potential exploration
and control of operations. The Company believes that these criteria can be
met in the Permian Basin and in other North American basins that could be
established as new core areas. At
25
<PAGE> 27
June 30, 1996, the Company had acquired and developed 63.8 MMBOE of proved
oil and gas reserves at an average reserve replacement cost of $2.93 per
BOE, assuming the 1996 acquisition was consummated on June 30, 1996, which
compares to an average reserve replacement cost of $4.85 per BOE (for 1993
through 1995) for the 184 independent oil and gas companies included in
the Arthur Andersen 1996 Oil and Gas Reserve Disclosures.
- Exploitation of Reserve Base. The Company engages in horizontal and
infill drilling activities, major workovers, recompletions, secondary and
tertiary recovery operations, and other production enhancement techniques
in order to increase reserves and production. On a pro forma basis, the
Company has identified 88 drilling locations on Company-operated
properties, which include 24 proved locations and 64 unproven locations.
In drilling a portion of these wells in 1997, the Company expects to spend
approximately $20.1 million to develop proved locations and $11.1 million
to develop unproven locations. The Company has also identified an
additional 120 unproven drilling locations on Company-owned, but
nonoperated, properties.
- Exploration Activities. The Company seeks to apply management's extensive
geological and drilling expertise and 3-D seismic technology to identify
and develop exploration projects. As part of its exploration strategy, the
Company attempts to reduce the costs and risks of its exploration
activities by, in selected circumstances, applying 3-D seismic technology,
drilling wells with multiple pay objectives in known producing areas and
selling interests in its exploration prospects to industry partners. A
large portion of the Company's efforts have focused on deep well
opportunities in historically prolific fields.
- Low Cost Structure. The Company has implemented and plans to maintain a
low overhead and operating cost structure to enhance the profitability and
the exploitation potential of its properties. The Company provides
incentive compensation to its senior management team in lieu of higher
salary in order to align management's interests with stockholders, reduce
general and administrative expenses and increase the amount of cash flow
available for reinvestment by the Company. The Company also seeks to be an
efficient operator and achieve reductions in labor and other field-level
costs from those incurred by previous operators of its properties. By
operating a significant portion of its daily production, the Company
believes it is well positioned to control the expenses and timing of
development and exploitation of such properties and to better manage such
cost reduction efforts.
- Financial Flexibility. The Company is committed to maintaining financial
flexibility in order to pursue exploration and development activities and
take advantage of acquisition opportunities. This offering will enhance
the Company's financial flexibility by reducing long-term debt.
Immediately following the completion of this offering, the Company expects
to have approximately $152.2 million available under a line of credit,
stockholders' equity of approximately $173.0 million and long-term debt
that will be approximately 10% of its PV-10. See "Use of Proceeds."
COMPANY HISTORY
The history of the Company's operations can be divided into three segments:
Initial Operations. The Company was formed in March 1995 by Jack Hightower,
members of his management team and Natural Gas Partners, L.P. and Natural Gas
Partners II, L.P. (collectively, "NGP"), with an initial equity capitalization
of approximately $20.5 million. From its inception, the Company engaged in the
exploration, development and acquisition of oil and gas properties, initially
focusing on those in Ward, Pecos, Winkler and Hardeman counties in Texas. From
inception until December 31, 1995, excluding the 1995 Acquisition, the Company
spent approximately $2.7 million to acquire and develop properties in these
counties. From January 1, 1996 until June 30, 1996, the Company spent an
additional $2.5 million to further develop these properties. This activity has
resulted in a PV-10 attributable to these initial properties of approximately
$23.7 million at June 30, 1996.
1995 Acquisition. On December 11, 1995, the Company acquired a concentrated
group of producing oil and gas properties in the Permian Basin from a large,
independent exploration and production company for a purchase price of
approximately $40.6 million. The 1995 Acquisition was financed principally
through cash
26
<PAGE> 28
from the initial capitalization of the Company and borrowings under the Credit
Agreement, which at that time had a $35 million borrowing base. From the
consummation of the 1995 Acquisition through June 30, 1996, the Company spent a
total of approximately $1.4 million to acquire additional working interests and
develop and enhance these properties and has received net cash flow of
approximately $4.5 million. As of June 30, 1996, these properties, net to the
Company, had an estimated 23.1 MMBOE of reserves and a PV-10 of $83.4 million.
1996 Acquisition. On October 31, 1996, the Company acquired leasehold
interests in certain oil and gas producing fields situated in the Permian Basin
from a major integrated oil and gas company for a purchase price of
approximately $170 million (subject to purchase price adjustments). The 1996
Acquisition was financed with indebtedness under the Credit Agreement and
proceeds from the issuance of equity in a private placement in September 1996.
Pending other uses, the net proceeds from this offering will be used primarily
to reduce indebtedness under the Credit Agreement. See "Use of Proceeds." As of
September 30, 1996, these properties had an estimated 34.9 MMBOE of reserves and
a PV-10 of $184.3 million.
ACQUISITIONS
The Company regularly pursues and evaluates acquisition opportunities
(including opportunities to acquire oil and gas properties or related assets or
entities owning oil and gas properties or related assets and opportunities to
engage in mergers, consolidations or other business combinations with entities
owning oil and gas properties or related assets) and at any given time may be in
various stages of evaluating such opportunities. Such stages may take the form
of internal financial and oil and gas property analysis, preliminary due
diligence, the submission of an indication of interest, preliminary
negotiations, negotiation of a letter of intent or negotiation of a definitive
agreement. While the Company is currently evaluating a number of potential
acquisition opportunities (some of which would be material in size to the
Company), it has not signed a letter of intent with respect to any material
acquisition and currently has no assurance of completing any particular material
acquisition or of entering into negotiations with respect to any particular
material acquisition.
PRINCIPAL OIL AND GAS PROPERTIES
Approximately 48% of the Company's PV-10 of total proved reserves is
concentrated in six principal fields, the Dollarhide, Puckett, Dollarhide East,
Foster, Mi Vida and Barstow. In addition, approximately 26% of the Company's
PV-10 of total proved reserves is concentrated in seven fields, the North
Robertson, Gomez, University Waddell, Sand Hills, Evetts, Headlee and Petco. A
description of each of these 13 properties is set forth below. Cumulative field
production data is as of June 30, 1996 and may not include field production data
prior to 1966.
Dollarhide Field. The Company owns 6,180 gross leasehold acres (1,860 net
leasehold acres) in the Dollarhide Field in Andrews County, Texas. The Company's
working interests in producing unit segments range from 9% to 61%. The primary
producing formations in the field are the Clearfork, Devonian, Silurian and
Ellenburger, which range from depths of 7,500 feet to 10,200 feet. Cumulative
field production from these formations has been 34 MMBbls, 66 MMBbls, 40 MMBbls
and 26 MMBbls, respectively.
The Company believes the Clearfork structure in the Dollarhide Field may be
significantly larger than originally thought. Potential exists both to downspace
on the producing acreage and extend the known productive limits of the field. To
more fully exploit the Clearfork formation, the Company has identified 64
drilling locations in the field, 50 of which are on acreage that can be
developed by the Company. Of the locations on acreage operated by the Company,
10 are classified as proved undeveloped and 19 are unproven and would extend the
known productive limits of the field to contiguous undeveloped acreage based on
40 acre spacing. An additional 21 locations, which are unproven, represent
infill potential on 20 acre spacing if the program extending the field is
successful. Although Clearfork development activities have not been conducted on
the undeveloped acreage to date, logs through the Clearfork section in wellbores
producing out of deeper zones indicate it is prospective for hydrocarbons. The
Company believes 14 unproven locations on the nonoperated acreage are suitable
for infill drilling. In the fourth quarter of 1995, a CO(2) injection pilot
program
27
<PAGE> 29
was initiated in the Clearfork formation; however, no proved reserves have been
attributed to this project to date. Production from a CO(2) injection program in
the Devonian formation initiated in early 1986 and operated by another company
continues to demonstrate tertiary response.
Puckett Field. The Company owns 1,280 gross leasehold acres (1,120 net
leasehold acres) in the Puckett Field in Pecos County, Texas. The Company's
working interests in this acreage range from 74% to 100%, and the Company
operates 100% of its PV-10 in this field. The primary producing formations in
the field are the Ellenburger and Devonian, which range from depths of 11,500
feet to 15,000 feet. Cumulative field production from these formations has been
3.4 Tcf and 464 Bcf, respectively. The Company's acreage has produced 207 Bcf
and 67 Bcf, respectively, from three wellbores in these formations. The Company
has identified two proved Ellenburger horizontal drilling replacement locations,
one of which is currently drilling. The Company has also identified one workover
opportunity in the Devonian formation, as well as a recompletion opportunity in
the Fusselman formation.
Dollarhide East Field. The Company owns 2,520 gross leasehold acres (2,230
net leasehold acres) in the Dollarhide East Field in Andrews County, Texas. The
Company's working interests in this field range from 69% to 100%, and the
Company operates 100% of its PV-10 in this field. The primary producing
formations in the field are the Devonian, Silurian and Ellenburger, which range
from depths of 11,000 feet to 12,700 feet. Cumulative field production from
these formations has been 8.2 MMBbls, 1.3 MMBbls and 6.2 MMBbls, respectively.
The Company will use existing 3-D seismic to plan expansion of an existing
waterflood program and analyze the potential for tertiary recovery operations.
Tertiary recovery operations have been underway on an adjacent field since 1986;
however, no proved reserves have been attributed to tertiary operations.
Foster Field. The Company owns 6,280 gross leasehold acres (3,820 net
leasehold acres) in the Foster Field in Ector County, Texas. The Company's
interests in this field include a 19% working interest in the Amoco-operated
South Foster unit, a 40% working interest in the Conoco-operated Gist unit and
an 81% working interest in the Company-operated North Foster unit. The primary
producing formation in the field is the Grayburg at a maximum depth of 4,800
feet, with cumulative production in the field of 291 MMBbls.
Waterflood programs are underway on all three interests. The Company is
studying the economic feasibility of a tertiary recovery project in this field.
In the North Foster unit, the Company has identified four unproven drilling
locations to be defined further with 3-D seismic and five refracture stimulation
opportunities. Contingent on the success of the drilling of the four unproven
locations, the Company could drill 12 additional unproven locations.
Mi Vida Field. The Company owns 5,990 gross leasehold acres (4,300 net
leasehold acres) in the Mi Vida Field in Ward County, Texas. The Company's
working interests in this field range from 54% to 98%, and the Company operates
100% of its PV-10 in this field. The primary producing formations in the field
are the Fusselman, Ellenburger and Penn, which range from depths of 14,500 feet
to 19,100 feet. Cumulative field production from these formations has been 740
Bcf, 181 Bcf and 6.0 Bcf, respectively.
The Company's plans include the installation of gas-lift equipment on three
wells and acquiring 3-D seismic on the entire field to identify infill, step-out
and sidetrack drilling opportunities. Subject to verification by the 3-D
seismic, the Company has identified four unproven sidetrack opportunities.
Barstow Field. The Company owns 2,315 gross leasehold acres (1,604 net
leasehold acres) in the Barstow Field in Ward County, Texas. The Company's
working interests in this field range from 56% to 74%, and the Company operates
100% of its PV-10 in this field. The primary producing formations in the field
are the Fusselman and Ellenburger, which range from depths of 18,000 feet to
19,700 feet. Cumulative field production from these formations has been 221 Bcf
and 17 Bcf, respectively.
The Company completed a well in the Fusselman formation early in 1996. As
anticipated by the Company, bottom-hole pressure data indicated that a portion
of the field had repressurized since having been shut-in in 1981. Subsequently,
the Company conducted a 3-D seismic survey that identified two proved
undeveloped drilling locations. The first of those was spudded August 31, 1996.
The second well is planned for drilling in 1997. In addition, based on analysis
of the 3-D seismic, the Company has identified an exploratory drilling location
targeting the Ellenburger and Fusselman formations.
28
<PAGE> 30
North Robertson Field. The Company owns 5,440 gross leasehold acres (861
net leasehold acres) in the North Robertson Field in Gaines County, Texas. The
Company's working interest in the North Robertson unit is 16%. The primary
producing formation in the unit is the Clearfork at a maximum depth of 7,200
feet with cumulative field production of 111 MMBbls and 62 Bcf of gas.
The Company anticipates participating in 60 unproven 10-acre infill
development wells in the North Robertson Clearfork unit. Contingent on the
success of this infill program, the Company believes an additional 30 locations
could be drilled.
Gomez Field. The Company owns 2,490 gross leasehold acres (830 net
leasehold acres) in the Gomez Field in Pecos County, Texas. The Company's
working interests in this field range from 23% to 100%, and the Company operates
approximately 80% of its PV-10 in this field. The primary producing formations
in the field are the Ellenburger and Wolfcamp, which range from depths of 11,100
feet to 22,600 feet. Cumulative field production from these formations has been
4.7 Tcf and 54 Bcf with 3.8 MMBC, respectively.
University Waddell Field. The Company currently owns 1,280 gross leasehold
acres (1,145 net leasehold acres) in the University Waddell Field in Crane
County, Texas. The Company's working interest in the University Waddell Devonian
Unit is 89.51% and the Company operates 100% of its PV-10 in this field. The
primary producing formation in the field is the Devonian to a maximum depth of
9,000 feet. Cumulative production from the unit has been approximately 19.3 Bcf
of gas and 9.4 MMBbls of oil. Total field production from the Devonian formation
is approximately 67 MMBbls and 115 Bcf. The Company believes that by altering
the injection pattern and rates of the existing waterflood program it can
improve recoveries beyond the estimated remaining proved reserves on the
Company's properties in the field. The Company is studying the feasibility of
secondary recovery enhancements and tertiary recovery opportunities.
Sand Hills Field. The Company currently owns 9,108 gross leasehold acres
(9,108 net leasehold acres) in the Sand Hills Field in Crane County, Texas. The
Company has a 100% working interest in this acreage, and the Company operates
100% of its PV-10 in this field. The primary producing formations in the field
are the Judkins, McKnight, San Angelo and Tubb, which range from depths of 2,800
feet to 4,200 feet. Cumulative field gas production from these formations has
been 1.1 Tcf, 561 Bcf, 40 Bcf and 228 Bcf, respectively. In addition, cumulative
oil production from the Judkins, McKnight and Tubb formations in the field has
been 12 MMBbls, 125 MMBbls and 96 MMBbls, respectively.
Evetts Field. The Company owns 1,280 gross leasehold acres (724 net
leasehold acres) in the Evetts Field in Winkler County, Texas. The Company's
working interests in this field range from 30% to 91%, and the Company operates
approximately 84% of its PV-10 in this field. In addition, the Company has an
approximate 4.28% working interest in the balance of the field, which is
operated by another company. The primary producing formations in the field are
the Ellenburger, Silurian and Penn, which range from depths of 15,500 feet to
20,800 feet. Cumulative field production from these formations has been 82 Bcf,
653 Bcf and 35 Bcf, respectively.
In this field, the Company has identified one proved undeveloped location
in the Silurian formation. The Company will conduct a 3-D seismic survey to
optimize this location. The Company has identified one unproven drilling
location targeting the Atoka formation and four unproven drilling locations
targeting the Bone Spring formation. The Company has identified these locations
using data gathered from wells directly offsetting the proposed locations.
Headlee Field. The Company currently owns 16,065 gross leasehold acres (467
net leasehold acres) in the Headlee Field in Ector County, Texas. The Company
has a 2.91% working interest in the Headlee Devonian Unit. Since 1989, a gas
blowdown in the unit has produced 388 Bcf.
Petco Field. The Company currently owns 2,560 gross leasehold acres (1,632
net leasehold acres) in the Petco Field in Pecos County, Texas. The Company's
working interests in this acreage range from 60% to 75%, and the Company
operates 100% of its PV-10 in this field. The primary producing formations in
the field are the Devonian and the Ellenburger, which range from depths of
11,000 feet to 13,700 feet. Cumulative field natural gas production from these
formations has been 13 Bcf and 9.5 Bcf, respectively. In the second quarter of
1996, the Company conducted a 3-D seismic survey covering 15 square miles of the
Petco field. Based on
29
<PAGE> 31
analysis of this seismic and production data and extensive studies of subsurface
mapping and dipmeters, the Company has identified a proved undeveloped location
on its acreage with a planned dual completion in the Devonian and Ellenburger
formations. The Company has also identified an exploration prospect and plans to
extend the 3-D seismic survey to further delineate this and other potential
prospects in the field.
OIL AND NATURAL GAS RESERVES
The following table summarizes the estimates of the Company's historical
net proved reserves as of December 31, 1995 and September 30, 1996 and pro forma
reserves as of December 31, 1995 and September 30, 1996, and the present values
attributable to these reserves at such dates. The reserve and present value data
as of December 31, 1995 were prepared by the Company. The reserve and present
value data of the Company and of the 1996 Acquisition as of September 30, 1996
were prepared by Williamson. The pro forma December 31, 1995 and September 30,
1996 reserve data and present values are presented to include the 1995
Acquisition and the 1996 Acquisition. Summaries of the September 30, 1996
reserve reports and the letters of Williamson with respect thereto are included
as Appendix A to this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF SEPTEMBER 30,
AS OF DECEMBER 31, 1995 1996 1996
----------------------- ----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Estimated proved reserves:
Oil (MBbls).................. 6,146 23,820 6,281 23,737 6,563 24,651
Gas (MMcf)................... 134,995 245,064 135,013 239,935 179,565 283,849
MBOE (6 Mcf per Bbl)......... 28,645 64,664 28,783 63,726 36,491 71,959
Proved developed reserves as a
percentage of proved
reserves..................... 47% 69% 47% 70% 42% 65%
PV-10(1)....................... $ 89,753 $ 269,278 $ 107,172 $ 261,815 $ 144,532 $ 328,877
Standardized Measure of
Discounted Future Net Cash
Flows(2)..................... $ 61,258 $ 215,470 $ 82,845 $ 211,579 $ $
</TABLE>
- ---------------
(1) The present value of future net revenue attributable to the Company's
reserves was prepared using prices in effect at the end of the respective
periods presented, discounted at 10% per annum on a pre-tax basis. Such
amounts reflect the effects of the Company's hedging activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Other Matters."
(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the PV-10 after income taxes discounted at 10%. Such
amounts reflect the effects of the Company's hedging activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Other Matters."
In accordance with applicable requirements of the Commission, estimates of
the Company's proved reserves and future net revenues are made using sales
prices estimated to be in effect as of the date of such reserve estimates and
are held constant throughout the life of the properties (except to the extent a
contract specifically provides for escalation). Estimated quantities of proved
reserves and future net revenues therefrom are affected by natural gas prices,
which have fluctuated widely in recent years. There are numerous uncertainties
inherent in estimating oil and gas reserves and their estimated values,
including many factors beyond the control of the producer. The reserve data set
forth in this Prospectus represents only estimates. Reservoir engineering is a
subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner. The accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates of different engineers,
including those used by the Company, may vary. In addition, estimates of
reserves are subject to revision based upon actual production, results of future
development and exploration activities, prevailing oil and gas prices, operating
costs and other factors, which revisions may be material. Accordingly, reserve
estimates are often different from the quantities of oil and gas that are
ultimately recovered and are
30
<PAGE> 32
highly dependent upon the accuracy of the assumptions upon which they are based.
The Company's estimated proved reserves have not been filed with or included in
reports to any federal agency. See "Risk Factors -- Uncertainty of Reserve
Information and Future Net Revenue Estimates."
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's productive wells as of
September 30, 1996:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA(1)
------------- -------------
GROSS NET GROSS NET
----- --- ----- ---
<S> <C> <C> <C> <C>
Oil.................................................... 626 187 1,589 491
Gas.................................................... 32 13 272 74
--- --- ----- ---
Total Productive Wells....................... 658 200 1,861 565
=== === ===== ===
</TABLE>
- ---------------
(1) Assumes that the 1996 Acquisition had been consummated on September 30,
1996.
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. Wells that are
completed in more than one producing horizon are counted as one well. Of the
gross wells reported above, on a pro forma basis, nine had multiple completions.
Acreage Data
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres expressed as whole numbers and fractions thereof. The
following table sets forth the approximate developed and undeveloped acreage in
which the Company held a leasehold mineral or other interest at December 31,
1995 and, on a pro forma basis, at September 30, 1996.
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
---------------------------------------- -----------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
----------------- ------------------ ----------------- -------------------
GROSS NET GROSS(1) NET(1) GROSS NET GROSS(1) NET(1)
------ ------ ------- ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total....... 48,050 13,113 147,784 50,118 33,364 17,116 48,760 27,258
</TABLE>
- ---------------
(1) Assumes that the 1996 Acquisition had been consummated on September 30,
1996.
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<PAGE> 33
DRILLING ACTIVITIES
The following table sets forth the drilling activity of the Company on its
properties for the period from March 31, 1995 (inception) through December 31,
1995, and for the six months ended June 30, 1996.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 31,
1995)
THROUGH SIX MONTHS
DECEMBER 31, ENDED
1995 JUNE 30, 1996
------------- -------------
GROSS NET GROSS NET
----- --- ----- ---
<S> <C> <C> <C> <C>
Exploratory Wells
Productive............................................. 1 0.5 -- --
Nonproductive.......................................... 2 1.3 1 0.2
----- --- ----- ---
Total.......................................... 3 1.8 1 0.2
==== === ==== ===
Development Wells
Productive............................................. -- -- 6 3.6
Nonproductive.......................................... -- -- 1 0.2
----- --- ----- ---
Total.......................................... -- -- 7 3.8
==== === ==== ===
</TABLE>
NET PRODUCTION, UNIT PRICES AND COSTS
The following table presents certain information with respect to oil and
gas production, prices and costs attributable to all oil and gas property
interests owned by the Company for the period from March 31, 1995 (inception)
through December 31, 1995 and for the six months ended June 30, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED JUNE 30, 1996
DECEMBER 31, 1995 ------------------------
--------------------------- PRO
HISTORICAL PRO FORMA(1) HISTORICAL FORMA(1)
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Production Oil (MBbls)................. 30 2,398 256 1,128
Gas (MMcf)........................... 245 18,157 1,698 7,959
Total (MBOE)......................... 71 5,424 539 2,455
Average sales price(2):
Oil (per Bbl)........................ $16.80 $15.28 $17.16 $ 17.04
Gas (per Mcf)........................ .97 1.16 1.33 1.57
Per BOE.............................. 10.46 10.64 12.35 12.91
Production costs, including production
taxes (per BOE)...................... $ 4.28 $ 4.32 $ 5.55(3) $ 4.93(3)
General and administrative costs (per
BOE)................................. $21.77 $ .85 $ 1.78 $ .94
</TABLE>
(1) Gives effect to the 1995 Acquisition and the 1996 Acquisition as if those
transactions had occurred on January 1, 1995.
(2) Reflects results of hedging activities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Other Matters."
(3) Includes approximately $.72 per BOE of production costs attributable to
necessary nonrecurring maintenance operations on the 1995 Acquisition.
OIL AND GAS MARKETING AND MAJOR CUSTOMERS
The revenues generated by the Company's operations are highly dependent
upon the prices of, and demand for, oil and gas. The price received by the
Company for its oil and gas production depends on numerous factors beyond the
Company's control, including seasonality, the condition of the United States
economy, particularly the manufacturing sector, foreign imports, political
conditions in other oil-producing
32
<PAGE> 34
and gas-producing countries, the actions of OPEC and domestic government
regulation, legislation and policies. Decreases in the prices of oil and natural
gas could have an adverse effect on the carrying value of the Company's proved
reserves and the Company's revenues, profitability and cash flow. Although the
Company is not currently experiencing any significant involuntary curtailment of
its oil or gas production, market, economic and regulatory factors may in the
future materially affect the Company's ability to sell its oil or gas
production. See "Risk Factors -- Volatility of Oil and Gas Prices" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
For the six months ended June 30, 1996, sales to Enron Corp., and its
subsidiaries and affiliates, and Texaco Trading and Transportation, Inc. were
approximately 47% and 11%, respectively, of the Company's oil and gas revenues.
Certain of these sales were based on six month contracts for crude oil and
month-to-month spot sales for natural gas.
Due to the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single crude oil or gas customer
would have a material adverse effect on the Company's results of operations.
COMPETITION
The oil and gas industry is highly competitive in all of its phases. The
Company encounters competition from other oil and gas companies in all areas of
its operations, including the acquisition of producing properties. The Company's
competitors include major integrated oil and gas companies and numerous
independent oil and gas companies, individuals and drilling and income programs.
Many of its competitors are large, well established companies with substantially
larger operating staffs and greater capital resources than the Company and
which, in many instances, have been engaged in the energy business for a much
longer time than the Company. Such companies may be able to pay more for
productive oil and 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 human resources permit. The Company's ability to
acquire additional properties 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. See "Risk
Factors -- Competition" and "Risk Factors -- Substantial Capital Requirements."
OPERATING HAZARDS AND UNINSURED RISKS
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
gas may involve unprofitable efforts, not only from dry wells, but from wells
that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, many of which are beyond the Company's control, including title
problems, weather conditions, mechanical problems, compliance with governmental
requirements and shortages or delays in the delivery of equipment and services.
The Company's future drilling activities may not be successful and, if
unsuccessful, such failure may have a material adverse effect on the Company's
future results of operations and financial condition. See "Risk
Factors -- Drilling and Operating Risks."
In addition, the Company's use of 3-D seismic requires greater pre-drilling
expenditures than traditional drilling strategies. Although the Company believes
that its use of 3-D seismic will increase the probability of success of its
exploratory wells and should reduce average finding costs through the
elimination of prospects that might otherwise be drilled solely on the basis of
2-D seismic data and other traditional methods, unsuccessful wells are likely to
occur. There can be no assurance that the Company's drilling program will be
successful or that unsuccessful drilling efforts will not have a material
adverse effect on the Company.
The Company expects to drill a number of deep vertical and horizontal wells
in the future. The Company's deep and/or horizontal drilling activities involve
greater risk of mechanical problems than other drilling operations. These wells
may be significantly more expensive to drill than those drilled to date.
33
<PAGE> 35
The Company maintains insurance against some, but not all, of the risks
described above. In certain circumstances in which insurance may be available,
the Company may elect to self-insure instead. The occurrence of an event that is
not covered, or not fully covered, by insurance could have a material adverse
effect on the Company's financial condition and results of operations.
EMPLOYEES
As of September 30, 1996, the Company had 20 full-time employees, none of
whom is represented by any labor union. Included in the total were 19 corporate
employees located in the Company's office in Midland, Texas. The Company plans
to employ an additional 20 to 25 employees as a result of the 1996 Acquisition.
The Company considers its relations with its employees to be good.
OTHER FACILITIES
The Company currently leases approximately 12,905 square feet of office
space in Midland, Texas, where its principal offices are located. This office
lease is with an affiliate of Jack Hightower. See "Certain Transactions." The
Company's principal offices are leased through December 31, 1998. The Company
expects to lease additional space in the fourth quarter of 1996 and believes it
can obtain such space on commercially reasonable terms.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens which the Company believes do not materially interfere with the use of
or affect the value of such properties. The Company's Credit Agreement is
secured by a first lien on properties that represented at least 80% of the value
of the Company's proved oil and gas properties (based on PV-10 as of June 30,
1996).
GOVERNMENTAL REGULATION
The Company's oil and gas exploration, production and related operations
are subject to extensive rules and regulations promulgated by federal and state
agencies. Failure to comply with such rules and regulations can result in
substantial penalties. The regulatory burden on the oil and gas industry
increases the Company's cost of doing business and affects its profitability.
Because such rules and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
laws.
The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells, and the regulation
of spacing, plugging and abandonment of such wells.
The Federal Energy Regulatory Commission ("FERC") regulates the
transportation and certain sales for resale of natural gas in interstate
commerce pursuant to the Natural Gas Act of 1938 ("NGA") and the Natural Gas
Policy Act of 1978 ("NGPA"). In the past, the federal government has regulated
the prices at which oil and gas could be sold. Deregulation of wellhead and
certain other sales in the natural gas industry began with the enactment of the
NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act
(the "Decontrol Act"). The Decontrol Act removed all NGA and NGPA price and
nonprice controls affecting wellhead sales of natural gas effective January 1,
1993. While sales by producers of natural gas, and all sales of crude oil,
condensate and natural gas liquids can currently be made at uncontrolled market
prices, Congress could reenact price controls in the future.
On April 8, 1992, FERC issued Order No. 636, as amended by Order No. 636-A
(issued in August 1992) and Order No. 636-B (issued in November 1992)
(collectively, "Order No. 636"), as a continuation of its efforts to improve the
competitive structure of the interstate natural gas pipeline industry
34
<PAGE> 36
and maximize the consumer benefits of a competitive wellhead gas market. FERC
proposed to generally require interstate pipelines to "unbundle," or separate,
their traditional merchant sales services from their transportation and storage
services and to provide comparable transportation and storage services with
respect to all natural gas supplies whether purchased from the pipeline or from
other merchants such as marketers or producers. The pipelines must now
separately state the applicable rates for each unbundled service (e.g., for
natural gas transportation and for storage). This unbundling process has been
implemented through negotiated settlements in individual pipeline restructuring
proceedings. It is impossible to predict at this time the ultimate form and
effect of Order No. 636. While Order No. 636 will not directly regulate the
production and sale of gas that may be produced from the Company's properties,
the order could affect the market conditions in which the natural gas is sold
and the availability of transportation services to deliver the natural gas to
market. Generally, Order No. 636 has eliminated or substantially reduced the
interstate pipelines' traditional role as wholesalers of natural gas, and has
substantially increased competition and volatility in natural gas markets. While
significant regulatory uncertainty remains, Order No. 636 may ultimately enhance
the Company's ability to market and transport its natural gas, although it may
also subject the Company to greater competition and more restrictive pipeline
imbalance tolerances and greater associated penalties for violation of such
tolerances. Numerous parties have filed petitions for review of Order No. 636,
as well as orders in individual pipeline restructuring proceedings. In July
1996, Order No. 636 was generally upheld on appeal. The portions remanded for
further action do not appear to materially affect the Company. It is difficult
to predict when all appeals of Order No. 636 and orders in individual pipeline
restructuring proceedings will be completed or their impact on the Company.
FERC has recently announced several important transportation-related policy
statements and proposed rule changes. In 1995, FERC issued a policy statement on
how interstate natural gas pipelines can recover the costs of new pipeline
facilities. In January 1996, FERC issued a policy statement and a request for
comments concerning alternatives to its traditional cost-of-service ratemaking
methodology, including criteria to be used in evaluating proposals to charge
market-based rates for the transportation of natural gas. In addition, FERC
recently issued a notice of proposed rulemaking pursuant to which it proposes to
substantially revise its regulations regarding releases of firm interstate
natural gas pipeline capacity. While any resulting FERC action would affect the
company only indirectly, FERC's current rules and policy statements may have the
effect of enhancing competition in natural gas markets by, among other things,
encouraging non-producer natural gas marketers to engage in certain purchase and
sale transactions. The Company cannot predict what action FERC will take on
these matters, nor can it accurately predict whether FERC's actions will achieve
the goal of increasing the competition in markets in which the Company's natural
gas is sold. However, the Company does not believe that it will be treated
materially differently than other natural gas producers and marketers with which
it competes.
Commencing in October 1993, FERC issued a series of rules (Order Nos. 561
and 561-A) establishing an indexing system under which oil pipelines will be
able automatically to change their transportation rates, subject to prescribed
ceiling levels. The indexing system, which allows or may require pipelines to
make rate changes to track changes in the Producer Price Index for Finished
Goods, minus one percent, became effective January 1, 1995. The Company is not
able at this time to predict the effects of Order Nos. 561 and 561-A, if any, on
the transportation costs associated with oil production from the Company's oil
producing operations.
Certain of the Company's businesses are subject to regulation by the
Federal Natural Gas Pipeline Safety Act of 1968 and other state and federal
environmental statutes and regulations.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit
35
<PAGE> 37
construction, drilling and other activities on certain lands lying within
wilderness and other protected areas; and impose substantial liabilities for
pollution resulting from the Company's operations. The permits required for
various of the Company's operations are subject to revocation, modification and
renewal by issuing authorities. The Company believes that its operations
currently are in substantial compliance with applicable environmental
regulations.
Governmental authorities have the power to enforce compliance with their
regulations, and violations are subject to fines or injunction, or both. The
Company does not expect environmental compliance matters to have a material
adverse effect on its financial position. It is also not anticipated that the
Company will be required in the near future to expend amounts that are material
to the financial condition or operations of the Company by reason of
environmental laws and regulations, but because such laws and regulations are
frequently changed, and may impose increasingly stricter requirements, the
Company is unable to predict the ultimate cost of complying with such laws and
regulations.
The following are examples of environmental, safety and health laws
relating to the Company's operations:
Solid Waste. The Company's operations may generate and result in the
transportation, treatment and disposal of both hazardous and nonhazardous solid
wastes that are subject to the requirements of the federal Resource Conservation
and Recovery Act and comparable state and local requirements. The U.S.
Environmental Protection Agency ("EPA") is currently considering the adoption of
stricter disposal standards for nonhazardous waste. Further, it is possible that
some wastes generated by the Company that are currently classified as
nonhazardous may in the future be designated as "hazardous wastes," which are
subject to more rigorous and costly disposal requirements. Such changes in the
regulations may result in additional expenditures or operating expenses by the
Company.
Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state statutes, also
known as "Superfund" laws, impose liability, without regard to fault or the
legality of the original conduct, on certain classes of persons for the release
of a "hazardous substance" into the environment. These persons include the owner
or operator of a site at which hazardous substances have been released into the
environment, and companies that transport, dispose of or arrange for the
disposal of, the hazardous substances that were released into the environment.
CERCLA also authorizes the EPA and, in some cases, third parties to take actions
in response to threats to the public health or the environment and to seek to
recover from the classes of responsible persons the costs they incur. Although
"petroleum" is excluded from CERCLA's definition of a "hazardous substance," in
the course of its ordinary operations the Company may generate other materials
that fall within the definition of a "hazardous substance." The Company may be
responsible under CERCLA for all or part of the costs required to clean up sites
at which hazardous substances have been released into the environment and for
other damages, including damages to national resources. The Company has not
received any notification that it may be potentially responsible for cleanup
costs under CERCLA or any comparable state law.
Air. The Company's operations may be subject to the Clean Air Act ("CAA")
and comparable state and local requirements. Amendments to the CAA adopted in
1990 require the gradual imposition of certain pollution control requirements
with respect to air emissions in areas of the U.S. that do not meet national
clean air standards. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with maintaining or obtaining operating permits and approvals
addressing other air emission-related issues. However, the Company does not
believe its operations will be materially adversely affected by any such
requirements.
Water. The Federal Water Pollution Control Act ("FWPCA") imposes
restrictions and strict controls on the discharge of produced waters and other
oil and gas wastes into waters of the United States. Such discharges are
typically authorized by National Pollutant Discharge Elimination System
("NPDES") permits. 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 Oil Pollution Act of 1990 ("OPA"),
authorizes governmental entities and private citizens to seek recovery of a wide
variety of costs that may be incurred in connection with a discharge from the
party responsible for such discharge. OPA also
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<PAGE> 38
requires that parties handling oil on or near waters of the United States must
develop and maintain spill control and response plans and must demonstrate that
they have access to at least $35 million to pay for costs that may be incurred
in responding to an oil spill in navigable waters. State laws for the control of
water pollution also provide varying civil, criminal and administrative
penalties and liabilities in the case of a discharge of petroleum or its
derivatives into state waters. Although the Company's costs, if any, to comply
with these zero discharge mandates under federal or state law may be
significant, the entire industry will experience similar costs. The Company can
give no assurance that these costs will not have a material adverse impact on
the Company's financial conditions and operations.
Protected Species. The Endangered Species Act ("ESA") seeks to ensure that
activities do not jeopardize endangered or threatened animal, fish and plant
species, nor destroy or modify the critical habitat of such species. Under the
ESA, exploration and production operations, as well as actions by federal
agencies, may not significantly impair or jeopardize the species or its habitat.
The ESA provides for criminal penalties for willful violations of the act. Other
statutes which provide protection to animal and plant species and which may
apply to the Company's operations which include, but are not necessarily limited
to, the Fish and Wildlife Coordination Act, the Fishery Conservation and
Management Act, the Migratory Bird Treaty Act and the National Historic
Preservation Act.
Safety and Health. The Company's operations are subject to the requirements
of the federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The OSHA hazard communication standard, the EPA
community-right-to-know regulations under Title III of the Federal Superfund
Amendment and Reauthorization Act, and similar state statutes require that
certain information must be provided to employees, state and local government
authorities and citizens with respect to hazardous materials that are stored,
used or produced in connection with the Company's operations. Substantial fines
and penalties may be imposed for failure to comply with applicable safety and
health requirements.
The Company had no expenditures relating to environmental compliance during
1995. For the six months ended June 30, 1996, the Company incurred nominal costs
relating to environmental compliance.
ABANDONMENT COSTS
The Company is responsible for payment of plugging and abandonment costs on
the oil and gas properties pro rata to its working interest. The Company
anticipates that the salvage value of lease and well equipment located on
properties to be abandoned will exceed the costs of abandoning such properties.
There can be no assurance, however, that the Company will be successful in
avoiding additional expense in connection with the abandonment of any of its
properties. In addition, abandonment costs and their timing may change due to
many factors including actual production results, inflation rates and changes in
environmental laws and regulations.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes will not have a material adverse effect on its financial condition or
results of operations.
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<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers, directors and prospective director of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------ --- -------------------------------------------------------------
<S> <C> <C>
Jack D. Hightower....... 48 President, Chief Executive Officer and Chairman of the Board
George G. Staley........ 62 Executive Vice President, Exploration and Director
Rodney L. Woodard....... 41 Vice President, Engineering
Thomas H. Moore......... 52 Vice President, Business Development
Dan P. Colwell.......... 51 Vice President, Land
William K. White........ 54 Vice President, Finance and Chief Financial Officer
John L. Benfatti........ 51 Vice President, Accounting and Controller
Susan D. Rowland........ 35 Vice President, Corporate Administration and Secretary
David R. Albin.......... 37 Director
Kenneth A. Hersh........ 33 Director
William J. Vaughn, Jr... 76 Director*
</TABLE>
- ---------------
* Expected to be elected as a director at the Company's first regular Board of
Directors meeting following the completion of this offering.
Set forth below is a description of the backgrounds of the executive
officers, directors and prospective director of the Company.
Jack D. Hightower has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since he founded the Company
in March 1995. Prior to forming the Company, from 1986 to January 1996, Mr.
Hightower served as Chairman of the Board and Chief Executive Officer of United
Oil Services, Inc., a complete oil field service company serving customers in
the Permian Basin. From 1978 to 1995, Mr. Hightower served as Chairman of the
Board and President of Amber Energy, Inc., a company formed to identify oil and
gas exploration prospects. From 1991 to 1994, Mr. Hightower served as Chairman
of the Board, Chief Executive Officer and President of Enertex, Inc., which
served as the operator of record for several oil and gas properties involving
Mr. Hightower and other nonoperators, including Selma International Investment
Limited. Prior to 1978, Mr. Hightower served in a number of positions for UNOCAL
and Texas Land and Mortgage. In 1981, Mr. Hightower was a founding director of
United Bank, Midland, which was sold to Texas Commerce Bank in 1990. Since 1990,
Mr. Hightower has served on the Board of Directors of Texas Commerce Bank, N.A.,
Midland. Mr. Hightower serves on the National Petroleum Council.
George G. Staley has served as Executive Vice President, Exploration and
Director of the Company since its formation. From 1975 until 1995, Mr. Staley
served as President and Chief Executive Officer of Staley Gas Co., Inc. and
Staley Operating Co., which are oil and gas exploration and operating companies.
Prior to 1975, Mr. Staley served in a number of positions with HNG Oil Company
and its predecessors.
Rodney L. Woodard has served as Vice President, Engineering for the Company
since its formation. From 1985 to 1995, Mr. Woodard served as Vice President of
Selma International Investment Limited. Mr. Woodard was employed by Delta
Drilling Company as West Texas Division Production Manager from 1984 to 1985 and
Division Engineering Manager from 1981 to 1984. From 1979 to 1981, Mr. Woodard
served as staff engineer for Delta Drilling Company. From 1977 to 1979, Mr.
Woodard was employed by AMOCO Production Company in a number of capacities,
including senior petroleum engineer.
Thomas H. Moore has served as Vice President, Business Development of the
Company since its formation. From 1992 to 1995, Mr. Moore served as Managing
Partner of Magnum Energy Corporation, L.L.C. From 1991 until 1992, Mr. Moore
served as Executive Vice President -- Exploration and Production, Chief
Operating Officer and Director of Clayton Williams Energy, Inc. From 1985 to
1991, Mr. Moore served
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<PAGE> 40
as President, Chief Operating Officer and Director of Clayton W. Williams, Jr.
Inc. From 1981 to 1985, Mr. Moore served initially as Manager of Exploration and
then as General Manager of Clayton W. Williams, Jr., Inc. From 1974 until
joining the Williams organization in 1981, Mr. Moore was employed by Union Texas
Petroleum Corporation, initially as an exploration geologist and ultimately as
Exploration Manager.
Dan P. Colwell has served as Vice President, Land for the Company since its
formation. From 1993 to 1995, Mr. Colwell served as Vice President of Land for
Enertex, Inc. From 1991 to 1993, Mr. Colwell was employed by ARCO as Director of
Business Development from 1991 to 1993 and Area Land Manager from 1986 to 1991.
Prior to joining ARCO, Mr. Colwell served in a number of capacities for Texaco,
Inc., Adobe Oil and Gas Corp. and Valero Producing Co.
William K. White has served as Vice President, Finance and Chief Financial
Officer of the Company since September 1996. From 1994 to September 1996, Mr.
White was Senior Vice President of the Energy Investment Group of Trust Company
of The West. From 1991 to 1994, Mr. White was President of the Odessa
Associates, a private firm engaged in the practice of providing financial
consulting services to the oil and gas industry. Prior to 1991, Mr. White served
as Vice President and Chief Financial Officer of Eastex Energy, Inc., Senior
Vice President, Finance and Administration and Chief Financial Officer of
Ensource Inc., and as Vice President -- Finance and Treasurer of Lear Petroleum
Corporation and Mitchell Energy and Development Corp. Mr. White is a member of
the National Board of Governors of the Independent Petroleum Association of
America ("IPAA"), Chairman of the IPAA Capital Markets Committee and a member of
the Board of Directors of the Oil and Gas Investment Symposium.
John L. Benfatti has served as Vice President, Accounting and Controller of
the Company since its formation. From 1980 to 1995, Mr. Benfatti served as
Controller and Treasurer of Staley Gas Co., Inc. From 1978 to 1980, Mr. Benfatti
founded and operated a data processing consulting and service company in
Midland, Texas. From 1971 to 1978, Mr. Benfatti was employed by Houston Natural
Gas Production Company and its successor, HNG Oil Company, in a number of
capacities, including Manager of Information Management Systems.
Susan D. Rowland has served as Vice President, Corporate Administration and
Secretary of the Company since its formation. From 1986 to 1996, Ms. Rowland
served as a corporate officer and administrative manager of a number of
companies, including Amber Energy, Inc., Enertex, Inc., Haley Properties, Inc.
and United Oil Services, Inc.
David R. Albin has served as a director of the Company since its formation.
Since 1988, Mr. Albin has been a manager of the NGP investment funds, which were
organized to make direct equity investments in the North American oil and gas
industry. He is currently responsible for co-managing NGP's overall investment
portfolio. From December 1984 until November 1988, Mr. Albin was employed by
Bass Investment Limited Partnership, where he was also responsible for portfolio
management. Mr. Albin serves as a director of Offshore Energy Development
Corporation, an independent oil and gas company that does not materially compete
with the Company.
Kenneth A. Hersh has served as a director of the Company since its
formation. Since 1989, Mr. Hersh has served as a co-manager of the NGP
investment funds, which were organized to make direct equity investments in the
North American oil and gas industry. He is currently responsible for co-managing
NGP's overall investment portfolio. From 1985 to 1987, Mr. Hersh was employed by
the investment banking division of Morgan Stanley & Co., where he was a member
of the Energy Group specializing in oil and gas financing and merger and
acquisition transactions. Mr. Hersh serves as a director of Mesa Inc. and HS
Resources, Inc., two independent oil and gas companies whose operations do not
materially compete with those of the Company.
William J. Vaughn, Jr. is expected to be elected as director at the
Company's first regular Board of Directors meeting following the completion of
this offering. Since 1975, Mr. Vaughn has served as Chairman of the Board and
President of WJV, Inc. and DMV, Inc., which are oil and gas exploration
companies. From 1986 to 1996, Mr. Vaughn served as Vice President of United Oil
Services, Inc., a complete oil field service company. From 1975 to 1995, Mr.
Vaughn was an independent geologist in association with Mr. Hightower.
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<PAGE> 41
From 1948 to 1975, Mr. Vaughn was employed as a petroleum geologist by Texaco,
Inc. From 1953 to 1958, Mr. Vaughn served as District Geologist in North Texas
and from 1958 to 1975 he was Division Geologist in Texaco's Midland Division.
All directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Executive
officers are generally elected annually by the Board of Directors to serve,
subject to the discretion of the Board of Directors, until their successors are
elected or appointed.
COMMITTEES OF THE BOARD
Upon completion of this offering, the Company will establish two standing
committees of the Board of Directors: an Audit Committee and a Compensation
Committee. Messrs. Albin, Hersh and Vaughn are expected to be members of the
Audit Committee and Compensation Committee following completion of this
offering. The Audit Committee will review the functions of the Company's
management and independent accountants pertaining to the Company's financial
statements and perform such other related duties and functions as are deemed
appropriate by the Audit Committee or the Board of Directors. The Compensation
Committee of the Board of Directors will recommend to the Board of Directors the
base salaries, bonuses and other incentive compensation for the Company's
officers. The Board of Directors has designated the Compensation Committee as
the administrator of the Company's 1996 Incentive Plan. See "Management --
Employee Benefit Plans -- 1996 Incentive Plan."
DIRECTOR COMPENSATION
Directors who are also employees of the Company are not separately
compensated for serving on the Board of Directors. Directors who are not
employees of the Company receive $15,000 per year for their services as
directors. In addition, the Company reimburses them for the expenses incurred in
connection with attending meetings of the Board of Directors and its committees.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") enables
a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of members of its Board of
Directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Such a provision may not eliminate or limit the
liability of a director (1) for any breach of a director's duty of loyalty to
the corporation or its stockholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of a law, (3) for
paying an unlawful dividend or approving an illegal stock repurchase (as
provided in Section 174 of the DGCL), or (4) for any transaction from which the
director derived an improper personal benefit.
The Company has entered into indemnity agreements with each of its
executive officers and directors that provide for indemnification in certain
instances against liability and expenses incurred in connection with proceedings
brought by or in the right of the Company or by third parties by reason of a
person serving as an officer or director of the Company.
The Company believes that these provisions and agreements will assist the
Company in attracting and retaining qualified individuals to serve as directors
and officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is or has been an
employee of the Company. No executive officer of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. Messrs. Hightower, Staley, Albin, Hersh and
Vaughn, or their affiliates, have acquired capital stock of the Company. See
"Certain Transactions."
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<PAGE> 42
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid for the last fiscal
year to the Company's Chief Executive Officer and each of the Company's other
executive officers whose annual salary exceeded $100,000 on an annualized basis
for the fiscal year ended December 31, 1995, as well as to certain other
executive officers whose projected annual salary and bonus for the fiscal year
ending December 31, 1996 is in each case expected to exceed $100,000 on an
annualized basis (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------------- SHARES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#) COMPENSATION(2)
- ---------------------------------------- ---- ------- ------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hightower(3).................... 1995 $75,000 $1,000 $-- 1,682,491 $ 6,201
President and Chief Executive Officer
George G. Staley(4)..................... 1995 75,000 1,000 -- 975,313 10,423
Executive Vice President, Exploration
Rodney L. Woodard(5).................... 1995 67,500 1,000 -- 196,313 5,596
Vice President, Engineering
Thomas H. Moore(6)...................... 1995 54,000 1,000 -- 210,456 3,718
Vice President, Business Development
Dan P. Colwell(7)....................... 1995 54,000 1,000 -- 196,313 5,869
Vice President, Land
</TABLE>
- ---------------
(1) Other Annual Compensation does not include perquisites and other personal
benefits because the aggregate amount of such compensation does not exceed
the lesser of (i) $50,000 or (ii) 10% of individual combined salary and
bonus for the Named Executive Officers in each year.
(2) Consists of premiums paid by the Company under a life insurance program and
contributions by the Company under its 401(k) Retirement Plan of $5,076 and
$1,125, respectively, for Mr. Hightower; $9,298 and $1,125, respectively,
for Mr. Staley; $4,583 and $1,013, respectively, for Mr. Woodard; $2,098 and
$810, respectively, for Mr. Moore; and $5,059 and $810, respectively, for
Mr. Colwell.
(3) For the period from March 31, 1995 through December 31, 1995, Mr. Hightower
earned an annual base salary of $100,000. Upon completion of this offering,
Mr. Hightower's base salary will be $160,000.
(4) For the period from March 31, 1995 through December 31, 1995, Mr. Staley
earned an annual base salary of $100,000. Upon completion of this offering,
Mr. Staley's base salary will be $160,000.
(5) For the period from March 31, 1995 through December 31, 1995, Mr. Woodard
earned an annual base salary of $90,000. Upon completion of this offering,
Mr. Woodard's base salary will be $135,000.
(6) For the period from March 31, 1995 through December 31, 1995, Mr. Moore
earned an annual base salary of $72,000. Upon completion of this offering,
Mr. Moore's base salary will be $135,000.
(7) For the period from March 31, 1995 through December 31, 1995, Mr. Colwell
earned an annual base salary of $72,000. Upon completion of this offering,
Mr. Colwell's base salary will be $135,000.
William K. White was elected Vice President, Finance and Chief Financial
Officer of the Company on September 30, 1996 and receives an annual base salary
of $135,000.
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<PAGE> 43
1995 Option Grants
The following table contains information about stock option grants to Named
Executive Officers in 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZED VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
- ------------------------------ ----------- ------------ -------- ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack D. Hightower............. 1,682,491 49.66 2.08 3/31/2001
George G. Staley.............. 975,313 28.79 2.08 3/31/2001
Rodney L. Woodard............. 196,313 5.79 2.08 3/31/2001
Thomas H. Moore............... 210,456 6.21 2.08 3/31/2001
Dan P. Colwell................ 196,313 5.79 2.08 3/31/2001
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the options
if they are exercised at the end of the option term. Those gains are based
on assumed rates of stock price appreciation of 0%, 5% and 10% compounded
annually from the date the option was granted through the expiration date.
Option Exercises and Year-End Option Values
The following table provides information about the number of shares issued
upon option exercises by the Named Executive Officers during 1995, and the value
realized by the Named Executive Officers. The table also provides information
about the number and value of options held by the Named Executive Officers at
December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END(#) AT FY-END($)
ON EXERCISE VALUE ---------------------------- ----------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack D. Hightower....... 0 0 372,316 1,310,175
George G. Staley........ 0 0 215,826 759,487
Rodney L. Woodard....... 0 0 43,442 152,871
Thomas H. Moore......... 0 0 46,572 163,884
Dan P. Colwell.......... 0 0 43,442 152,871
</TABLE>
Employment Agreements
The Company and Jack Hightower are parties to an Employment Agreement (the
"Employment Agreement") that provides for the employment of Mr. Hightower as
President, Chief Executive Officer and Chairman of the Board of the Company for
a two year period. The agreement provides for an annual salary of $160,000,
subject to any increases that may be approved by the Compensation Committee of
the Board of Directors from time to time during the term of the Employment
Agreement. Under the Employment Agreement, Mr. Hightower shall be entitled to
participate in any employee benefit programs which the Company provides to its
executive officers. As of the date hereof, the only employee benefit programs
offered by the Company to its officers and employees are group insurance
coverage and participation in the Company's 401(k) Retirement Plan and the 1996
Incentive Plan. Under the Employment Agreement, Mr. Hightower will be entitled
to receive up to one year's base salary if his employment is terminated other
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<PAGE> 44
than for cause (as defined therein) prior to the expiration of his employment
term. The agreement also provides that Mr. Hightower will not compete with the
Company for a certain period of time following any termination of his employment
for any reason.
Each of the other executive officers of the Company is a party to a
confidentiality and noncompete agreement with the Company.
EMPLOYEE BENEFIT PLANS
Initial Stock Option Plan. An option plan was adopted by the Company (the
"Initial Stock Option Plan"), in connection with the Conversion. The Initial
Stock Option Plan replaces the Option Plan adopted by the Partnership upon its
formation (the "Partnership Option Plan"). The terms of the Initial Stock Option
Plan and the options granted thereunder are substantially the same as the terms
of the Partnership Option Plan and the options granted thereunder (the
"Partnership Options"). All Partnership Options available under the Partnership
Plan were granted to officers and employees prior to the Conversion. Pursuant to
the Exchange Agreement, the Company was required to adopt the Initial Stock
Option Plan and issue options thereunder to each holder of the Partnership
Options, upon substantially the same terms as the Partnership Options held by
such holder. The Partnership and each of the holders of the Partnership Options
consented to the substitution of the Initial Stock Option Plan and the options
issued thereunder for the Partnership Option Plan and the Partnership Options.
The Initial Option Plan is for the benefit of the officers and employees of
the General Partner and the Partnership who held partnership options. Options
granted under the Plan may be exercised to acquire up to an aggregate of
3,631,350 shares of Common Stock at an exercise price per share of $2.08. Any
option holder may elect to pay the exercise price for an option in cash, or by
delivery of the option holder's secured interest-bearing promissory term note
(payable to the Company in fifteen months), or by any combination of the
foregoing.
There are four different series of options authorized under the plan, the
terms of which are substantially the same, except for the vesting requirements.
The Series A Options, which cover 2,410,728 option shares, vest ratably over
three years upon each anniversary date of March 31, if the holder remains
employed by the Company as of such date. If the holder's employment is
terminated prior to a vesting date either voluntarily by such holder or by
action of the Company for reasons other than for cause (as specified therein)
the Option may be exercised within three months after such termination (if
otherwise prior to the date of expiration of the Option), to purchase the number
of units then vested (with pro-rata vesting if in mid-year). One third of the
shares subject to the Series A Options (803,576 shares) are currently vested.
The Board of Directors of the Company has adopted a resolution, pursuant to the
terms of the Series B, C and D options granted under the plan, which declares
that the right to exercise the Series B Options, which cover 387,265 option
shares, will vest on March 31, 1997, the right to exercise the Series C Options,
which cover 406,390 shares, will vest on March 31, 1998 and the right to
exercise the Series D Options, which cover 426,967 shares, will vest on March
31, 1999.
1996 Incentive Plan. The Board of Directors and the stockholders of the
Company approved the adoption of the Company's 1996 Incentive Plan (the "1996
Incentive Plan") as of September 30, 1996. The purpose of the 1996 Incentive
Plan is to reward selected officers and key employees of the Company and others
who have been or may be in a position to benefit the Company, compensate them
for making significant contributions to the success of the Company and provide
them with a proprietary interest in the growth and performance of the Company.
Participants in the 1996 Incentive Plan are selected by the Board of
Directors or such committee of the Board as is designated by the Board to
administer the 1996 Incentive Plan (upon completion of this offering, the
Compensation Committee of the Board of Directors) from among those who hold
positions of responsibility with the Company and whose performance, in the
judgment of the Compensation Committee, can have a significant effect on the
success of the Company. An aggregate of 850,000 shares of Common Stock have been
authorized and reserved for issuance pursuant to the 1996 Incentive Plan. As of
September 30, 1996, options have been granted to participants under the 1996
Incentive Plan to purchase a
43
<PAGE> 45
total of 85,000 shares of Common Stock at an exercise price per share equal to
the Price to Public set forth on the cover page of this Prospectus. These
options vest ratably on each of the first through fourth anniversaries of the
grant date.
Subject to the provisions of the 1996 Incentive Plan, the Compensation
Committee will be authorized to determine the type or types of awards made to
each participant and the terms, conditions and limitations applicable to each
award. In addition, the Compensation Committee will have the exclusive power to
interpret the 1996 Incentive Plan and to adopt such rules and regulations as it
may deem necessary or appropriate in keeping with the objectives of the 1996
Incentive Plan.
Pursuant to the 1996 Incentive Plan, participants will be eligible to
receive awards consisting of (i) stock options, (ii) stock appreciation rights,
(iii) stock, (iv) restricted stock, (v) cash, or (vi) any combination of the
foregoing. Stock options may be either incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
nonqualified stock options.
44
<PAGE> 46
CERTAIN TRANSACTIONS
On March 31, 1995, the Company was formed with an initial capitalization of
approximately $20.5 million by NGP and certain individuals, including the
following officers and directors of the Company: Jack D. Hightower (President,
Chief Executive Officer and Chairman of the Board), George G. Staley (Executive
Vice President, Exploration, and Director), Rodney L. Woodard (Vice President,
Engineering), Thomas H. Moore (Vice President, Business Development), Dan P.
Colwell (Vice President, Land), David R. Albin (Director), Kenneth A. Hersh
(Director) and William J. Vaughn, Jr. (prospective Director). On December 11,
1995, the Company sold 3,423,194 shares and 1,711,597 shares of Common Stock to
JEDI and First Union Corporation, respectively, for $10 million and $5 million,
respectively. In connection with these transactions, the Company granted NGP,
Jack Hightower, JEDI and First Union Corporation certain registration rights.
See "Description of Capital Stock -- Registration Rights."
The Company has entered into an administrative services contract with
Staley Operating Co. ("Staley Operating"), an affiliate of Mr. Staley. Pursuant
to the agreement, the Company provided certain administrative, accounting and
other office and technical services on behalf of Staley Operating, in its
capacity as the operator of certain producing oil and gas properties, in return
for which the Company received the amounts charged by Staley Operating for
providing such services under the applicable operating agreements for such
properties. The total amount of payments received by the Company under such
agreement was $241,563 in 1995 and $135,411 for the six months ended June 30,
1996.
Mr. Hightower and certain of his affiliates have a common ownership
interest in an oil and gas property that is operated by the Company and, in
accordance with a standard industry operating agreement, make payments to the
Company of leasehold costs and lease operating and supervision charges. These
payments aggregated approximately $12,000 for the nine months ended December 31,
1995 and approximately $250,000 for the six months ended June 30, 1996. The
Company does not consider the property to constitute a material portion of its
assets and believes that the terms of the operating agreement and arrangements
pertaining to the property are no less favorable to the Company than could have
been obtained from unaffiliated third parties.
In April of 1995, the Company purchased certain oil and gas properties from
Enertex, Inc., an affiliate of Mr. Hightower, and from Staley Gas Co. Inc.
("Staley"), an affiliate of George Staley. The purchase price for such
properties was approximately $1,065,000 for the Enertex properties and
approximately $77,000 for the Staley properties. The Company believes that the
terms of such property purchases were no less favorable to the Company than
could have been obtained from unaffiliated third parties.
For advisory services in connection with the organization and initial
financing of the Company, the Company paid NGP $125,000. The Company is also a
party to separate advisory services contracts with ECT Securities Corp. ("ECT")
(an affiliate of JEDI) and NGP. In 1995, the Company made payments to ECT and
NGP of $200,000 and approximately $79,000, respectively, for fees and expense
reimbursements under these agreements. During 1996, ECT is entitled to an annual
fee of $100,000, payable quarterly in arrears, plus expense reimbursements, and
NGP is entitled to an annual fee of $85,000 payable quarterly in arrears, plus
expense reimbursements. Both agreements will terminate as of the completion of
this offering.
In December 1995 the Company entered into a Master Energy Price Swap
Agreement for natural gas with Enron Capital & Trade Resources Corp. ("ECTRC")
and First Union Capital Market ("First Capital"), affiliates of JEDI and First
Union Corporation, respectively. Pursuant to the terms of this agreement and as
a result of losses attributable to natural gas hedges, the Company paid $169,500
to each of ECTRC and First Capital. The Company believes that the terms of the
agreement are no less favorable to it than could have been obtained from
unaffiliated third parties.
The Company's offices located at 500 West Texas, Suite 500, in Midland,
Texas are leased from Fasken Center Ltd., an affiliate of Mr. Hightower. The
lease is a noncancellable operating lease that terminates at the end of 1998 and
requires payment of monthly rent payments of $9,219. The Company expects to
amend the lease in the fourth quarter of 1996 to obtain additional space. In
addition, the Company also regularly uses certain aircraft owned by Lone Star
Jet, Inc., an affiliate of Jack Hightower. The Company is billed by Lone Star
Jet, Inc. for any use of such aircraft by Company personnel. Approximately
$4,000 was paid by the
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<PAGE> 47
Company for the use of such aircraft in 1995 and approximately $9,000 was paid
for the six months ended June 30, 1996. The Company believes that the terms of
these agreements and arrangements with affiliates of Mr. Hightower are no less
favorable to the Company than could be obtained from unaffiliated third parties.
First Union Bank of North Carolina, an affiliate of First Union
Corporation, is a member of the bank group that lends to the Company under the
Credit Agreement. See "Use of Proceeds."
Mr. Hightower is party to an Employment Agreement that provides for his
employment as President, Chief Executive Officer and Chairman of the Board of
the Company for a two year period. See "Management -- Executive Compensation."
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<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 1, 1996, and as adjusted
to give effect to the sale of shares of Common Stock in this offering,
by (i) each person the Company knows to be the beneficial owner of 5% or more of
the outstanding shares of Common Stock, (ii) each Named Executive Officer, (iii)
each director of the Company, (iv) all executive officers and directors of the
Company as a group and (v) the Selling Stockholder. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws, the
Company believes that each stockholder named in this table has sole investment
and voting power with respect to the shares set forth opposite such
stockholder's name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
--------------------- SHARES BEING ---------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
-------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Natural Gas Partners II, L.P.... 5,000,777 25.58% -- 5,000,777 %
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Natural Gas Partners, L.P....... 4,767,407 24.39% -- 4,767,407 %
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Joint Energy Development
Investments Limited
Partnership................... 3,423,194 17.51% -- 3,423,194 %
1400 Smith Street
Houston, Texas 77002
First Union Corporation......... 1,711,597 8.75% 1,711,597 %
One First Union Center
301 South College Street
Charlotte, North Carolina
28288
Jack D. Hightower(2)............ 3,255,988 16.33% -- 3,255,988 %
500 West Texas, Suite 500
Midland, Texas 79701
George G. Staley(3)............. 428,231 2.17% -- 428,231 %
Thomas H. Moore(4).............. 149,094 * -- 149,094 %
Dan P. Colwell(5)............... 94,598 * -- 94,598 %
Rodney L. Woodard(6)............ 95,518 * -- 95,518
David R. Albin(7)(8)............ 95,772 * -- 95,772 %
Kenneth A. Hersh(8)............. 49,881 * -- 49,881 %
William J. Vaughn, Jr.(9)....... 332,541 1.70% -- 332,541 %
All executive officers and
directors as a group (11
persons)(10).................. 4,533,921 22.28% -- 4,533,921 %
</TABLE>
- ---------------
* Represents less than 1% of outstanding Common Stock or voting power.
(1) Shares beneficially owned and percentage of ownership are based on
19,550,013 shares of Common Stock outstanding before this offering and
shares of Common Stock outstanding after the closing. Beneficial
ownership is determined in accordance with the rules of the Commission and
generally includes voting and investment power with respect to securities.
(2) Includes (i) 2,667,588 shares held by Mr. Hightower, (ii) 199,524 shares
held by Mr. Hightower's spouse and children, and (iii) 388,876 shares
subject to stock options that are exercisable within 60 days. Excludes
1,366,716 shares subject to stock options that are not exercisable within
60 days.
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<PAGE> 49
(3) Includes (i) 199,525 shares held by Mr. Staley, and (ii) 228,706 shares
subject to stock options that are exercisable within 60 days. Excludes
803,465 shares subject to stock options that are not exercisable within 60
days.
(4) Includes (i) 99,762 shares held by Mr. Moore, and (ii) 49,332 shares
subject to stock options that are exercisable within 60 days. Excludes
173,310 shares subject to stock options that are not exercisable within 60
days.
(5) Includes (i) 46,556 shares held by Mr. Colwell, and (ii) 48,042 shares
subject to stock options that are exercisable within 60 days. Excludes
168,577 shares subject to stock options that are not exercisable within 60
days.
(6) Includes (i) 46,556 shares held by Mr. Woodard, and (ii) 48,962 shares
subject to stock options that are exercisable within 60 days. Excludes
171,718 shares subject to stock options that are not exercisable within 60
days.
(7) All of these shares are held in trust for Mr. Albin.
(8) David R. Albin and Kenneth A. Hersh are each managing members of the
general partner of Natural Gas Partners II, L.P. As such, Mr. Albin and Mr.
Hersh may be deemed to share voting and investment power with respect to
the 5,000,777 shares beneficially owned by Natural Gas Partners II, L.P.
Mr. Albin and Mr. Hersh disclaim beneficial ownership of such shares.
(9) Includes 33,254 shares held by an affiliate of Mr. Vaughn.
(10) Includes 796,216 shares that officers and directors as a group have the
right to acquire within 60 days through the exercise of options granted
pursuant to the 1996 Incentive Plan. Excludes 2,802,645 shares subject to
stock options that are not exercisable within 60 days.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares
of Common Stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). Of such authorized shares,
shares of Common Stock will be issued and outstanding upon completion
of this offering ( shares if the Underwriters exercise their
over-allotment option in full). As of September 30, 1996, the Company had
outstanding 19,550,013 shares of Common Stock held of record by 24 stockholders
and stock options for an aggregate of 3,631,350 shares.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the stockholders, and are entitled to
cumulate their votes for the election of directors. As a result of such
cumulative voting rights, any holder of at least 20% of the outstanding Common
Stock will be assured that such holder's nominee will be elected as a director
for so long as the Board of Directors of the Company consists of five members.
See "Risk Factors -- Control by Existing Stockholders." The Certificate of
Incorporation of the Company does not allow the stockholders to take action by
less than unanimous consent, but does permit the holders of 10% or more of the
Company's outstanding Common Stock to call a special meeting of the
Stockholders. Each share of Common Stock is entitled to participate equally in
dividends, if, as and when declared by the Company's Board of Directors, and in
the distribution of assets in the event of liquidation, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. The Company has never
paid cash dividends on its Common Stock. The shares of Common Stock have no
preemptive or conversion rights, redemption rights, or sinking fund provisions.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby upon issuance and sale will be, duly authorized, validly issued,
fully paid, and nonassessable.
PREFERRED STOCK
As of September 30, 1996, the Company has no outstanding Preferred Stock.
The Company is authorized to issue 10,000,000 shares of Preferred Stock. The
Company's Board of Directors may establish, without stockholder approval, one or
more classes or series of Preferred Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences, and limitations that the Board of Directors may designate.
The Company believes that this power to issue Preferred Stock will provide
flexibility in connection with possible corporate transactions. The issuance of
Preferred Stock, however, could adversely affect the voting power of holders of
Common Stock and restrict their rights to receive payments upon liquidation of
the Company. It could also have the effect of delaying, deferring or preventing
a change in control of the Company. The Company does not currently plan to issue
any shares of Preferred Stock.
DELAWARE LAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. Generally, Section 203 prohibits the Company
from engaging in a "business combination" (as defined in Section 203) with an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) for three years following the date that
person becomes an interested stockholder, unless (a) before that person became
an interested stockholder, the Company's Board of Directors approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (b) upon completion of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the Company and by employee stock plans that
do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (c) following the transaction in which that person became an interested
stockholder, the business combination is approved by the Company's Board of
Directors and authorized at a meeting of stockholders by
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<PAGE> 51
the affirmative vote of the holders of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any person
became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.
REGISTRATION RIGHTS
The Company has entered into the Amended and Restated Registration Rights
Agreement with Natural Gas Partners, L.P., Natural Gas Partners, II, L.P., Jack
Hightower, JEDI, First Union Corporation and Selma International Investment
Limited (the "Shareholder Parties"). See "Management -- Certain Transactions."
Pursuant to the Amended and Restated Registration Rights Agreement, on three
separate occasions, commencing on the 180th day following the date of the
Company's initial registration statement under the securities laws, Shareholder
Parties owning at least 35% of the outstanding shares then subject to such
agreement may require the Company to register shares held by them under
applicable securities laws, provided that the shares to be registered have an
estimated aggregate offering price to the public of at least $3,000,000. The
Amended and Restated Registration Rights Agreement also provides that the
Shareholder Parties have "piggyback" registration rights pursuant to which such
persons may include shares of Common Stock held by them in certain registrations
initiated by the Company or by any other holder of the Company's Common Stock;
provided that, in an underwritten registered offering, if the managing
underwriters determine that the number of shares requested to be included in the
registration exceeds the number that the underwriters believe can be sold, the
Company will be given first priority and the persons requesting piggyback
registration under the Amended and Restated Registration Rights Agreement will
be allowed to include shares pro rata based on the number of shares each such
person requested to be included.
The Amended and Restated Registration Rights Agreement provides for
customary indemnities by the Company in favor of persons including shares in a
registration pursuant to the Amended and Restated Registration Rights Agreement,
and by such persons in favor of the Company, with respect to information to be
included in the relevant registration statement. These registration rights have
been waived in connection with this offering and for 180 days after the date of
this Prospectus.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of
Common Stock outstanding ( shares if the Underwriters exercise their
over-allotment option in full). Of these shares, the shares of Common
Stock sold in this offering will be freely transferable without restriction
under the Securities Act unless they are held by the Company's affiliates, as
that term is used in Rule 144 under the Securities Act. The Company issued the
remaining 19,310,013 shares of Common Stock in reliance on exemptions from the
registration requirements of the Securities Act, and those shares are
"restricted" securities under Rule 144. Those shares may not be sold publicly
unless they are registered under the Securities Act, sold in compliance with
Rule 144, or sold in a transaction that is exempt from registration. The Company
believes that the earliest date on which the 19,550,013 shares of its Common
Stock currently outstanding will be eligible for sale under Rule 144 is October
1, 1998. Therefore, no shares will be eligible for immediate sale in the public
market without restriction under Rule 144(k), and no shares will be eligible for
immediate sale under the manner-of-sale, volume and other limitations of Rule
144. Beginning October 1, 1998, all of the shares of Common Stock currently
outstanding will become eligible for sale under Rule 144,
50
<PAGE> 52
based on current Commission rules and subject to compliance with the
manner-of-sale, volume and other requirements of Rule 144. Beginning October 1,
1999, all of those shares of Common Stock will become eligible for sale under
Rule 144(k) if they are not held by affiliates of the Company.
In general, under Rule 144 a person (or persons whose sales are
aggregated), including an affiliate, who has beneficially owned shares for at
least two years is entitled to sell in broker transactions, within any three-
month period commencing 90 days after this offering, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding Common Stock
(approximately shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect to the sale
and other limitations. In addition, a person who was not an affiliate of the
Company during the three months preceding a sale and who has beneficially owned
the shares proposed to be sold for at least three years is entitled to sell the
shares under Rule 144(k) without regard to the manner-of-sale, volume and other
limitations of Rule 144. The Commission has proposed to shorten the holding
periods under Rule 144 for restricted securities. The Commission has indicated
that, if adopted, the proposed amendment would apply to all outstanding
restricted securities. All shares of Common Stock, other than those offered
hereby, are subject to lock-up agreements with the Underwriters for 180 days
after the date of this Prospectus. See "Underwriting."
The holders of approximately 13,225,429 shares of Common Stock and their
permitted transferees are entitled to demand registration of those shares under
the Securities Act beginning 180 days after the date of this Prospectus. See
"Description of Capital Stock -- Registration Rights."
The Company intends to file a registration statement under the Securities
Act to register Common Stock to be issued pursuant to the exercise of options,
including options under the Incentive Plan. Taking into account the effect of
the lock-up agreement with the holders of options, approximately
shares issuable upon exercise of vested options will be eligible for sale in the
public market beginning 180 days after commencement of this offering, subject,
in the case of sales by affiliates, to the manner-of-sale, volume and other
limitations requirements of Rule 144.
Prior to this offering, there has been no public market for the securities
of the Company. No prediction can be made of the effect, if any, that the sale
or availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial numbers of
shares by existing stockholders or by stockholders purchasing in this offering
could have a negative effect on the market price of the Common Stock.
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<PAGE> 53
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom CS First Boston
Corporation; Donaldson, Lufkin & Jenrette Securities Corporation; Howard, Weil,
Labouisse, Friedrichs Incorporated; J.P. Morgan Securities Inc. and Petrie
Parkman & Co., Inc. are acting as representatives (the "Representatives"), have
severally but not jointly agreed to purchase from the Company and the Selling
Stockholder, the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
CS First Boston Corporation...............................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Howard, Weil, Labouisse, Friedrichs Incorporated..........................
J.P. Morgan Securities Inc. ..............................................
Petrie Parkman & Co., Inc. ...............................................
---------
Total...........................................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to additional shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions, all as set forth on the
cover page of this Prospectus. Such option may be exercised only to cover
over-allotments in the sale of the shares of Common Stock. To the extent such
option is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as it was obligated to purchase pursuant to the
Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a concession
of $ per share, and the Underwriters and such dealers may allow a
discount of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Representatives.
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed five percent of the shares
being offered hereby.
The Company intends to use more than 10% of the net proceeds from the sale
of the shares offered by the Company to repay indebtedness owed by it to Morgan
Guaranty Trust Company of New York, an affiliate of one of the underwriters,
J.P. Morgan Securities Inc. Accordingly, this offering is being made in
compliance with the requirements of Rule 2720(c) of the Conduct Rules of the
National Association of Securities Dealers, Inc. This rule provides generally
that if more than 10% of the net proceeds from the sale of stock, not
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<PAGE> 54
including underwriting compensation, is paid to the underwriters of such stock
or their affiliates, the initial public offering price of the stock may not be
higher than that recommended by a "qualified independent underwriter" meeting
certain standards. Accordingly, CS First Boston Corporation is assuming the
responsibilities of acting as the qualified independent underwriter in pricing
this offering and conducting due diligence. The initial public offering price of
the Shares set forth on the cover page of this Prospectus is no higher than the
price recommended by CS First Boston Corporation.
The Company, its officers, directors, stockholders and optionholders have
agreed that they will not offer, sell, contract to sell, announce an intention
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a Registration Statement under the Securities Act, relating to,
any additional shares of the Company's Common Stock or securities convertible
into or exchangeable or exercisable for any shares of the Company's Common Stock
without the prior written consent of CS First Boston Corporation for a period of
180 days after the date of this Prospectus, except issuances pursuant to the
exercise of employee stock options outstanding on the date hereof. See "Shares
Eligible for Future Sale."
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the shares of Common Stock was
negotiated among the Company and the Underwriters. Among the factors considered
in determining the initial public offering price, in addition to prevailing
market conditions, are the history of, and prospects for, the industry in which
the Company operates, the earnings of the Company and comparable companies in
recent periods, management expertise and the Company's business potential and
earnings prospects.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
Application has been made to list the shares of Common Stock on the New
York Stock Exchange. In connection with the listing of the Common Stock on the
New York Stock Exchange, the Underwriters will undertake to sell round lots of
100 shares or more to a minimum of beneficial owners.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities in each
province where trades of the Common Stock are affected. Accordingly, any resale
of the shares of Common Stock in Canada must be made in accordance with
applicable securities laws, which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Canadian purchasers
are advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Common Stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS AND ACTIONS OF ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of
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<PAGE> 55
action for damages or rescission or rights of action under the civil liability
provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of shares of Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any shares of Common Stock acquired by such purchaser pursuant to this Offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #88/5, a copy of which may be obtained from the
Company. Only one such report must be filed in respect of shares of the Common
Stock acquired on the same date and under the same prospectus exemption.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Thompson & Knight, P.C., Dallas,
Texas. Certain matters relating to the Offering will be passed upon for the
Underwriters by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and for the period March 31, 1995 (date of inception) to December 31, 1995,
the statements of revenues and direct operating expenses of the 1996 Acquisition
for the years ended December 31, 1993, 1994 and 1995, and the statements of
revenues and direct operating expenses of the 1995 Acquisition for the years
ended December 31, 1993 and 1994, and the period ended December 11, 1995, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The letters of Williamson Petroleum Consultants, Inc., independent oil and
gas consultants, set forth in Appendix A, have been included herein in reliance
upon the firm as experts with respect to the matters contained in those letters.
In addition, the information with respect to the reserve reports prepared by
Williamson has been included herein in reliance upon the firm as experts with
respect to such information.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (as amended and together with all exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered by this Prospectus. This Prospectus constitutes a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted from this
Prospectus as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to herein are not necessarily complete.
Statements in this Prospectus about the contents of any contract or other
document are not necessarily complete; reference is made in each instance to the
copy of the contract or other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference.
The Registration Statement and accompanying exhibits and schedules may by
inspected and copies may be obtained (at prescribed rates) at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. Copies of the
54
<PAGE> 56
Registration Statement may also be inspected at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. In addition, the Common Stock will be listed on the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, where such material may
also be inspected and copied.
As a result of this offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the public reference facilities and regional offices referred to
above. In addition, these reports, proxy statements and other information may
also be obtained from the web site that the Commission maintains at
http://www.sec.gov.
55
<PAGE> 57
GLOSSARY OF OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and this Prospectus. Unless otherwise indicated in this
Prospectus, natural gas volumes are stated at the legal pressure base of the
state or area in which the reserves are located and at 60 degrees Fahrenheit and
in most instances are rounded to the nearest major multiple. BOEs are determined
using the ratio of six Mcf of natural gas to one Bbl of oil.
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcf" means billion cubic feet of natural gas.
"BOE" means barrels of oil equivalent.
"Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.
"BBtu" means one billion British Thermal Units.
"Completion" means the installation of permanent equipment for the
production of oil or gas.
"Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.
"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Exploratory well" means a well drilled to find and produce oil or gas in
an unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
"Gross," when used with respect to acres or wells, refers to the total
acres or wells in which the Company has a working interest.
"MBbls" means thousands of barrels of oil.
"Mcf" means thousand cubic feet of natural gas.
"MMBbls" means millions of barrels of oil.
"MMBC" means millions of barrels of condensate.
"MMBOE" means millions of barrels of oil equivalent on a 6:1 basis.
"MMBtu" means one million British Thermal Units.
"MMcf" means million cubic feet of natural gas.
"Net," when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by the
Company.
"Net production" means production that is owned by the Company less
royalties and production due others.
"Oil" means crude oil or condensate.
"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.
"Present Value of Future Net Revenues" or "PV-10" means the pretax present
value of estimated future revenues to be generated from the production of proved
reserves calculated in accordance with Commission guidelines, net of estimated
production and future development costs, using prices and costs as of the date
of estimation without future escalation, without giving effect to non-property
related expenses such as general
56
<PAGE> 58
and administrative expenses, debt service and depreciation, depletion and
amortization, and discounted using an annual discount rate of 10%.
"Project" means a proposal to add a producing completion of oil or gas. A
proposal may vary in range from work authorized to be performed to proposals
that are founded in geologic and engineering principles yet require further
research before funds are authorized.
"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas 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, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
i. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
ii. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.
iii. Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.
"Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.
"Reserves" means proved reserves.
"Royalty" means 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 (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the
57
<PAGE> 59
time the lease is granted, or overriding royalties, which are usually reserved
by an owner of the leasehold in connection with a transfer to a subsequent
owner.
"Spud" means to start drilling a new well (or restart).
"3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.
"Tcf" means trillion cubic feet of natural gas.
"Waterflood" means the injection of water into a reservoir to fill pores
vacated by produced fluids, thus maintaining reservoir pressure and assisting
production.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
"Workover" means operations on a producing well to restore or increase
production.
58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements of Titan Exploration, Inc.
Pro Forma Condensed Balance Sheet as of June 30, 1996 (Unaudited)................... F1-2
Pro Forma Condensed Statement of Operations for the year ended December 31, 1995
(Unaudited)...................................................................... F1-3
Pro Forma Condensed Statement of Operations for the six months ended June 30, 1996
(Unaudited)...................................................................... F1-4
Notes to Unaudited Pro Forma Condensed Financial Statements......................... F1-5
Independent Auditor's Report........................................................ F2-1
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)... F2-2
Consolidated Statements of Operations for the period March 31, 1995 (date of
inception) through December 31, 1995 and the periods ended June 30, 1995 and 1996
(unaudited)...................................................................... F2-3
Consolidated Statements of Stockholders' Equity for the period March 31, 1995 (date
of inception) through December 31, 1995 and the periods ended June 30, 1995 and
1996 (unaudited)................................................................. F2-4
Consolidated Statements of Cash Flows for the period March 31, 1995 (date of
inception) through December 31, 1995 and the periods ended June 30, 1995 and 1996
(unaudited)...................................................................... F2-5
Notes to Consolidated Financial Statements.......................................... F2-6
Financial Statements of the 1995 Acquisition:
Independent Auditors' Report........................................................ F3-1
Statements of Revenues and Direct Operating Expenses for the years ended December
31, 1993 and 1994 and the period ended December 11, 1995......................... F3-2
Notes to the Statements of Revenues and Direct Operating Expenses................... F3-3
Financial Statements of the 1996 Acquisition:
Independent Auditors' Report........................................................ F4-1
Statements of Revenues and Direct Operating Expenses for the years ended December
31, 1993, 1994 and 1995, and the six months ended June 30, 1995 and 1996
(unaudited)...................................................................... F4-2
Notes to the Statements of Revenues and Direct Operating Expenses................... F4-3
</TABLE>
F-1
<PAGE> 61
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Financial Statements of the Company have
been prepared to give effect to the 1995 Acquisition and the 1996 Acquisition,
the Conversion, and the Offering and the application of the estimated net
proceeds therefrom as if such transactions (to the extent not already reflected)
had taken place on June 30, 1996 for purposes of the Pro Forma Condensed Balance
Sheet and as if the transactions had taken place on January 1, 1995 for purposes
of the Pro Forma Condensed Statements of Operations. The Pro Forma Condensed
Financial Statements of the Company are not necessarily indicative of the
results for the periods presented had the 1995 Acquisition and the 1996
Acquisition, the Conversion, and the Offering and the application of the
estimated net proceeds therefrom taken place on January 1, 1995. In addition,
future results may vary significantly from the results reflected in the
accompanying Pro Forma Condensed Financial Statements because of normal
production declines, changes in product prices, and the success of future
exploration and development activities, among other factors. This information
should be read in conjunction with the Consolidated Financial Statements of
Titan Exploration, Inc., and the Statements of Revenues and Direct Operating
Expenses with respect to the properties acquired in the 1995 Acquisition and the
1996 Acquisition, all included elsewhere herein.
F1-1
<PAGE> 62
TITAN EXPLORATION, INC.
PRO FORMA CONDENSED BALANCE SHEET -- UNAUDITED
JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA OFFERING PRO FORMA
TITAN ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 8,937 $ (8,937)(b) $ -- $ 139,800(c) $ --
(139,800)(d)
Accounts receivable:
Oil & Gas................................ 1,602 1,602 1,602
Other.................................... 1,852 1,852 1,852
Prepaid expenses and other current assets... 33 33 33
------- -------- --------
Total current assets................ 12,424 3,487 3,487
Oil and gas properties, using the successful
efforts method of accounting:
Proved properties........................ 46,926 161,000(a) 207,926 207,926
Unproved properties...................... 499 499 499
Accumulated depletion, depreciation and
amortization............................. (1,894) (1,894) (1,894)
------- -------- --------
45,531 206,531 206,531
Other property and equipment, net........... 155 155 155
Other assets, net........................... 580 500(a) 1,080 1,080
------- -------- --------
$58,690 $ 211,253 $ 211,253
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable...................... $ 2,493 $ 2,493 $ 2,493
Accrued interest............................ 46 46 46
Other current liabilities................... 214 214 214
------- -------- --------
Total current liabilities........... 2,753 2,753 2,753
Long-term debt.............................. 20,000 (8,937)(b) 172,563 (139,800)(d) 32,763
161,500(a)
Other liabilities........................... 819 819 819
Deferred income taxes....................... 1,900 1,900 1,900
------- -------- --------
Total liabilities................... 25,472 178,035 38,235
Stockholders' equity........................ 33,218 33,218 139,800(c) 173,018
------- -------- --------
$58,690 $ 211,253 $ 211,253
======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F1-2
<PAGE> 63
TITAN EXPLORATION, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION)
THROUGH
DECEMBER 31, 1995 PRO FORMA
------------------- 1995 1996 PRO FORMA OFFERING PRO FORMA
TITAN ACQUISITION ACQUISITION ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 985 $10,829 $46,148 $57,962 $57,962
------ ------- ------- ------- -------
Expenses:
Oil and gas
production......... 304 4,619 18,483 23,406 23,406
General and
administrative..... 1,546 -- -- 3,079(f) 4,625 4,625
Amortization of stock
option awards...... 868 -- -- 3,526(e) 4,394 4,394
Exploration and
abandonments....... 490 -- -- 490 490
Depreciation,
depletion and
amortization....... 299 -- -- 19,529(g) 19,828 19,828
Interest.............. 97 -- -- 11,876(h) 11,973 (9,353)(j) 2,620
Other................. (796) -- -- 699(i) (97) (97)
------ ------- ------- ------- -------
2,808 4,619 18,483 64,619 55,266
------ ------- ------- ------- -------
Net income (loss) before
federal income
taxes................. (1,823) 6,210 27,665 (6,657) 2,696
Provision for federal
income taxes.......... -- -- -- -- 944(k) 944
------ ------- ------- ------- -------
Net income (loss)....... $(1,823) $ 6,210 $27,665 $(6,657) $ 1,752
====== ======= ======= ======= =======
Net income (loss) per
share................. $ (.13) $ (.45) $
====== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F1-3
<PAGE> 64
TITAN EXPLORATION, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- UNAUDITED
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
1996 PRO FORMA
---------- 1996 PRO FORMA OFFERING PRO FORMA
TITAN ACQUISITION ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................. $6,789 $25,031 $31,820 $31,820
------ ------- ------- -------
Expenses:
Oil and gas production.................. 2,992 9,117 12,109 12,109
General and administrative.............. 958 -- 1,355(f) 2,313 2,313
Amortization of stock option awards..... 578 1,619(e) 2,197 2,197
Exploration and abandonments............ 81 -- 81 81
Depletion, depreciation and
amortization......................... 1,760 -- 7,272(g) 9,032 9,032
Interest................................ 711 -- 5,215(h) 5,926 (4,627)(j) 1,299
Other................................... (246) -- 243(i) (3) (3)
------ ------- ------- -------
6,834 9,117 31,655 27,028
------ ------- ------- -------
Net income (loss) before federal income
taxes................................... (45) 15,914 165 4,792
Provision for federal income
taxes................................... -- -- 58(k) 58 1,620(k) 1,678
------ ------- ------- -------
Net income (loss)......................... $ (45) $15,914 $ 107 $ 3,114
====== ======= ======= =======
Net income (loss) per share............... $ -- $ -- $
====== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
F1-4
<PAGE> 65
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Pro Forma Condensed Financial Statements of the Company have been
prepared to give effect to the 1995 Acquisition and the 1996 Acquisition, the
Corporate Reorganization and the Offering and the application of estimated net
proceeds therefrom as if such transactions had taken place on June 30, 1996 for
purposes of the Pro Forma Condensed Balance Sheet (with the exception of the
1995 Acquisition which was previously reflected in the balance sheet of Titan
Exploration, Inc.), and as if each of the transactions had taken place on
January 1, 1995 for purposes of the Pro Forma Condensed Statements of
Operations. The 1995 Acquisition and 1996 Acquisition are accounted for by the
purchase method.
Titan -- Represents the consolidated balance sheet of Titan
Exploration, Inc. as of June 30, 1996 and the related consolidated
statements of operations for the period March 31, 1995 (date of inception)
through December 31, 1995 and the six months ended June 30, 1996.
1995 Acquisition -- Represents the revenues and direct operating
expenses of the properties acquired in the 1995 Acquisition for the period
from January 1, 1995 to December 11, 1995 (date of the 1995 Acquisition).
1996 Acquisition -- Represents the revenues and direct operating
expenses of the properties acquired in the 1996 Acquisition for the year
ended December 31, 1995 and the six months ended June 30, 1996. The 1996
Acquisition is scheduled to take place on November 1, 1996.
(2) PRO FORMA ENTRIES
(a) To record the issuance of additional long-term debt under the Credit
Agreement, to record the related debt issuance costs, and to record the use of
the net proceeds for the 1996 Acquisition.
(b) To reflect the use of cash to partially repay borrowings under the
Credit Agreement.
(c) To reflect the issuance of shares of Common Stock at an
estimated price of $ per share for estimated proceeds of $139,800,000, net of
estimated expenses of the Offering.
(d) To record the use of the net proceeds of the Offering to partially
repay borrowings under the Credit Agreement.
(e) To record estimated amortization of deferred compensation for the
revised employee stock option plan as measured on September 30, 1996 over a 30
month period.
(f) Estimated incremental general and administrative expenses necessary to
administer the properties acquired in the 1995 and 1996 acquisitions, and
increased public reporting and administration costs, which include salary and
benefits for one executive level employee and approximately 20 additional
administrative personnel, directors' fees, insurance coverage, and estimated
costs to administer shareholder communications.
(g) To record estimated incremental depletion expense for the properties
acquired in the 1995 Acquisition from January 1, 1995 through December 11, 1995
(date of the 1995 Acquisition) and for the properties acquired in the 1996
Acquisition from January 1, 1995 through June 30, 1996.
(h) To adjust interest expense to reflect additional borrowings for the
properties acquired in the 1995 Acquisition from January 1, 1995 to December 11,
1995 (date of the 1995 Acquisition) and for the properties acquired in the 1996
Acquisition from January 1, 1995 through June 30, 1996. Also included is the
amortization of estimated debt issuance costs of $500,000 over a three-year
period.
F1-5
<PAGE> 66
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(2) PRO FORMA ENTRIES (CONTINUED)
Incremental interest expense includes the following components:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Additional interest on borrowings associated with the
1995 Acquisition for the period January 1, 1995
through December 11, 1995 (average rate 6.82%)...... $ 1,289 $ --
Additional interest on borrowings for the 1996
Acquisition (average rate of 6.82% in 1995 and 6.75%
in 1996)............................................ 10,981 5,434
Amortization of loan fees............................. 125 63
Effect of utilizing cash balances to partially repay
debt and other...................................... (519) (282)
-------- ------
$ 11,876 $5,215
======== ======
</TABLE>
(i) Eliminate interest income due to pro forma utilization of cash balances
to partially repay borrowings under the Credit Agreement.
(j) To adjust interest expense to reflect the partial repayment of
borrowings under the Credit Agreement with net proceeds of the Offering of
approximately $139,800,000 at average rates described in (h) above.
(k) To record income tax expense.
(3) INCOME TAXES
The Company accounts for income taxes pursuant to the provisions of SFAS
109. At June 30, 1996, the pro forma book basis of the Company's assets and
liabilities exceeded the pro forma tax basis by approximately $5,586,000, giving
rise to an estimated deferred tax liability of approximately $1,900,000. The
temporary differences are primarily related to the differences in book and tax
basis of oil and gas properties due to the expensing of intangible development
costs for tax purposes and other income tax differences arising from the tax
treatment of oil and gas producing activities.
(4) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated based on the pro forma weighted
average shares outstanding during the respective periods. Weighted average
shares reflect the pro forma issuance of 5,134,791 shares of Common Stock on
December 11, 1995 and the pro forma issuance of 14,415,222 shares of Common
Stock to the remaining holders prior to January 1, 1995. In addition, the
issuance of shares in the Offering is assumed to have taken place on
January 1, 1995 and assumes that the underwriters' overallotment option is not
exercised.
Outstanding options to acquire 3,631,350 shares at $2.08 per share are
treated as Common Stock equivalents for each period shown if dilutive. The
number of equivalent shares was determined by the treasury stock method based on
the estimated Offering price of $ per share.
F1-6
<PAGE> 67
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(5) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The estimates of proved oil and gas reserves, which are located in the
United States, were prepared by the Company as of December 31, 1993, 1994 and
1995. Reserves were estimated in accordance with guidelines established by the
Securities and Exchange Commission and FASB which require that reserve estimates
be prepared under existing economic and operating conditions with no provision
for price and cost escalations except by contractual arrangements. The Company
has presented the pro forma reserve estimates utilizing an oil price of $19.06
per Bbl and a gas price of $1.62 per Mcf as of June 30, 1996. The pro forma
information assumes that both the 1995 Acquisition and the 1996 Acquisition took
place on January 1, 1995.
Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as additional information becomes available in the future.
<TABLE>
<CAPTION>
OIL AND NATURAL
CONDENSATE (MBBLS) GAS (MMCF)
------------------ ----------
<S> <C> <C>
Total Proved Reserves:
Balance, January 1, 1995............................... 24,170 230,037
Revision of previous estimates....................... 1,940 (540)
Extensions and discoveries........................... 108 33,724
Production........................................... (2,398) (18,157)
------ -------
Balance, December 31, 1995............................. 23,820 245,064
Revision of previous estimates....................... 1,045 2,830
Production........................................... (1,128) (7,959)
------ -------
Balance, June 30, 1996................................. 23,737 239,935
====== =======
Proved Developed Reserves at June 30, 1996............. 20,741 142,435
====== =======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and Gas
Reserves
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on period-end costs) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses (based on period-end
statutory tax rates, with consideration of future tax rates already legislated)
to be incurred on pretax net cash flows less tax basis of the properties and
available credits, and assuming continuation of existing economic conditions.
The estimated future net cash flows are then discounted using a rate of 10% per
year to reflect the estimated timing of the future cash flows.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks
F1-7
<PAGE> 68
TITAN EXPLORATION, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(5) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Future:
Cash inflows.............................................. $ 854,219 $ 839,113
Production and development costs.......................... (361,283) (366,265)
-------- --------
Net cash flows......................................... 492,936 472,848
Future income taxes......................................... (98,785) (90,728)
-------- --------
Future net cash flows.................................. 394,151 382,120
10% annual discount for estimated timing of cash flows...... (178,681) (170,541)
-------- --------
Standardized measure of discounted net cash flows........... $ 215,470 $ 211,579
======== ========
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Reserves
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Standardized measure, beginning of period................... $196,842 $215,470
Extensions and discoveries and improved recovery, net of
future production and development costs................ 18,087 --
Accretion of discount..................................... 19,684 13,464
Net change in sales prices, net of production costs....... 22,420 (7,637)
Net change in income taxes................................ (10,064) 3,572
Revision of quantity estimates............................ 8,153 6,444
Sales, net of production costs............................ (34,556) (19,577)
Other..................................................... (5,096) (157)
-------- --------
Standardized measure, end of period......................... $215,470 $211,579
======== ========
</TABLE>
F1-8
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Titan Exploration, Inc.
We have audited the accompanying consolidated balance sheet of Titan
Exploration, Inc. and subsidiaries (the Company) as of December 31, 1995, and
the related consolidated statement of operations, stockholders' equity, and cash
flows for the period from March 31, 1995 (date of inception) through December
31, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Titan Exploration, Inc. and subsidiaries as of December 31, 1995, and the
results of its operations and its cash flows for the period from March 31, 1995
(date of inception) through December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Midland, Texas
March 21, 1996,
except as to Note 1,
which is as of
September 30, 1996.
F2-1
<PAGE> 70
TITAN EXPLORATION, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 6,213 $ 8,937
Short-term investment -- certificate of deposit................... 5,000 --
Accounts receivable:
Oil and gas.................................................... 996 1,602
Other.......................................................... 1,554 1,852
Prepaid expenses and other current assets......................... 80 33
------- -------
Total current assets...................................... 13,843 12,424
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of
accounting:
Proved properties.............................................. 42,895 46,926
Unproved properties............................................ 190 499
Accumulated depletion, depreciation and amortization.............. (216) (1,894)
------- -------
42,869 45,531
Other property and equipment, net................................. 129 155
------- -------
42,998 45,686
Other assets, net of accumulated amortization of $78 in 1995 and $66
in 1996........................................................... 646 580
------- -------
$ 57,487 $58,690
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade.......................................................... $ 1,766 $ 2,493
Accrued interest............................................... 97 46
Other.......................................................... 75 214
------- -------
Total current liabilities................................. 1,938 2,753
Long-term debt...................................................... 20,000 20,000
Other liabilities................................................... 964 819
Deferred income tax payable......................................... 511 1,900
Stockholders' equity:
Preferred Stock, $.01 par value: 10,000 shares authorized, no
shares issued.................................................. -- --
Common Stock, $.01 par value, 60,000 shares authorized, 18,828
shares issued and outstanding.................................. 188 188
Additional paid-in capital........................................ 37,647 36,213
Deferred compensation............................................. (3,761) (3,183)
------- -------
Total stockholders' equity................................ 34,074 33,218
------- -------
$ 57,487 $58,690
======= =======
</TABLE>
These consolidated financial statements reflect the reorganization described in
Note 1.
See accompanying notes to consolidated financial statements.
F2-2
<PAGE> 71
TITAN EXPLORATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD PERIOD
MARCH 31, 1995 MARCH 31, 1995
(DATE OF INCEPTION) (DATE OF INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------------- ------------------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Oil and gas sales............................... $ 743 $ -- $6,654
Management fees -- affiliate.................... 242 80 135
------- ----- ------
Total revenues.......................... 985 80 6,789
Expenses:
Oil and gas production.......................... 304 -- 2,992
General and administrative...................... 1,546 327 958
Amortization of stock option awards............. 868 -- 578
Exploration and abandonment..................... 490 -- 81
Depletion, depreciation and amortization........ 299 26 1,760
------- ----- ------
Total expenses.......................... 3,507 353 6,369
------- ----- ------
Operating income (loss)................. (2,522) (273) 420
Other income (expense):
Interest income................................. 699 221 246
Interest expense................................ (97) -- (711)
Gain on sale of assets.......................... 244 -- --
Loss on commodity derivative contracts.......... (147) -- --
------- ----- ------
Net loss..................................... $(1,823) $ (52) $ (45)
======= ===== ======
Net loss per share........................... $ (.13) $ -- $ --
======= ===== ======
</TABLE>
These consolidated financial statements reflect the reorganization described in
Note 1.
See accompanying notes to consolidated financial statements.
F2-3
<PAGE> 72
TITAN EXPLORATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN DEFERRED STOCKHOLDERS'
STOCK CAPITAL COMPENSATION EQUITY
------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at March 31, 1995..................... $ -- $ -- $ -- $ --
Capital contributions....................... -- 35,540 -- 35,540
Common stock issued......................... 188 (188) -- --
Deferred income taxes....................... -- (511) -- (511)
Deferred compensation....................... -- 4,629 (3,761) 868
Net loss.................................... -- (1,823) -- (1,823)
---- ------- ------- -------
Balance at December 31, 1995.................. 188 37,647 (3,761) 34,074
Deferred income taxes (unaudited)........... -- (1,389) -- (1,389)
Deferred compensation (unaudited)........... -- -- 578 578
Net loss (unaudited).......................... -- (45) -- (45)
---- ------- ------- -------
Balance at June 30, 1996 (unaudited).......... $188 $ 36,213 $ (3,183) $ 33,218
==== ======= ======= =======
</TABLE>
These consolidated financial statements reflect the reorganization described in
Note 1.
See accompanying notes to consolidated financial statements.
F2-4
<PAGE> 73
TITAN EXPLORATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD PERIOD
MARCH 31, 1995 MARCH 31, 1995
(DATE OF INCEPTION) (DATE OF INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------------- ------------------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (1,823) $ (52) $ (45)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depletion, depreciation and amortization....... 299 26 1,760
Dry holes and abandonments..................... 434 -- 19
Gain on sale of assets......................... (244) -- --
Amortization of stock option awards............ 868 -- 578
Changes in assets and liabilities:
Increase in accounts receivable................ (2,153) (35) (904)
(Increase) decrease in prepaid expenses and
other current assets......................... (80) (234) 47
Increase in other assets....................... (724) (506) --
Increase in accounts payable and accrued
liabilities.................................. 1,659 85 594
-------- ------- -------
Total adjustments......................... 59 (664) 2,094
-------- ------- -------
Net cash provided by (used in) operating
activities.............................. (1,764) (716) 2,049
-------- ------- -------
Cash flows from investing activities:
Purchase of short-term investment................. (5,000) (5,000) --
Redemption of short-term investment............... -- -- 5,000
Additions to oil and gas properties............... (43,677) (1,011) (4,284)
Additions to other property and equipment......... (134) (219) (41)
Proceeds from sale of nonproducing oil and gas
properties, net of commissions paid............ 1,248 -- --
-------- ------- -------
Net cash provided by (used in) investing
activities.............................. (47,563) (6,230) 675
-------- ------- -------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt...... 28,000 -- --
Payments of long-term debt........................ (8,000) -- --
Capital contributions............................. 35,540 20,540 --
-------- ------- -------
Net cash provided by financing
activities.............................. 55,540 20,540 --
-------- ------- -------
Net increase in cash and cash
equivalents............................. 6,213 13,594 2,724
Cash and cash equivalents, beginning of period...... -- -- 6,213
-------- ------- -------
Cash and cash equivalents, end of period............ $ 6,213 $13,594 $ 8,937
======== ======= =======
</TABLE>
These consolidated financial statements reflect the reorganization described in
Note 1.
See accompanying notes to consolidated financial statements.
F2-5
<PAGE> 74
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(1) ORGANIZATION AND NATURE OF OPERATIONS
Titan Exploration, Inc. (the "Company"), a Delaware corporation, was
organized on September 27, 1996 and began operations on September 30, 1996 with
the combination, pursuant to the terms of an Exchange Agreement and Plan of
Reorganization (the "Exchange Agreement"), of Titan Resources I, Inc. (the
"General Partner"), a Texas corporation, and Titan Resources, L.P. (the
"Partnership"). Under the exchange agreement, the limited partners of the
Partnership transferred all of their limited partnership interests to the
Company in exchange for 19,318,199 shares of common stock, and the General
Partner transferred all of the issued and outstanding stock of that corporation
to the Company in exchange for an aggregate of 231,814 shares of common stock.
These transactions are referred to as the "Conversion."
The Partnership and the General Partner were under common control due to
the General Partner's sole general partnership interest and control over the
Partnership and due to the commonality of ownership between the General Partner
and the Partnership. Consequently, the accompanying consolidated financial
statements have given effect to the Conversion as if it were a pooling of
interests. Revenues and costs arising from transactions between the two
predecessor entities (the General Partner and the Partnership) have been
eliminated. The following table sets forth revenues and net income with respect
to the two predecessor entities (in thousands):
<TABLE>
<CAPTION>
PERIOD PERIOD
MARCH 31, 1995 MARCH 31, 1995
(DATE OF INCEPTION) (DATE OF INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996
------------------- ------------------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
General Partner........................ $ 680 $ 227 $ --
Partnership............................ 985 80 6,789
Intercompany eliminations.............. (680) (227) --
-------- -------- ------- -
$ 985 $ 80 $6,789
======== ======== ========
Net income (loss):
General Partner........................ $ (9) $ -- $ (5)
Partnership............................ (1,814) (52) (39)
Intercompany eliminations -- -- --
-------- -------- ------- -
$(1,823) $ (52) $ (45)
======== ======== ========
</TABLE>
The Company is an independent energy company engaged in the exploration,
development and acquisition of oil and gas properties. Since its inception in
March 1995, the Company has experienced significant growth, primarily through
the acquisition of oil and gas properties and the exploitation of these
properties in the Permian Basin region of west Texas and southeastern New
Mexico.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, each of which is wholly owned, since their formation (See
Note 1). All material intercompany accounts and transactions have been
eliminated in the consolidation.
F2-6
<PAGE> 75
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
Preparation of the accompanying consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
demand deposits, money market accounts and certificates of deposit purchased
with an original maturity of three months or less to be cash equivalents.
Oil and Gas Properties
The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Under this method of accounting, all costs associated
with productive wells and nonproductive development wells are capitalized while
nonproductive exploration costs are expensed.
Costs of significant nonproducing properties, wells in the process of being
drilled and development projects are excluded from depletion until such time as
the related project is developed and proved reserves are established or
impairment is determined. The Company capitalizes interest on expenditures for
significant development projects until such time as significant operations
commence.
Capitalized costs of individual properties abandoned or retired are charged
to accumulated depletion, depreciation and amortization. Sales proceeds from
sales of individual properties are credited to property costs. No gain or loss
is recognized until the entire amortization base is sold or abandoned.
Other property and equipment are recorded at cost. Major renewals and
betterments are capitalized while the costs of repairs and maintenance are
charged to operating expenses in the period incurred. With respect to
dispositions of assets other than oil and gas properties, the cost of assets
retired or otherwise disposed of, and the applicable accumulated depreciation
are removed from the accounts, and the resulting gains or losses, if any, are
reflected in operations.
Depletion, Depreciation and Amortization
Provision for depletion of oil and gas properties is calculated using the
unit-of-production method on the basis of an aggregation of properties with a
common geologic structural feature or stratigraphic condition, typically a field
or reservoir. Other property and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets. Organization
costs are amortized over five years, while loan costs are amortized over the
life of the related loan.
Impairment of Long-Lived Assets
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 -- Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("FAS 121"). Consequently, the Company
reviews its long-lived assets to be held and used, including oil and gas
properties accounted for under the successful efforts method of accounting,
whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. An impairment loss is indicated if the sum of the
expected future cash flows is less than the carrying amount of the assets. No
F2-7
<PAGE> 76
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impairment was determined to exist during the period March 31, 1995 (date of
inception) through December 31, 1995 or during the six months ended June 30,
1996.
The Company accounts for long-lived assets to be disposed of at the lower
of their carrying amount or fair value less cost to sell once management has
committed to a plan to dispose of the assets.
Net Loss per Share
Net loss per share is calculated based on the weighted average number of
shares and share equivalents, if dilutive, outstanding during the period.
Income Taxes
The Company follows the provisions of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under the asset and liability
method of FAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under FAS
109, the effect on deferred tax assets and liabilities of a change in tax rate
is recognized in income in the period that includes the enactment date.
Prior to the Conversion described in Note 1, substantially all of the
Company's operations were carried on by the Partnership. Consequently, income
taxes, if any, would have been payable by the partners rather than the Company.
The Company has, however, recorded the tax effect of the differences between the
book and tax basis of it assets and liabilities as a deferred tax liability and
a corresponding charge to additional paid-in capital. At December 31, 1995 and
June 30, 1996 the excess of book basis over tax basis of assets and liabilities
is $1,504,000 and $5,584,000, respectively.
Environmental
The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental expenditures
are expensed or capitalized depending on their future economic benefit.
Expenditures that relate to an existing condition caused by past operations and
that have no future economic benefits are expensed. Liabilities for expenditures
of a noncapital nature are recorded when environmental assessment and/or
remediation is probable, and the costs can be reasonably estimated.
Revenue Recognition
The Company uses the sales method of accounting for crude oil revenues.
Under this method, revenues are recognized based on actual volumes of oil sold
to purchasers.
The Company uses the entitlements method of accounting for natural gas
revenues. Under this method, revenues are recognized based on actual production
of natural gas. Natural gas revenues would not have been significantly altered
in any period had the sales method of recognizing natural gas revenues been
utilized.
F2-8
<PAGE> 77
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Commodity Hedging
The Company periodically enters into commodity derivative contracts (swaps)
in order to hedge the effect of price changes on commodities the Company
produces and sells. Gains and losses on contracts that are designed to hedge
commodities are included in income recognized from the sale of those
commodities. Gains and losses on derivative contracts which do not qualify as
hedges are recognized in each period based on the market value of the related
instrument.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements to effectively
convert a portion of its floating-rate borrowings into fixed rate obligations.
The interest rate differential to be received or paid is recognized over the
lives of the agreements as an adjustment to interest expense.
Interim Consolidated Financial Statements
The interim consolidated financial information as of June 30, 1996 and for
the periods ended June 30, 1995 and 1996, is unaudited. However, in the opinion
of management, these interim consolidated financial statements include all the
necessary adjustments to fairly present the results of the interim periods, and
all such adjustments are of a normal recurring nature. The interim consolidated
financial statements should be read in conjunction with the audited financial
statements for the period March 31, 1995 (date of inception) through December
31, 1995.
(3) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, short-term investments, accounts receivable,
accounts payable, and accrued liabilities approximates fair value because of the
short maturity of these instruments.
The carrying amount of long-term debt approximates fair value because the
Company's current borrowing rate does not materially differ from market rates
for similar bank borrowings.
The fair market values of commodity derivative instruments are estimated
based upon the current market price of the respective commodities at the date of
valuation. It represents the amount which the Company would be required to pay
or able to receive based upon the differential between a fixed and a variable
commodity price as specified in the hedge contracts.
The fair values of interest rate swap agreements are obtained from bank
quotes. This value represents the estimated amount the Company would pay to
terminate the agreement, taking into consideration current interest rates. The
Company estimates that, at December 31, 1995, the Company would be required to
pay approximately $17,000 to terminate the existing interest rate swap
agreement. At June 30, 1996, Titan would be entitled to receive approximately
$9,000.
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 (in
thousands):
<TABLE>
<S> <C>
Note payable to bank secured by substantially all of the Company's
oil and gas properties, due in twenty quarterly payments
commencing January 1, 1998....................................... $20,000
=======
</TABLE>
On December 11, 1995, the Company entered into a credit agreement with
Texas Commerce Bank. The note provides for a two-year revolving line of credit
of $100,000,000 with an initial borrowing base of
F2-9
<PAGE> 78
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(4) LONG-TERM DEBT (CONTINUED)
$35,000,000. The note converts to a five-year term loan requiring twenty
quarterly principal payments beginning January 1, 1998. The borrowing base is
subject to redetermination every six months with the next redetermination date
being September 1, 1996. The note is secured by substantially all of the
Company's oil and gas properties. Commitment fees are due quarterly and range
from .300% to .375% per annum on the difference between the borrowing base
amount and the average daily amount outstanding.
The unpaid principal balance on the note bears interest at the Company's
option based on (i) the higher of (a) the prime rate of Texas Commerce Bank, or
(b) one-half of one percent plus the Federal Funds rate, or (ii) a Eurodollar
rate (based upon a floating rate for a designated maturity of ninety days
adjusted for a Eurodollar margin percentage as defined in the credit agreement).
The interest rate in effect at December 31, 1995 was the Eurodollar rate of
7.0625%. The interest rate in effect at June 30, 1996 was 6.78125%.
The credit agreement contains various restrictive covenants and compliance
requirements, which include (1) limiting the incurrence of additional
indebtedness, (2) limiting any mergers or consolidations with any party not
owned or controlled more than 50% by certain limited partners, on a consolidated
basis, and (3) prohibition of any return of capital payments or distributions to
any of its partners other than for taxes due as a result of their partnership
interest.
The Company is a party to an interest rate swap agreement entered into on
December 21, 1995. The effect of this agreement is to provide the Company with a
fixed interest rate of 6.72% on $10,000,000 of its revolving line of credit
through December 23, 1996.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1996...................................................... $ --
1997...................................................... --
1998...................................................... 4,000
1999...................................................... 4,000
2000...................................................... 4,000
Thereafter................................................ 8,000
</TABLE>
On July 15, 1996, the Company borrowed an additional $8 million under its
line of credit in order to fund the required escrow payment on a potential
acquisition of certain oil and gas properties. (See Note 12).
(5) ACQUISITION OF OIL AND GAS PROPERTIES
On December 11, 1995, the Company completed the acquisition of certain oil
and gas properties from a large independent oil and gas company (the "1995
Acquisition"). The Company funded the acquisition from the bank credit agreement
described in Note 4. The total consideration paid for the properties was
$39,881,094. The acquisition of these oil and gas properties, accounted for
using the purchase method, resulted in the following noncash investing
activities:
<TABLE>
<S> <C>
Recorded amount of assets acquired, including receivables of
$396,719...................................................... $40,992,065
Liabilities assumed............................................. (1,110,971)
-----------
Cash paid....................................................... $39,881,094
===========
</TABLE>
Included in liabilities assumed is a $963,898 long-term liability recorded
as a purchase price adjustment related to the 1995 Acquisition for a gas
imbalance liability.
F2-10
<PAGE> 79
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(5) ACQUISITION OF OIL AND GAS PROPERTIES (CONTINUED)
Pro Forma Results of Operations (Unaudited)
The following table reflects the pro forma results of operations for the
year ended December 31, 1995 as though the 1995 Acquisition had occurred as of
January 1, 1995 and as if the Conversion had taken place on January 1, 1995. The
pro forma amounts are not necessarily indicative of the results that may be
reported in the future (in thousands).
<TABLE>
<S> <C>
Revenues........................................................... $11,814
Net loss........................................................... (2,736)
Net loss per share................................................. (0.19)
</TABLE>
(6) STATEMENTS OF CASH FLOWS
No interest was paid in 1995. Interest expense of $762,825 was paid as of
June 30, 1996.
At December 31, 1995 and June 30, 1996, there were $131,993 and $74,918,
respectively, of property additions accrued in accounts payable.
(7) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate and commodity price risks. The Company is exposed to
credit losses in the event of nonperformance by the counterparties to its
interest rate swap agreements and its commodity hedges. The Company anticipates,
however, that such counterparties will be able to fully satisfy their
obligations under the contracts. The Company does not obtain collateral or other
security to support financial instruments subject to credit risk but monitors
the credit standing of the counterparties.
Commodity Hedges
The Company utilizes various swap contracts to hedge the effect of price
changes on future oil and gas production. The following table sets forth the
future volumes hedged by year and the weighted average price to be received
based upon the fixed price of the individual swap contracts at December 31,
1995:
<TABLE>
<CAPTION>
GAS OIL
VOLUME VOLUME PRICE PER
YEAR (MMBTUS) (BBLS) MMBTU/BBL
------------------------------------------------ --------- ------- ---------
<S> <C> <C> <C>
Gas production:
1996.......................................... 2,640,000 -- $ 1.70
Oil production:
1996.......................................... -- 300,000 $ 17.18
</TABLE>
Under two separate natural gas swap agreements with a limited partner and
an affiliate of a limited partner, the Company receives the fixed price set
forth above. The Company pays a floating price determined as the NYMEX price,
reduced by 53% of the difference between the NYMEX price and the fixed price
received.
The Company relies upon the correlation that generally exists between the
NYMEX gas futures price and the cash prices realizable to effectively hedge its
production. However, with the lack of recent correlation between the NYMEX gas
futures price and the cash prices realizable in gas markets outside the
Northeastern
F2-11
<PAGE> 80
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(7) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
United States, the Company recognized in December 1995 an approximate $147,000
loss related to an uncorrelated position for early 1996 gas production.
In April 1996, the Company entered into a natural gas swap agreement that
hedges a portion of the basis differential between the NYMEX price paid under
the contracts described above and actual cash prices received at local delivery
points. Under this contract covering 1,760,000 MMBtus of natural gas, the
Company pays a price equal to a Permian Basin index price and receives a price
based on the NYMEX price minus $0.35 per MMBtu.
Interest Rate Swap Agreements
These instruments are used to reduce the potential impact of increases in
interest rates on floating-rate long-term debt. At December 31, 1995 and June
30, 1996, the Company was a party to one interest rate swap agreement. (See Note
4).
(8) RELATED PARTY TRANSACTIONS
During 1995, the Company received $241,563 for administrative services from
a related party. For the six months ended June 30, 1996, revenue received was
$135,411.
Financial advisory service fees of $428,958 were paid to two shareholders
and two affiliates of shareholders during 1995. For the six months ended June
30, 1996, $97,500 of advisory service fees were paid to two shareholders.
Director's fees of $20,833 and $5,000 were paid during 1995 and for the six
months ended June 30, 1996, respectively.
The Company has recorded in other assets approximately $425,000 of
organization costs which were paid to related parties for consulting and
advisory fees. These costs are being amortized over a period of five years.
The Company has entered into natural gas swap agreements with certain
related parties. (See Note 7).
Certain properties that were owned or controlled by certain shareholders
were acquired by the Company for $1,142,000, which approximates the predecessor
cost of the properties.
The Company entered into a three-year noncancellable operating lease with
an entity controlled by an officer of the General Partner for office facilities
on January 1, 1996.
Future minimum lease commitments under the lease at December 31, 1995 are
as follows:
<TABLE>
<S> <C>
1996...................................................... $110,625
1997...................................................... 110,625
1998...................................................... 110,625
</TABLE>
Lease expense paid through June 30, 1996 was $55,313.
The Company is a party to two financial advisory service contracts with a
shareholder and an affiliate of a shareholder. These contracts require
consolidated annual payments of $185,000 per year to be paid by the Company
until any one of the following events occur:
(i) the date of dissolution of the Company;
(ii) the first date on which the respective shareholder no longer owns
at least 35% of the outstanding shares of common stock of the Company;
F2-12
<PAGE> 81
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(8) RELATED PARTY TRANSACTIONS (CONTINUED)
(iii) the first date on which the Company or its successors complete
an equity offering to the public, or
(iv) written notice by the respective party of their election to
terminate the contracts with the Company.
The Company regularly uses certain aircraft owned by an affiliate. The
Company is billed for any use of such aircraft by Company personnel. Payments
made for the use of such aircraft were $4,140 for the period March 31, 1995
(date of inception) through December 31, 1995 and $9,022 for the six months
ended June 30, 1996.
The President, Chief Executive Officer and Chairman of the Board of the
Company, and certain of his affiliates have a common ownership interest in an
oil and gas property that is operated by the Company and, in accordance with a
standard industry operating agreement, make payments to the Company of leasehold
costs and lease operating and supervision charges. These payments were
approximately $12,000 for the period March 31, 1995 (date of inception) through
December 31, 1995 and $250,000 for the six months ended June 30, 1996.
(9) COMPANY OPTION PLANS
During 1995, the Titan Resources, L.P. established a unit option plan (the
"Plan") for certain officers and key employees of the Partnership and the
General Partner. The Plan provided for the issuance of 5,460,000 options in four
separate series with an initial exercise price of $1 which was to be increased
10% per annum from the initial plan adoption date of March 31, 1995. Option A
series, covering 3,624,706 units, was to vest at a rate of one-third of the
options at each of the dates of March 31, 1996, 1997 and 1998. Option B, C, and
D series were to vest on the dates that the Board determines that the current
value of partnership units had increased by a factor of 3,4, and 5, respectively
or on the date that such per unit amounts of cash or other assets have been or
are authorized to be distributed to the Partners. Option B, C, and D series
cover 582,282, 611,037, and 641,975 units, respectively. As of December 31,
1995, 5,093,616 unit options had been awarded and none were vested or exercised.
Based on the price of equity interests sold at December 11, 1995, the
Company recorded deferred compensation for the expected value of the options,
amortized over the period from March 31, 1995 through March 31, 1998.
On September 30, 1996, upon the consolidation of Titan Resources, L.P., the
Plan was replaced by a new stock option plan the ("Stock Plan"). The Stock Plan
provides for the issuance of 3,631,350 options to acquire common stock of the
Company, in four separate series with a fixed exercise price of $2.08. Option A
series, covering 2,410,728 shares of common stock, was to vest at a rate of
one-third of the options at each of the dates of March 31, 1996, 1997 and 1998.
Option B, C, and D series cover 387,265, 406,390, and 426,967 shares of common
stock, respectively and vest over a period through March 31, 1999. Deferred
compensation will be recorded based on the value of the Company's common stock
on September 30, 1996, and will be amortized to expense through March 31, 1999.
(10) 401(K) PLAN
The Company has established a qualified cash or deferred arrangement under
IRS code section 401(k) covering substantially all employees. Under the plan,
the employees have an option to make elective contributions of a portion of
their eligible compensation, not to exceed specified annual limitations, to the
plan and the Company has an option to match a portion of the employee's
contribution. The Company has made
F2-13
<PAGE> 82
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(10) 401(K) PLAN (CONTINUED)
matching contributions to the plan totaling $8,199 in 1995 and $10,917 for the
six months ended June 30, 1996.
(11) MAJOR CUSTOMERS
The following purchasers accounted for 10% or more of the Company's oil and
gas sales for the period March 31, 1995 (date of inception) through December 31,
1995 and the six months ended June 30, 1996.
<TABLE>
<CAPTION>
1995 1996
----- ------
<S> <C> <C>
Purchaser A................................................ -- 47.20%
Purchaser B................................................ -- 10.74%
</TABLE>
(12) SUBSEQUENT EVENTS
On July 12, 1996, the Company executed a Purchase and Sale Agreement with a
major integrated company (the "1996 Acquisition") to acquire certain oil and gas
properties for an estimated adjusted purchase price of approximately $170
million, subject to purchase price adjustments. The properties are located
primarily in west Texas and southeastern New Mexico. The transaction will be
accounted for using the purchase method.
In connection with the foregoing, the Company entered into a new credit
agreement (the "Credit Agreement") with Chase Securities, Inc., an affiliate of
the Company's current lender, which establishes a four year revolving credit
facility, up to the maximum amount of $250 million, subject to a borrowing base
to be determined semiannually by the lenders based on certain proved oil and gas
reserves and other assets of the Company. Proceeds of the credit facility will
be utilized to fund the 1996 Acquisition, development of oil and gas reserves,
and for general corporate requirements.
The initial borrowing base is $185 million with the next redetermination
date scheduled for April 1, 1997. The credit agreement, which is secured by the
Company's proved oil and gas reserves, is subject to mandatory prepayments. To
the extent that the borrowing base is less than the aggregate principal amount
of all outstanding loans and letters of credit under the Credit Agreement, such
deficiency must be cured by the Company within 30 days, by either prepaying a
portion of the outstanding amounts or pledging additional collateral.
At the Company's option, borrowings under the Credit Agreement bear
interest at either (i) the "Alternate Base Rate" (i.e. the higher of the agent's
prime commercial lending rate, or the federal funds rate plus 0.5% per annum),
or (ii) the Eurodollar rate plus a margin ranging from 1% to 1.50% per annum,
which margin increases as the level of the Company's aggregate outstanding
borrowings under the Credit Agreement increases.
The loan documents governing the Credit Agreement contain certain covenants
and restrictions that are customary in the oil and gas industry relating to the
Company's operations.
F2-14
<PAGE> 83
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(13) OIL AND GAS EXPENDITURES
The following table reflects costs incurred in oil and gas property
acquisition, exploration and development activities:
<TABLE>
<CAPTION>
PERIOD
MARCH 31, 1995
(DATE OF INCEPTION) SIX MONTHS
THROUGH ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Property acquisition costs:
Proved................................................ $40,873 $ 794
Unproved.............................................. 1,040 314
Exploration............................................. 448 78
Development............................................. 1,580 3,563
------- ------
$43,941 $ 4,749
======= ======
</TABLE>
(14) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The estimates of proved oil and gas reserves, which are located principally
in the United States, were prepared by the Company as of December 31, 1995 and
June 30, 1996. Reserves were estimated in accordance with guidelines established
by the SEC and FASB which require that reserve estimates be prepared under
existing economic and operating conditions with no provision for price and cost
escalations except by contractual arrangements. The Company has presented the
reserve estimates utilizing an oil price of $16.80 per Bbl and a gas price of
$.97 per Mcf as of December 31, 1995 and an oil price of $17.16 per Bbl and a
gas price of $1.33 per Mcf as of June 30, 1996.
Oil and Gas Producing Activities
Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these estimates are expected to
change as additional information becomes available in the future.
F2-15
<PAGE> 84
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(14) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
OIL AND
CONDENSATE NATURAL GAS
(MBBLS) (MMCF)
---------- -----------
<S> <C> <C>
Total Proved Reserves:
Balance, January 1, 1995............................................. -- --
Extensions and discoveries......................................... 108 33,724
Production......................................................... (30) (245)
Purchases of minerals-in-place..................................... 6,068 101,516
----- -------
Balance, December 31, 1995........................................... 6,146 134,995
Revision of previous estimates..................................... 391 1,716
Production......................................................... (256) (1,698)
----- -------
Balance, June 30, 1996............................................... 6,281 135,013
===== =======
Proved Developed Reserves:
January 1, 1995.................................................... -- --
December 31, 1995.................................................. 5,945 45,470
June 30, 1996...................................................... 6,072 45,588
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and Gas
Reserves
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on period-end costs) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses (based on period-end
statutory tax rates, with consideration of future tax rates already legislated)
to be incurred on pretax net cash flows less tax basis of the properties and
available credits, and assuming continuation of existing economic conditions.
The estimated future net cash flows are then discounted using a rate of 10% per
year to reflect the estimated timing of the future cash flows.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Future:
Cash inflows.............................................. $270,965 308,018
Production and development costs.......................... (95,490) (102,814)
-------- ---------
Net cash flows before income taxes................ 175,475 205,204
Future income taxes....................................... (55,714) (45,589)
-------- ---------
Net cash flows.................................... 119,761 159,615
10% annual discount for estimated timing of cash flows.... (58,503) (76,770)
-------- ---------
Standardized measure of discounted net cash flows......... $ 61,258 82,845
======== =========
</TABLE>
F2-16
<PAGE> 85
TITAN EXPLORATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THE INFORMATION AND AMOUNTS FOR INTERIM PERIODS ARE UNAUDITED)
(14) SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
Changes in Standardized Measure of Discounted Future Net Cash Flows From Proved
Reserves
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Standardized measure, beginning of period........................... $ -- $ 61,258
Extensions and discoveries and improved recovery, net of future
production and development costs............................... 18,087 --
Accretion of discount............................................. -- 4,488
Net change in sales prices, net of production costs............... -- 13,984
Net change in income taxes........................................ (28,495) 4,168
Change in estimated future development costs...................... -- 847
Purchase of minerals-in-place..................................... 71,561 --
Revision of quantity estimates.................................... -- 2,612
Sales, net of production costs.................................... (439) (3,662)
Other............................................................. 544 (850)
-------- -------
Standardized measure, end of period................................. $ 61,258 $ 82,845
======== =======
</TABLE>
F2-17
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Titan Exploration, Inc.:
We have audited the accompanying statements of revenues and direct
operating expenses of the oil and gas properties acquired (1995 Acquisition) by
Titan Exploration, Inc. for the years ended December 31, 1993 and 1994 and the
period ended December 11, 1995. These statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 statements of revenues and direct
operating expenses 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 statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The accompanying statements of revenues and direct operating expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in Form S-1 of Titan
Exploration, Inc. as described in Note 1) and are not intended to be a complete
presentation of the 1995 Acquisition revenues and expenses.
In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the 1995 Acquisition for the years ended December
31, 1993 and 1994 and the period ended December 11, 1995 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
September 23, 1996
F3-1
<PAGE> 87
TITAN EXPLORATION, INC.
1995 ACQUISITION
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 11,
------------------ ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Revenues:
Oil and condensate......................................... $ 8,847 $ 7,590 $ 7,130
Natural gas................................................ 6,441 5,229 3,699
------- ------- -------
15,288 12,819 10,829
Direct operating expenses:
Lease operating............................................ 3,277 3,436 3,515
Production taxes........................................... 1,223 1,271 1,104
------- ------- -------
4,500 4,707 4,619
------- ------- -------
Revenues in excess of direct operating expenses.............. $10,788 $ 8,112 $ 6,210
======= ======= =======
</TABLE>
See accompanying notes to statements of revenues and direct operating expenses.
F3-2
<PAGE> 88
TITAN EXPLORATION, INC.
1995 ACQUISITION
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(1) BASIS OF PRESENTATION
On December 11, 1995, Titan Exploration, Inc. (the "Company") acquired from
a large independent oil and gas company certain oil and gas properties (the
"1995 Acquisition") for $39,881,094. The accompanying statements of revenues and
direct operating expenses for the 1995 Acquisition do not include general and
administrative expenses, interest income or expense, a provision for
depreciation, depletion and amortization, or any provision for income taxes
since historical expenses of this nature incurred by Anadarko are not
necessarily indicative of the costs to be incurred by the Company.
Historical financial information reflecting financial position, results of
operations, and cash flows of the 1995 Acquisition, are not presented because
the purchase price was assigned to the oil and gas property interests acquired.
Other assets acquired and liabilities assumed were not material. Accordingly,
the historical statements of revenues and direct operating expenses of the 1995
Acquisition are presented in lieu of the financial statements required under
Rule 3-05 of Securities and Exchange Commission Regulation S-X.
Revenues in the accompanying statements of revenues and direct operating
expenses are recognized on the sales method. Under this method, revenues are
recognized based on actual volumes of oil and gas sold to purchasers. Direct
operating expenses are recognized on the accrual method.
(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Estimated Quantities of Proved Oil and Gas Reserves
Reserve information presented below is based on reserve estimates prepared
by the Company.
Proved reserves are estimated quantities of crude oil and natural gas 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 developed reserves are those which are expected to
be recovered through existing wells with existing equipment and operating
methods. Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these reserve estimates are
expected to change as additional information becomes available in the future.
F3-3
<PAGE> 89
TITAN EXPLORATION, INC.
1995 ACQUISITION
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT
OPERATING EXPENSES (CONTINUED)
(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED)
Below are the net estimated quantities of proved reserves and proved
developed reserves for the 1995 Acquisition.
<TABLE>
<CAPTION>
OIL AND NATURAL
CONDENSATE (MBBLS) GAS (MMCF)
------------------ ----------
<S> <C> <C>
Proved reserves at December 31, 1992.................. 7,598 116,693
Revision of previous estimates...................... (869) (226)
Production.......................................... (535) (4,291)
------ ----------
Proved reserves at December 31, 1993.................. 6,194 112,176
Revision of previous estimates...................... 470 (1,612)
Production.......................................... (491) (4,002)
------ ----------
Proved reserves at December 31, 1994.................. 6,173 106,562
Revision of previous estimates...................... 320 (1,517)
Production.......................................... (425) (3,529)
------ ----------
Proved reserves at December 11, 1995.................. 6,068 101,516
=============== ==========
Proved developed reserves at December 11, 1995........ 5,923 45,707
=============== ==========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and Gas
Reserves
The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by the Financial Accounting Standards
Board through its Statement No. 69. The estimates of future cash flows and
future production and development costs are based on period-end sales prices for
oil and gas, estimated future production of proved reserves, and estimated
future production and development costs of proved reserves, based on current
costs and economic conditions. The estimated future net cash flows are then
discounted at a rate of 10%.
Discounted future net cash flow estimates like those shown below are not
intended to represent estimates of the fair market value of oil and gas
properties. Estimates of fair market value should also consider probable
reserves, anticipated future oil and gas prices, interest rates, changes in
development and production costs and risks associated with future production.
Because of these and other considerations, any estimate of fair market value is
necessarily subjective and imprecise.
F3-4
<PAGE> 90
TITAN EXPLORATION, INC.
1995 ACQUISITION
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT
OPERATING EXPENSES (CONTINUED)
(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED)
The following are the Company's estimated standardized measure of
discounted future net cash flows from proved reserves attributable to the 1995
Acquisition:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- DECEMBER 11,
1993 1994 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Future:
Cash inflows................................... $272,478 $202,316 $221,731
Production and development costs............... (87,704) (82,079) (82,753)
-------- -------- --------
Net cash flows......................... 184,774 120,237 138,978
10% annual discount for estimated timing of
cash flows..................................... (98,187) (60,881) (67,837)
-------- -------- --------
Standardized measure of discounted future net
cash flows..................................... $ 86,587 $ 59,356 $ 71,141
======== ======== ========
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Reserves
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, PERIOD ENDED
--------------------- DECEMBER 11,
1993 1994 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of period........ $ 93,099 $ 86,587 $ 59,356
Accretion of discount............................ 9,309 8,658 5,276
Net change in sales prices, net of production
costs.......................................... (773) (28,377) 12,556
Revision of quantity estimates................... (3,227) 516 215
Sales, net of production costs................... (10,788) (8,112) (6,210)
Other............................................ (1,033) 84 (52)
-------- -------- --------
Standardized measure, end of period.............. $ 86,587 $ 59,356 $ 71,141
======== ======== ========
</TABLE>
F3-5
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Titan Exploration, Inc.:
We have audited the accompanying statements of revenues and direct
operating expenses of the oil and gas properties to be acquired (1996
Acquisition) by Titan Exploration Inc. for the years ended December 31, 1993,
1994 and 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 audits to obtain
reasonable assurance about whether the statements of revenues and direct
operating expenses 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 statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The accompanying statements of revenues and direct operating expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in Form S-1 of Titan
Exploration, Inc. as described in Note 1) and are not intended to be a complete
presentation of the 1996 Acquisition revenues and expenses.
In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of the 1996 Acquisition for the years ended December
31, 1993, 1994 and 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
September 25, 1996
F4-1
<PAGE> 92
TITAN EXPLORATION, INC.
1996 ACQUISITION
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and condensate..................... $33,607 $30,386 $29,015 $15,228 $14,828
Natural gas............................ 22,948 18,797 17,133 9,018 10,203
------- ------- ------- ------- -------
56,555 49,183 46,148 24,246 25,031
Direct operating expenses:
Lease operating........................ 17,472 16,178 16,178 8,254 7,879
Production taxes....................... 3,363 2,740 2,305 1,182 1,238
------- ------- ------- ------- -------
20,835 18,918 18,483 9,436 9,117
------- ------- ------- ------- -------
Revenues in excess of direct operating
expenses............................... $35,720 $30,265 $27,665 $14,810 $15,914
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to statements of revenues and direct operating expenses.
F4-2
<PAGE> 93
TITAN EXPLORATION, INC.
1996 ACQUISITION
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(1) BASIS OF PRESENTATION
On July 12, 1996, Titan Exploration, Inc. (the "Company") entered into a
purchase and sale agreement with a major integrated company to acquire interests
in certain oil and gas properties located in the Permian Basin (the "1996
Acquisition") for an anticipated net purchase price of approximately $170
million, subject to purchase price adjustments. The 1996 Acquisition is expected
to take place on November 1, 1996. The accompanying statements of revenues and
direct operating expenses for the 1996 Acquisition do not include general and
administrative expenses, interest income or expense, a provision for
depreciation, depletion and amortization, or any provision for income taxes
since historical expenses of this nature incurred by Mobil are not necessarily
indicative of the costs to be incurred by the Company.
Historical financial information reflecting financial position, results of
operations, and cash flows of the 1996 Acquisition, are not presented because
the purchase price will be assigned to the oil and gas property interests
acquired. Other assets acquired and liabilities assumed were not material.
Accordingly, the historical statements of revenues and direct operating expenses
of the 1996 Acquisition are presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange Commission Regulation S-X.
Revenues in the accompanying statements of revenues and direct operating
expenses are recognized on the sales method. Under this method, revenues are
recognized based on actual volumes of oil and gas sold to purchasers. Direct
operating expenses are recognized on the accrual basis.
The financial information for the six months ended June 30, 1996 and 1995,
is unaudited. However, in the opinion of management, the statements of revenues
and direct operating expenses for the six months ended June 30, 1996 and 1995
include all the necessary adjustments to fairly present the results of these
periods.
(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Estimated Quantities of Proved Oil and Gas Reserves
Reserve information presented below is based on reserve estimates prepared
by the Company.
Proved reserves are estimated quantities of crude oil and natural gas 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 developed reserves are those which are expected to
be recovered through existing wells with existing equipment and operating
methods. Oil and gas reserve quantity estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revision of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of currently
producing oil and gas properties. Accordingly, these reserve estimates are
expected to change as additional information becomes available in the future.
F4-3
<PAGE> 94
TITAN EXPLORATION, INC.
1996 ACQUISITION
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTINUED)
(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED)
Below are the net estimated quantities of proved reserves and proved
developed reserves for the 1996 Acquisition.
<TABLE>
<CAPTION>
OIL AND NATURAL
CONDENSATE (MBBLS) GAS (MMCF)
------------------ ----------
<S> <C> <C>
Proved reserves at December 31, 1992.................... 21,098 136,812
Revision of previous estimates........................ (923) 10,892
Production............................................ (2,238) (12,876)
------ -------
Proved reserves at December 31, 1993.................... 17,937 134,828
Revision of previous estimates........................ 2,252 1,000
Production............................................ (2,191) (12,354)
------ -------
Proved reserves at December 31, 1994.................... 17,998 123,474
Revision of previous estimates........................ 1,618 978
Production............................................ (1,943) (14,383)
------ -------
Proved reserves at December 31, 1995.................... 17,673 110,069
Revision of previous estimates........................ 654 1,114
Production............................................ (872) (6,261)
------ -------
Proved reserves at June 30, 1996........................ 17,455 104,922
====== =======
Proved developed reserves at June 30, 1996.............. 14,669 96,847
====== =======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and Gas
Reserves
The Company has estimated the standardized measure of discounted future net
cash flows and changes therein relating to proved oil and gas reserves in
accordance with the standards established by the Financial Accounting Standards
Board through its Statement No. 69. The estimates of future cash flows and
future production and development costs are based on period-end sales prices for
oil and gas, estimated future production of proved reserves, and estimated
future production and development costs of proved reserves, based on current
costs and economic conditions. The estimated future net cash flows are then
discounted at a rate of 10%.
Discounted future net cash flow estimates like those shown below are not
intended to represent estimates of the fair market value of oil and gas
properties. Estimates of fair market value should also consider probable
reserves, anticipated future oil and gas prices, interest rates, changes in
development and production costs and risks associated with future production.
Because of these and other considerations, any estimate of fair market value is
necessarily subjective and imprecise.
F4-4
<PAGE> 95
TITAN EXPLORATION, INC.
1996 ACQUISITION
NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTINUED)
(2) SUPPLEMENTARY FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED) (CONTINUED)
The following are the Company's estimated standardized measure of
discounted future net cash flows from proved reserves attributable to the 1996
Acquisition:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JUNE 30,
1993 1994 1995 1996
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Future:
Cash inflows......................... $ 500,749 $ 574,980 $ 583,254 $ 531,095
Production and development costs..... (252,494) (259,647) (265,793) (263,451)
-------- -------- -------- ---------
Net cash flows............... 248,255 315,333 317,461 267,644
10% annual discount for estimated
timing of cash flows.............. (104,054) (133,873) (137,935) (113,002)
-------- -------- -------- ---------
Standardized measure of discounted
future net cash flows............. $ 144,201 $ 181,460 $ 179,526 $ 154,642
======== ======== ======== =========
</TABLE>
Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Reserves
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD ENDED
----------------------------------- JUNE 30,
1993 1994 1995 1996
--------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Standardized measure, beginning of
period.............................. $ 189,565 $ 144,201 $ 181,460 $179,526
Accretion of discount................. 18,957 14,420 18,146 8,976
Net change in sales prices, net of
production costs.................... (29,536) 44,509 8,017 (23,435)
Revision of quantity estimates........ 3,295 11,683 9,120 3,837
Sales, net of production costs........ (35,720) (30,265) (27,665) (15,914)
Other................................. (2,360) (3,088) (9,552) 1,652
-------- -------- -------- --------
Standardized measure, end of period... $ 144,201 $ 181,460 $ 179,526 $154,642
======== ======== ======== ========
</TABLE>
F4-5
<PAGE> 96
[WILLIAMSON PETROLEUM CONSULTANTS, INC. LETTERHEAD]
October 8, 1996
Titan Exploration, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention Mr. Rodney Woodard
Gentlemen:
Subject: Summary Letter (for Inclusion in a Prospectus Included in a
Registration Statement for Titan Exploration, Inc. on Form S-1)
Combining Specific Data from Two Williamson Petroleum Consultants, Inc.
Evaluations (1) to the Interests of Titan Exploration, Inc. in Titan
Original Properties and Properties Acquired from a Large Independent
Oil Company in 1995, Effective October 1, 1996 (the 1995 Acquisition
Properties) and (2) to the Interests in Properties to be Acquired from
a Major Integrated Oil and Gas Company (the Integrated Company)
(Estimated Closing November 1, 1996) Effective October 1, 1996 (the
1996 Acquisition Properties), for Disclosure to the Securities and
Exchange Commission, Williamson Project 6.8432
In accordance with your request, Williamson Petroleum Consultants, Inc.
(Williamson) has prepared a summary letter for inclusion in a prospectus for
Titan Exploration, Inc. (Titan). This summary letter includes specific data from
two evaluations the subjects of which are described in Item I. All values and
discussion of proved reserves and net revenues, data utilized, assumptions, and
qualifications are taken from and include by reference data from these two
evaluations.
Interests in this summary letter represent the October 1, 1996 effective
date consolidation of the ownership interests of Titan and the Ownership
interests of the Integrated Company in various properties included in their
March 1996 Permian Basin Divestiture Package. Titan concluded a purchase
agreement of the 1996 Acquisition Properties on July 12, 1996 with a scheduled
closing date of November 1, 1996 and an effective date of October 1, 1996. The
evaluation of the 1996 Acquisition Properties with an effective date of October
1, 1996 and the summation with the Titan properties herein assumes that the
November 1, 1996 closing on the 1996 Acquisition Properties is completed as
scheduled. The Titan properties include interests in those properties designated
as the Titan original properties and the 1995 Acquisition Properties purchased
by Titan in 1995.
I. THE TWO SUBJECT EVALUATIONS
This summary letter combines certain proved oil and gas reserves and
revenues from the following two Williamson evaluations:
(1) Evaluation of Oil and Gas Reserves to the Interests of Titan
Exploration, Inc. in Titan Original Properties and 1995 Acquisition
Properties, Effective October 1, 1996, for Disclosure to the Securities and
Exchange Commission, Williamson Project 6.8432 (the Titan report)
(2) Evaluation of Oil and Gas Reserves to the Interests in the 1996
Acquisition Properties (Estimated Closing November 1, 1996), Effective
October 1, 1996, for Disclosure to the Securities and Exchange Commission,
Williamson Project 6.8432 (the 1996 Acquisition report)
<PAGE> 97
II. ESTIMATED SEC RESERVES AND FUTURE NET REVENUES
Projections of the reserves that are attributable to the consolidated
interests in this summary letter were based on economic parameters and operating
conditions considered applicable as of October 1, 1996 and are pursuant to the
requirements of the Securities and Exchange Commission (SEC).
The present values of the estimated future net revenues from proved
reserves were calculated using a discount rate of 10.00 percent per year and
were computed in accordance with the financial reporting requirements of the
SEC. Following is a summary of the results of the two evaluations effective
October 1, 1996:
<TABLE>
<CAPTION>
PROVED PROVED
DEVELOPED DEVELOPED PROVED TOTAL
PRODUCING NONPRODUCING UNDEVELOPED PROVED
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Reserves to the Evaluated Interests:
Oil/Condensate, BBL.................... 21,500,159 26,417 3,124,081 24,650,657
Gas, MCF............................... 149,413,159 1,520,000 132,915,923 283,849,082
Future Net Revenue, $:
Undiscounted........................... 372,952,903 3,142,479 193,118,452 569,213,834
Discounted Per Annum at 10.00
Percent............................. 221,775,800 2,404,343 104,697,030 328,877,173
</TABLE>
- ---------------
Note: The values presented in this table are taken from the evaluations
described in Item I and include by reference all data, qualifications, and
assumptions from these evaluations. Realization of these values is
contingent on achieving successful results from the various schedules and
assumptions in these evaluations. The available engineering data and the
completeness and/or quality of data utilized in evaluating the properties
are detailed in the specific evaluation. Review of any additionally
available data may necessitate revision to these interpretations and
assumptions and impact these values.
III. DEFINITIONS OF SEC RESERVES(1)
The estimated reserves presented in this summary letter are net proved
reserves, including proved developed producing, proved developed nonproducing,
and proved undeveloped reserves, and were computed in accordance with the
financial reporting requirements of the SEC. In preparing these evaluations, no
attempt has been made to quantify the element of uncertainty associated with any
category. Reserves were assigned to each category as warranted. The definitions
of oil and gas reserves pursuant to the requirements of the Securities Exchange
Act are:
Proved Reserves(2)
Proved reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under the economic criteria employed and existing operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices and costs include
consideration of changes provided only by contractual arrangements but not on
escalations based upon an estimate of future conditions.
A. Reservoirs are considered proved if economic producibility is supported
by either actual production or conclusive formation test. The area of a
reservoir considered proved includes:
1. that portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any; and
2. the immediately adjoining portions not yet drilled, but which can
be reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of
- ---------------
(1) For evaluations prepared for disclosure to the Securities and Exchange
Commission, see SEC Accounting Rules. Commerce Clearing House, Inc. October
1981, Paragraph 290, Regulation 210.4-10, p. 329.
(2) Any variations to these definitions will be clearly stated in the report.
A-2
<PAGE> 98
information on fluid contacts, the lowest known structural occurrence of
hydrocarbons controls the lower proved limit of the reservoir.
B. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
C. Estimates of proved reserves do not include the following:
1. oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves";
2. crude oil, natural gas, and natural gas liquids, the recovery of
which is subject to reasonable doubt because of uncertainty as to geology,
reservoir characteristics, or economic factors;
3. crude oil, natural gas, and natural gas liquids, that may occur in
undrilled prospects; and
4. crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal(3), gilsonite, and other such sources.
Proved Developed Reserves(4)
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as "proved developed reserves"
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved.
Proved Undeveloped Reserves
Proved undeveloped reserves are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the exiting productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.
IV. DISCUSSION OF SEC RESERVES
A. The Titan Report
A total of 113 properties in 44 fields were evaluated in the Titan report.
These properties are located in the states of New Mexico and Texas with the
majority of value in Texas. Overall net reserves are 6,562,947 barrels of oil
(BO) and 179,564,506 thousand cubic feet of gas (MCF) or 36,490,365 barrels of
oil equivalent (BOE) at a conversion rate of six MCF of gas to one BO.
Associated future net revenue discounted at 10.00 percent per annum (DFNR) is
$144,531,504. Five fields in Texas represent a combined DFNR of
- ---------------
(3) According to Staff Accounting Bulletin 85, excluding certain coalbed methane
gas.
(4) Williamson Petroleum Consultants, Inc. separates proved developed reserves
into proved developed producing and proved developed nonproducing reserves.
This is to identify proved developed producing reserves as those to be
recovered from actively producing wells; proved developed nonproducing
reserves as those to be recovered from wells or intervals within wells,
which are completed but shut in waiting on equipment or pipeline
connections, or wells where a relatively minor expenditure is required for
recompletion to another zone.
A-3
<PAGE> 99
$101,371,218 or approximately 70.14 percent of the total Titan DFNR. These five
fields are, in descending order of DFNR, Puckett field, Pecos County, Texas;
Foster field, Ector County, Texas; Barstow field, Ward County, Texas; Gomez
field, Pecos County, Texas; and Evetts field, Loving and Winkler Counties,
Texas. These fields include 18 properties in the proved developed category and
ten properties in the proved undeveloped category. The proved developed
properties contribute $41,128,552 DFNR while the proved undeveloped properties
in these five fields contribute $60,242,666 DFNR. A more detailed property
review is included in the Titan report.
Prices for oil were based on data available as of September 26, 1996 and
were used as effective date prices. Prices were based on posted prices as of
September 26, 1996 and associated premiums being paid by the pipeline purchaser
or trucking purchaser for West Texas intermediate or West Texas sour crude oil.
Information pertaining to postings, premiums, purchaser, and quality of crude
oil were provided by Titan. When not provided, Williamson estimated oil prices
by analogy to similar properties. After the effective date, prices were held
constant for the life of the properties. The overall average oil price for all
properties was $23.36 per BO. No attempt has been made to account for oil price
fluctuations which have occurred in the market subsequent to the effective date
of the report.
The 1995 Acquisition Properties are subject to a hedging contract. This
hedging contract results in a penalty on oil sales through December 31, 1996.
Titan estimated the amount of these penalties and provided Williamson the
projected amount of dollars lost during October, November, and December 1996.
These negative dollars were included on a "Cost Tract" and deducted from the
total future net revenue.
Gas prices based on September 1996 prices or indexes were provided by Titan
and were used as effective date prices. After the effective date, prices were
held constant for the life of the properties. All gas prices were applied to
projected wellhead volumes. To account for known differences between sales and
produced volumes, any given residue gas sales price was adjusted by a factor in
order to make the price applicable to the wellhead stream. Similar adjustments
were made to account for any known lease use. Gas prices were also adjusted for
any known income from plant products not projected separately. When not
provided, Williamson estimated gas prices by analogy to similar properties. The
overall average gas price for all properties was $1.324 per MCF.
State production taxes have been deducted at the published rates as
appropriate. Ad valorem taxes were deducted based on information provided by
Titan or on published rates.
B. The 1996 Acquisition Report
A total of 158 properties in 58 fields were evaluated in the 1996
Acquisition report. These properties are located in the states of New Mexico and
Texas with the majority of value in Texas. Overall net reserves are 18,087,710
BO and 104,284,576 MCF of gas or 35,468,473 BOE. Associated DFNR is
$184,345,669. Five fields/areas in Texas and one area in New Mexico have a
combined DFNR of $123,239,916 or approximately 66.85 percent of the total
Integrated Company DFNR. These fields/areas are, in descending order of DFNR,
Dollarhide field, Andrews County, Texas; East Dollarhide field, Andrews County,
Texas; Mi Vida field, Ward and Reeves Counties, Texas; North Robertson field,
Gaines County, Texas; Eunice field area, Lea County, New Mexico; and University
Waddell field, Crane County, Texas. These fields/areas include 38 properties in
the proved developed producing category and 19 properties classified as proved
undeveloped. The proved developed producing category contributes $98,841,887
DFNR while the proved undeveloped properties contribute $24,398,029 DFNR. A more
detailed property review is included in the 1996 Acquisition report.
Oil prices were provided by Titan and were used as effective date prices.
These were reported to be the Integrated Company's posted prices received by the
Integrated Company on September 26, 1996 for all properties they operate or in
which they retain a nonoperating working interest. These prices were used for
October and November 1996. Starting December 1, 1996, oil prices were set at the
Enron Oil Trading and Transportation Energy Operating Limited Partnership (EOTT)
postings as of September 26, 1996 plus premiums in accordance with a contract
for EOTT to purchase oil from Titan on the 1996 Acquisition Properties starting
December 1, 1996. On properties not covered by EOTT, the price at December 1,
1996 was set at prices consistent with September postings plus premiums for
trucked oil. When not provided,
A-4
<PAGE> 100
Williamson estimated oil prices by analogy to similar properties. After December
1, 1996, prices were held constant for the life of the properties. The overall
average oil price for all properties was $23.62 per BO. No attempt has been made
to account for oil price fluctuations which have occurred in the market
subsequent to the effective date of the report.
Gas prices based on September 1996 prices or indexes were provided by Titan
and were used as effective date prices. After the effective date, prices were
held constant for the life of the properties. All gas prices were applied to
projected wellhead volumes. To account for known differences between sales and
produced volumes, any given residue gas sales price was adjusted by a factor in
order to make the price applicable to the wellhead stream. Similar adjustments
were made to account for any known lease use. Gas prices were also adjusted for
any known income from plant products not projected separately. When not
provided, Williamson estimated gas prices by analogy to similar properties. The
overall average gas price for all properties was $1.558 per MCF.
State production taxes have been deducted at the published rates as
appropriate. Ad valorem taxes were deducted based on information provided by
Titan or on published rates for all operated properties. On properties not
operated by the Integrated Company, ad valorem taxes were provided by Titan or,
if not provided, were assumed to be included in the operating costs.
V. GENERAL EVALUATION CONSIDERATIONS PERTAINING TO THE TITAN AND 1996
ACQUISITION REPORTS
The individual projections prepared to produce this summary letter include
data that describe the production forecasts and associated evaluation parameters
such as interests, taxes, product prices, operating costs, investments, salvage
values, abandonment costs, and net profit interests, as applicable.
Net income to the evaluated interests is the future net revenue after
consideration of royalty revenue payable to others, taxes, operating expenses,
investments, salvage values, abandonment costs, and net profit interests, as
applicable. The future net revenue is before federal income tax and excludes
consideration of any encumbrances against the properties if such exist.
No opinion is expressed by Williamson as to the fair market value of the
evaluated properties.
The future net revenue values presented in this summary letter were based
on projections of oil and gas production. It was assumed there would be no
significant delay between the date of oil and gas production and the receipt of
the associated revenue for this production.
This summary letter includes only those costs and revenues which are
considered by Titan to be directly attributable to individual leases and areas.
There could exist other revenues, overhead costs, or other costs associated with
Titan or the Integrated Company which are not included in this summary letter.
Such additional costs and revenues are outside the scope of this summary letter.
This summary letter is not a financial statement for Titan and should not be
used as the sole basis for any transaction concerning Titan, the Integrated
Company, or the evaluated properties.
The reserves projections in this summary letter are based on the use of the
available data and accepted industry engineering methods. Future changes in any
operational or economic parameters or production characteristics of the
evaluated properties could increase or decrease their reserves. Unforeseen
changes in market demand or allowables set by various regulatory agencies could
also cause actual production rates to vary from those projected. The dates of
first production for nonproducing properties were based on estimates by Titan or
Williamson and the actual dates may vary from those estimated. Williamson
reserves the right to alter any of the reserves projections and the associated
economics included in this summary letter in any future evaluations based on
additional data that may be acquired.
All data utilized in the preparation of this summary letter with respect to
interests, reversionary status, oil and gas prices, gas categories, gas contract
terms, operating expenses, investments, salvage values, abandonment costs, net
profit interests, well information, and current operating conditions, as
applicable, were provided by Titan and the operators. Production data from
public records were used where available. If public records were not available,
production data provided by Titan and various other operators were utilized.
A-5
<PAGE> 101
Production data generally through February or June 1996 were obtained for the
properties in the Titan report and through January or June 1996 for the
properties in the 1996 Acquisition report. Additional production data for the
months of July or August were provided by Titan or the operators on various
properties. All data have been reviewed for reasonableness and, unless obvious
errors were detected, have been accepted as correct. It should be emphasized
that revisions to the projections of reserves and economics included in this
summary letter may be required if the provided data are revised for any reason.
No inspection of the properties was made as this was not considered within the
scope of these projects. No investigation was made of any environmental
liabilities that might apply to the evaluated properties, and no costs are
included for any possible related expenses.
Operating expenses were provided by Titan and represented, when possible,
the latest available 12- to 18-month average of all recurring expenses which are
billable to the working interest owners. These expenses included, but were not
limited to, all direct operating expenses, field overhead costs, and any ad
valorem taxes not deducted separately. Expenses for workovers, well
stimulations, and other maintenance were not included in the operating expenses
unless such work was expected on a recurring basis. Judgments for the exclusion
of the nonrecurring expenses were made by Titan. The economic limit for each
property was determined using these costs. Any internal indirect overhead costs
(general and administrative) which are billable to the working interest owners
were included, while those not billable were not included. For new and
developing properties where data were unavailable, operating expenses were
estimated by Titan or Williamson based on analogy with similar properties.
Operating costs were held constant for the life of the properties.
Unless specifically identified and documented by Titan as having
curtailment problems, gas production trends have been assumed to be a function
of well productivity and not of market conditions. The effect of "take or pay"
clauses in gas contracts was not considered.
Oil reserves are expressed in United States (U.S.) barrels of 42 U.S.
gallons. Gas volumes are expressed in MCF's at 60 degrees Fahrenheit and at the
legal pressure base that prevails in the state in which the reserves are
located. No adjustment of the individual gas volumes to a common pressure base
has been made.
Titan represented to Williamson that it has, or can generate, the financial
and operational capabilities to accomplish those projects evaluated by
Williamson which require capital expenditures.
All capital costs for drilling and completion of wells and nonrecurring
workover or operating costs have been deducted as applicable. These costs were
provided by Titan or, where not supplied, were estimated by Williamson. No
adjustments were made to account for the potential effect of inflation on these
costs.
Neither salvage values nor abandonment costs were provided by Titan to be
included in this evaluation.
The estimates of reserves contained in this summary letter were determined
by accepted industry methods and in accordance with the definitions of oil and
gas reserves set forth above. Methods utilized in this summary letter include
extrapolation of historical production trends, material balance determinations,
analogy to similar properties, and volumetric calculations.
Where sufficient production history and other data were available, reserves
for producing properties were determined by extrapolation of historical
production trends or through the use of material balance determinations. Analogy
to similar properties or volumetric calculations were used for nonproducing
properties and those producing properties which lacked sufficient production
history and other data to yield a definitive estimate of reserves. Reserves
projections based on analogy are subject to change due to subsequent changes in
the analogous properties or subsequent production from the evaluated properties.
Volumetric calculations are often based upon limited log and/or core analysis
data and incomplete reservoir fluid and formation rock data. Since these limited
data must frequently be extrapolated over an assumed drainage area, subsequent
production performance trends or material balance calculations may cause the
need for significant revisions to the estimates of reserves.
It should be emphasized that with the current economic uncertainties,
fluctuation in market conditions could significantly change the economics in
this summary letter.
A-6
<PAGE> 102
VII. DECLARATION OF INDEPENDENT STATUS AND CONSENT
We understand that our estimates are to be included in a Registration
Statement on Form S-1 (the Registration Statement) to be filed by you with the
SEC and in the Prospectus for Titan as included in such Registration Statement
which will be registered under the Securities Act of 1933, as amended.
Williamson is an independent consulting firm and does not own any interests
in the oil and gas properties covered by this summary letter. No employee,
officer, or director of Williamson is an employee, officer, or director of
Titan. Neither the employment of nor the compensation received by Williamson is
contingent upon the values assigned to the oil and gas properties covered by
this summary letter.
We consent to the inclusion of this summary letter in the Registration
Statement, the inclusion in the Registration Statement of data extracted from
this summary letter, and to all references to our firm in the Prospectus,
including any references to our firm as Experts.
Yours very truly,
WILLIAMSON PETROLEUM CONSULTANTS, INC.
A-7
<PAGE> 103
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 14
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business and Properties............... 25
Management............................ 38
Certain Transactions.................. 45
Principal and Selling Stockholders.... 47
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Notice to Canadian Residents.......... 53
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
Glossary of Oil and Gas Terms......... 56
Index to Consolidated Financial
Statements.......................... F-1
Letter of Williamson Petroleum
Consultants, Inc.................... A-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
Titan Exploration, Inc.
Shares
Common Stock
($.01 par value)
PROSPECTUS
CS First Boston
Donaldson, Lufkin & Jenrette
Securities Corporation
Howard, Weil, Labouisse, Friedrichs
Incorporated
J.P. Morgan & Co.
Petrie Parkman & Co.
================================================================================
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by Titan Exploration, Inc. (the "Registrant"
or the "Company") in connection with the registration of the securities offered
hereby, other than underwriting discounts and commissions, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee....................................................... $52,273
NASD Filing Fee............................................................ 17,750
New York Stock Exchange Listing Fee........................................ *
Blue Sky Qualification Fees and Expenses................................... *
Accounting Fees and Expenses............................................... *
Legal Fees and Expenses.................................................... *
Engineering Fees and Expenses.............................................. *
Transfer Agent and Registrar Fees.......................................... *
Printing and Engraving Expenses............................................ *
Miscellaneous.............................................................. *
-------
Total.................................................................... $ *
=======
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") enables
a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of members of its Board of
Directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Such a provision may not eliminate or limit the
liability of a director (1) for any breach of a director's duty of loyalty to
the corporation or its stockholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of a law, (3) for
paying an unlawful dividend or approving an illegal stock repurchase (as
provided in Section 174 of the DGCL), or (4) for any transaction from which the
director derived an improper personal benefit.
Under Section 145 of the DGCL, a corporation has the power to 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 (other than an
action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify applies only if the person 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 the person's conduct was
unlawful.
In the case of an action by or in the right of the corporation, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable 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 that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. Section 145 of the DGCL further
provides that to the extent a director or officer of a corporation has been
successful in the defense of any action, suit or proceeding referred to above or
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith.
A corporation also has the power to purchase and maintain insurance on
behalf of any person covering any liability incurred by such person in his
capacity as a director, officer, employee or agent of the corporation,
II-1
<PAGE> 105
or arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability.
The Registrant's Certificate of Incorporation and Bylaws provide that no
director of the Registrant will be personally liable to the Registrant or any of
its stockholders for monetary damages arising from the director's breach of
fiduciary duty as a director. However, this does not apply with respect to any
action in which the director would be liable under Section 174 of Title 8 of the
DGCL nor does it apply with respect to any liability in which the director (i)
breached his duty of loyalty to the Registrant; (ii) did not act in good faith
or, in failing to act, did not act in good faith; (iii) acted in a manner
involving intentional misconduct or a knowing violation of law or, in failing to
act, shall have acted in a manner involving intentional misconduct or a knowing
violation of law; or (iv) derived an improper personal benefit.
The Certificate of Incorporation and Bylaws provide that the Registrant
will indemnify its officers and directors and former officers and directors
against any expenses, judgments or settlement payments sustained or paid by such
persons as a result of having acted as an officer or director of the Registrant,
or, at the request of the Registrant, as an officer, director, agent or employee
of another business entity. The Certificate of Incorporation and Bylaws further
provide that the Registrant may, by action of its Board of Directors, provide
indemnification to employees and agents of the Registrant, individually or as a
group, with the same scope and effect as the indemnification of directors and
officers.
The form of Indemnity Agreement contained in Exhibit 10.23 provides for the
indemnification in certain instances against liability and expenses incurred in
connection with proceedings brought by or in the right of the Company or by
third parties by reason of a person serving as an officer or director of the
Company.
The form of Underwriting Agreement contained in Exhibit 1 provides for
indemnification of the directors and officers signing the Registration Statement
and certain controlling persons of the Company against certain liabilities
(including certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act")) in certain instances by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to all securities issued or sold by the
Registrant since inception and not registered under the Securities Act.
Unless otherwise specifically provided, each of the transactions described
below was conducted in reliance upon the exemption from registration provided in
Section 4(2) of the Securities Act and the rules and regulations promulgated
thereunder. Furthermore, each of the certificates representing the Registrant's
securities issued in connection with such transactions contains a restrictive
legend, as appropriate, requiring each person acquiring such securities from the
Registrant to furnish investment representations to the Registrant and stating
that no underwriters participated in such transactions.
The Registrant was formed on September 27, 1996 pursuant to the terms of an
Agreement and Plan of Reorganization dated September 30, 1996 (the "Exchange
Agreement"). Pursuant to the terms of the Exchange Agreement, the Company became
the holding company for Titan Resources, L.P., which conducts the Registrant's
operations and was formed on March 31, 1995 (the "Partnership"). Pursuant to the
terms of the Exchange Agreement, the limited partners of the Partnership
received .665 shares of the Registrant's common stock for each limited
partnership unit owned by such limited partners. Each certificate issued in
connection with such exchange contains an appropriate restrictive legend. The
exchange was not subject to the registration provisions of the Securities Act
because it did not involve an offer or sale of securities. All of the
information regarding sales of the Registrant's securities set forth below has
been adjusted to give effect to the exchange.
On March 31, 1995, the Partnership was formed pursuant to the terms and
conditions of a Partnership Agreement between Titan Resources, I, Inc., as
general partner, and 20 limited partners, which provided for the issuance of
13,755,998 shares of the Registrant's Common Stock, par value $.01 per share,
for an aggregate purchase price of $20,547,980.
II-2
<PAGE> 106
On December 11, 1995, the Partnership entered into a Stock and Unit
Purchase Agreement with Joint Energy Development Investments Limited
Partnership, providing for the sale by the Partnership of 3,381,046 shares of
its Common Stock, par value $.01 per share, for an aggregate purchase price of
$10,000,000.
On December 11, 1995, the Partnership entered into a Stock and Unit
Purchase Agreement with First Union Corporation, providing for the sale by the
Partnership of 1,690,523 shares of its Common Stock, par value $.01 per share,
for an aggregate purchase price of $5,000,000.
On September 30, 1996, the Partnership entered into an Unit Purchase and
Exchange Agreement with Selma International Investment Limited, providing for
the sale by the Partnership of 722,446 shares of its Common Stock, par value
$.01 per share, for an aggregate purchase price of $5,000,000.
Since inception, the Registrant and its predecessor have granted options to
purchase an aggregate of 3,631,350 shares of Common Stock to officers and key
employees. These transactions did not involve a public offering and were done in
reliance on Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------------------------------------------------------------------------------------------
<S> <C>
1+ -- Form of Underwriting Agreement.
2.1 -- Exchange Agreement and Plan of Reorganization.
3.1 -- Certificate of Incorporation.
3.2 -- Bylaws.
4.1+ -- Form of Common Stock Certificate.
5+ -- Opinion of Thompson & Knight, A Professional Corporation.
10.1 -- Agreement of Limited Partnership, dated March 31, 1995, between Titan
Resources I, Inc., as general partner, and Natural Gas Partners,
L.P., Natural Gas Partners II, L.P. and Jack Hightower, as limited
partners.
10.1.2 -- Amendment No. 1 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated December 11, 1995, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners.
10.1.3 -- Amendment No. 2 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 27, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners.
10.1.4 -- Amendment No. 3 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 30, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners.
10.2 -- Amended and Restated Voting and Shareholders Agreement, dated
December 11, 1995, by and among Titan Resources, I, Inc, Jack
Hightower, Natural Gas Partners, L.P., Natural Gas Partners II, L.P.,
Joint Energy Development Investments Limited and First Union
Corporation.
10.3 -- Amended and Restated Registration Rights Agreement, dated September
30, 1996, by and among Titan Exploration, Inc., Jack Hightower,
Natural Gas Partners, L.P., Natural Gas Partners II, L.P., Joint
Energy Development Investments Limited Partnership, First Union
Corporation and Selma International Investment Limited.
10.4 -- Financial Advisory Services Contract, dated March 31, 1995, by and
between Titan Resources, L.P. and Natural Gas Partners, L.P. and
Natural Gas Partners II, L.P.
</TABLE>
II-3
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------------------------------------------------------------------------------------------
<S> <C>
10.4.1 -- First Amendment to Financial Advisory Services Contract, dated
December 11, 1995, between Titan Resources, L.P., Natural Gas
Partners, L.P. and Natural Gas Partners II, L.P.
10.5* -- Employment Agreement, dated September 30, 1996, by and between Titan
Exploration, Inc., Titan Resources I, Inc., and Jack Hightower.
10.6*+ -- Form of Confidentiality and Noncompete Agreement between the
Registrant and each of its executive officers.
10.7* -- Titan Resources, L.P. Option Plan.
10.7.1* -- Form of Option Agreement (A Option).
10.7.2* -- Form of Option Agreement (B Option).
10.7.3* -- Form of Option Agreement (C Option).
10.7.4* -- Form of Option Agreement (D Option).
10.8* -- Titan Exploration, Inc. Option Plan.
10.8.1* -- Form of Option Agreement (A Option).
10.8.2* -- Form of Option Agreement (B Option).
10.8.3* -- Form of Option Agreement (C Option).
10.8.4* -- Form of Option Agreement (D Option).
10.9*+ -- 1996 Incentive Plan.
10.10 -- Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among Joint Energy Development Investments Limited Partnership, Titan
Resources, I, Inc. and Titan Resources, L.P.
10.10.1 -- Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and Joint Energy Development Investments Limited
Partnership.
10.11 -- Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among First Union Corporation, Titan Resources I, Inc. and Titan
Resources, L.P.
10.11.1 -- Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and First Union Corporation.
10.12 -- Advisory Services Contract, dated December 11, 1995, between Titan
Resources, L.P. and ECT Securities Corp.
10.13+ -- Amended and Restated Credit Agreement, dated October , 1996, among
Titan Resources, L.P. and Texas Commerce Bank National Association,
as Agent, and Financial Institutions now or hereafter parties hereto.
10.14 -- Agreement of Sale and Purchase, dated April 19, 1995, between
Enertex, Inc. and Titan Resources, L.P.
10.15 -- Agreement of Sale and Purchase, dated April 19, 1995, between Staley
Gas Co., Inc. and Titan Resources, L.P.
10.16 -- Administrative Services Contract, dated March 31, 1995, between
Staley Operating Co. and Titan Resources, L.P.
10.17 -- Services Agreement, dated April 1, 1995, between Titan Resources I,
Inc. and Titan Resources, L.P.
10.18 -- Office Lease, dated January 8, 1996, between Fasken Center, Ltd. and
Titan Resources, L.P.
10.19 -- Purchase and Sale Agreement, dated October 12, 1995, by and between
Anadarko Petroleum Corporation and Titan Resources, L.P.
10.20 -- Amendment No. 1 to Purchase and Sale Agreement, dated December 11,
1995, by and between Anadarko Petroleum Corporation and Titan
Resources, L.P.
10.21 -- Purchase and Sale Agreement, dated July 12, 1996, by and between
Mobil Producing Texas & New Mexico Inc. and Titan Resources, L.P.
10.22 -- Unit Purchase and Exchange Agreement, dated September 27, 1996, by
and between Selma International Investment Limited and Titan
Resources, L.P.
</TABLE>
II-4
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------------------------------------------------------------------------------------------
<S> <C>
10.23 -- Form of Indemnity Agreement between the Registrant and each of its
executive officers.
10.24 -- Advisory Director Agreement, dated September 30, 1996, by and between
Titan Exploration, Inc. and Joint Energy Development Investments
Limited Partnership.
21 -- Subsidiaries of the Registrant.
23.1+ -- Consent of Thompson & Knight, A Professional Corporation (included in
Exhibit 5 above).
23.2 -- Consent of KPMG Peat Marwick LLP, independent auditors.
23.3 -- Consent of Williamson Petroleum Consultants, Inc., independent
petroleum engineers (included in Annex A to the Prospectus).
24.1 -- Powers of Attorney (included on the first signature page to this
Registration Statement).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
+ To be filed by amendment.
* Management contract or compensatory plan.
(b) Financial Statement Schedules: None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the particular
Underwriter, to permit prompt delivery to each purchaser.
The undersigned Registrant also hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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-5
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Titan
Exploration, Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Midland, Texas, on
October 11, 1996.
TITAN EXPLORATION, INC.
By: /s/ JACK HIGHTOWER
--------------------------------
Jack Hightower
President, Chief Executive Officer
and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors and officers
of Titan Exploration, Inc., a Delaware corporation, which is filing a
Registration Statement on Form S-1 with the Securities and Exchange Commission,
Washington, D.C. 20549 under the provisions of the Securities Act of 1933 (the
"Securities Act") hereby constitute and appoint Jack Hightower and William K.
White, and each of them, the individual's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for the person and
in his or her name, place and stead, in any and all capacities, to sign such
Registration Statement and any or all amendments, including post-effective
amendments, to the Registration Statement, including a Prospectus or an amended
Prospectus therein and any registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act,
and all other documents in connection therewith to be filed 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 as agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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 DATE
- --------------------------------------------- --------------------------- -----------------
<C> <S> <C>
By: /s/ JACK HIGHTOWER President, Chief Executive October 11, 1996
- --------------------------------------------- Officer and Chairman of
Jack Hightower the Board (principal
executive officer)
By: /s/ GEORGE G. STALEY Executive Vice President October 11, 1996
- --------------------------------------------- and Director
George G. Staley
By: /s/ WILLIAM K. WHITE Vice President, Finance and October 11, 1996
- --------------------------------------------- Chief Financial Officer
William K. White (principal financial and
accounting officer)
By: /s/ DAVID R. ALBIN Director October 11, 1996
- ---------------------------------------------
David R. Albin
By: /s/ KENNETH A. HERSH Director October 11, 1996
- ---------------------------------------------
Kenneth A. Hersh
</TABLE>
II-6
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------------------------------------------------------------------------------------------
<S> <C>
1+ -- Form of Underwriting Agreement.
2.1 -- Exchange Agreement and Plan of Reorganization.
3.1 -- Certificate of Incorporation.
3.2 -- Bylaws.
4.1+ -- Form of Common Stock Certificate.
5+ -- Opinion of Thompson & Knight, A Professional Corporation.
10.1 -- Agreement of Limited Partnership, dated March 31, 1995, between Titan
Resources I, Inc., as general partner, and Natural Gas Partners,
L.P., Natural Gas Partners II, L.P. and Jack Hightower, as limited
partners.
10.1.2 -- Amendment No. 1 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated December 11, 1995, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners.
10.1.3 -- Amendment No. 2 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 27, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners.
10.1.4 -- Amendment No. 3 to the Agreement of Limited Partnership of Titan
Resources, L.P., dated September 30, 1996, by and among Titan
Resources I, Inc., as the general partner, and a Majority Interest of
the Limited Partners.
10.2 -- Amended and Restated Voting and Shareholders Agreement, dated
December 11, 1995, by and among Titan Resources, I, Inc, Jack
Hightower, Natural Gas Partners, L.P., Natural Gas Partners II, L.P.,
Joint Energy Development Investments Limited and First Union
Corporation.
10.3 -- Amended and Restated Registration Rights Agreement, dated September
30, 1996, by and among Titan Exploration, Inc., Jack Hightower,
Natural Gas Partners, L.P., Natural Gas Partners II, L.P., Joint
Energy Development Investments Limited Partnership, First Union
Corporation and Selma International Investment Limited.
10.4 -- Financial Advisory Services Contract, dated March 31, 1995, by and
between Titan Resources, L.P. and Natural Gas Partners, L.P. and
Natural Gas Partners II, L.P.
10.4.1 -- First Amendment to Financial Advisory Services Contract, dated
December 11, 1995, between Titan Resources, L.P., Natural Gas
Partners, L.P. and Natural Gas Partners II, L.P.
10.5* -- Employment Agreement, dated September 30, 1996, by and between Titan
Exploration, Inc., Titan Resources I, Inc., and Jack Hightower.
10.6*+ -- Form of Confidentiality and Noncompete Agreement between the
Registrant and each of its executive officers.
10.7* -- Titan Resources, L.P. Option Plan.
10.7.1* -- Form of Option Agreement (A Option).
10.7.2* -- Form of Option Agreement (B Option).
10.7.3* -- Form of Option Agreement (C Option).
10.7.4* -- Form of Option Agreement (D Option).
10.8* -- Titan Exploration, Inc. Option Plan.
10.8.1* -- Form of Option Agreement (A Option).
10.8.2* -- Form of Option Agreement (B Option).
10.8.3* -- Form of Option Agreement (C Option).
10.8.4* -- Form of Option Agreement (D Option).
10.9*+ -- 1996 Incentive Plan.
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------------------------------------------------------------------------------------------
<S> <C>
10.10 -- Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among Joint Energy Development Investments Limited Partnership, Titan
Resources, I, Inc. and Titan Resources, L.P.
10.10.1 -- Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and Joint Energy Development Investments Limited
Partnership.
10.11 -- Stock and Unit Purchase Agreement, dated December 11, 1995, by and
among First Union Corporation, Titan Resources I, Inc. and Titan
Resources, L.P.
10.11.1 -- Designation Agreement, dated December 11, 1995, by and between Titan
Resources, L.P. and First Union Corporation.
10.12 -- Advisory Services Contract, dated December 11, 1995, between Titan
Resources, L.P. and ECT Securities Corp.
10.13+ -- Amended and Restated Credit Agreement, dated October , 1996, among
Titan Resources, L.P. and Texas Commerce Bank National Association,
as Agent, and Financial Institutions now or hereafter parties hereto.
10.14 -- Agreement of Sale and Purchase, dated April 19, 1995, between
Enertex, Inc. and Titan Resources, L.P.
10.15 -- Agreement of Sale and Purchase, dated April 19, 1995, between Staley
Gas Co., Inc. and Titan Resources, L.P.
10.16 -- Administrative Services Contract, dated March 31, 1995, between
Staley Operating Co. and Titan Resources, L.P.
10.17 -- Services Agreement, dated April 1, 1995, between Titan Resources I,
Inc. and Titan Resources, L.P.
10.18 -- Office Lease, dated January 8, 1996, between Fasken Center, Ltd. and
Titan Resources, L.P.
10.19 -- Purchase and Sale Agreement, dated October 12, 1995, by and between
Anadarko Petroleum Corporation and Titan Resources, L.P.
10.20 -- Amendment No. 1 to Purchase and Sale Agreement, dated December 11,
1995, by and between Anadarko Petroleum Corporation and Titan
Resources, L.P.
10.21 -- Purchase and Sale Agreement, dated July 12, 1996, by and between
Mobil Producing Texas & New Mexico Inc. and Titan Resources, L.P.
10.22 -- Unit Purchase and Exchange Agreement, dated September 27, 1996, by
and between Selma International Investment Limited and Titan
Resources, L.P.
10.23 -- Form of Indemnity Agreement between the Registrant and each of its
executive officers.
10.24 -- Advisory Director Agreement, dated September 30, 1996, by and between
Titan Exploration, Inc. and Joint Energy Development Investments
Limited Partnership.
21 -- Subsidiaries of the Registrant.
23.1+ -- Consent of Thompson & Knight, A Professional Corporation (included in
Exhibit 5 above).
23.2 -- Consent of KPMG Peat Marwick LLP, independent auditors.
23.3 -- Consent of Williamson Petroleum Consultants, Inc., independent
petroleum engineers (included in Annex A to the Prospectus).
24.1 -- Powers of Attorney (included on the first signature page to this
Registration Statement).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
+ To be filed by amendment.
* Management contract or compensatory plan.
<PAGE> 1
EXHIBIT 2.1
EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
This EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is
entered into as of the 30th day of September, 1996, by and among Titan
Exploration, Inc., a Delaware corporation ("CORPORATION"), Titan Resources,
L.P., a Texas limited partnership ("PARTNERSHIP"), Titan Resources I, Inc., a
Texas corporation ("GENERAL PARTNER"), Natural Gas Partners, L.P., a Delaware
limited partnership ("NGP I"), Natural Gas Partners II, L.P., a Delaware
limited partnership ("NGP II"), Kenneth A. Hersh, R. Gamble Baldwin, Albin
Income Trust, John S. Foster, Bruce B. Selkirk, III, Jack D. Hightower, Jack D.
Hightower Separate Property, Amber L. Hightower, Haley D. Hightower, Robin M.
Hightower Separate Property, George G. Staley, Thomas H. Moore, Dan P. Colwell,
Rodney L. Woodard, William J. Vaughn, Jr., WJV Inc., a Texas corporation
("WJV"), Sidney W. Vanloh, Jr., Toby R. Neugebauer, R. Scott Brown, Joint
Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI"), First Union Corporation, a North Carolina corporation
("FIRST UNION") and Selma International Investment Limited, a Delaware
corporation ("SIIL").
R E C I T A L S
WHEREAS, NGP I, NGP II, Jack D. Hightower, JEDI, and First Union own, in
the aggregate, 28,242.5 shares of the common stock, par value $.01 per share
(the "RESOURCES COMMON STOCK") of the General Partner, which constitutes all of
the outstanding shares of Resources Common Stock (in such capacity such persons
are referred to herein as the "SHAREHOLDERS"); and
WHEREAS, the General Partner is the sole general partner, owning a one
percent (1%) general partner interest, of the Partnership; and
WHEREAS, NGP I, NGP II, Kenneth A. Hersh, R. Gamble Baldwin, Albin
Income Trust, John S. Foster, Bruce B. Selkirk, III, Jack D. Hightower, Jack D.
Hightower Separate Property, Amber L. Hightower, Haley D. Hightower, Robin M.
Hightower Separate Property, George G. Staley, Thomas H. Moore, Rodney L.
Woodard, Dan P. Colwell, William J. Vaughn, Jr., WJV, Sidney W. Vanloh, Jr.,
Toby R. Neugebauer, R. Scott Brown, JEDI, First Union and SIIL (collectively,
the "LIMITED PARTNERS") are all the limited partners, owning units representing
in the aggregate the ninety-nine percent (99%) limited partner interests of the
Partnership (the "UNITS" and collectively with the Resources Common Stock, the
"RESOURCES SECURITIES");
WHEREAS, the Shareholders and the Limited Partners (collectively
referred to herein as "SECURITY HOLDERS" and individually, as a "SECURITY
HOLDER") desire to consolidate in Corporation their interests in the General
Partner and the Partnership by means of the Reorganization (as defined herein
below);
WHEREAS, the parties hereto intend that Section 351(a) of the Internal
Revenue Code of 1986, as amended, will apply to the Reorganization;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements and conditions contained herein, the parties hereto agree as
follows:
<PAGE> 2
ARTICLE I
THE EXCHANGE
1.1 Exchange of Resources Common Stock. At the Closing (as defined
in Section 4.2), each of the Shareholders shall transfer to Corporation all of
the shares of Resources Common Stock held by such Shareholder. Such transfer
shall be effected by delivery to Corporation of the certificates representing
such shares, together with a duly executed Transfer Letter (as defined below).
In exchange for such transfer, at the Closing, Corporation shall issue to the
Shareholders 8.207966299 shares of Corporation's common stock, par value $.01
per share (the "CORPORATION COMMON STOCK"), for each share of Resources Common
Stock transferred to Corporation (with the aggregate number of shares to be
issued to each Shareholder to be rounded to the nearest whole share).
Corporation shall cause a certificate or certificates representing the shares
of Corporation Common Stock issued to the Shareholders pursuant to this Section
1.1 to be delivered at the Closing. The transactions contemplated by this
Section 1.1 and Section 1.2 are referred to collectively herein as the
"REORGANIZATION." As used herein, "TRANSFER LETTER" means a letter pursuant to
which a Shareholder will transfer securities to Corporation pursuant hereto and
each of the Shareholder and Corporation will confirm the continuing accuracy of
their respective representations and warranties set forth herein.
1.2 Exchange of Units. At the Closing, each of the Limited Partners
shall transfer to Corporation all of the Units held by such Limited Partner.
Such transfer shall be effected by delivery to Corporation of a duly executed
Transfer Letter. In exchange for such transfer, at the Closing, Corporation
shall issue to each Limited Partner .66508242 shares of Corporation Common
Stock for each Unit transferred to Corporation (with the aggregate number of
shares to be issued to each Limited Partner to be rounded to the nearest whole
share). Corporation shall cause certificates representing the shares of
Corporation Common Stock issued to the Limited Partners pursuant to this
Section 1.2 to be delivered at the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Each Security Holder hereby represents and warrants to, and
covenants and agrees with, Corporation as follows:
(a) Such Security Holder has no present plan or intent to sell,
transfer or otherwise dispose of the shares of Corporation Common Stock to be
received by (he/she/it) in the Reorganization.
(b) Such Security Holder has (i) valid title to the Resources
Securities to be transferred by (him/her/it) in the Reorganization, free and
clear of all security interests, liens, encumbrances, options, calls, pledges,
trusts, voting trusts and other stockholder agreements, assessments, covenants,
restrictions, reservations, commitments, obligations and other burdens
(collectively, "ENCUMBRANCES"), except for restrictions (A) imposed by
applicable federal and state securities laws, and (B) arising under existing
agreements among General Partner and certain other parties hereto (such
encumbrances described in clauses (A) and (B) are referred to herein as
"PERMITTED ENCUMBRANCES"), and (ii) full right, power and authority to assign,
transfer and deliver the Resources Securities hereunder. Upon the issuance and
delivery to Corporation of the Resources Securities,
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<PAGE> 3
Corporation will acquire valid title to such Resources Securities, subject to
no Encumbrances other than Permitted Encumbrances.
(c) This Agreement has been duly executed and delivered by such
Security Holder and constitutes a valid and legally binding obligation of such
Security Holder enforceable against such Security Holder in accordance with its
terms, except to the extent enforcement may be limited by (i) applicable
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws from time to time in effect which affect creditors' rights
generally, and (ii) legal and equitable limitations on the availability of
equitable remedies.
(d) The execution, delivery and performance of this Agreement by such
Security Holder will not (i) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, agreement or other instrument or obligation to which such
Security Holder is a party or may be bound, (ii) result in the creation or
imposition of any Encumbrance upon the Resources Securities, or (iii) result in
a violation by such Security Holder of any statute or law or any judgment,
order, decree, rule or regulation of any federal, state, municipal or any other
governmental department, commission, board, bureau, agency or instrumentality
(a "GOVERNMENTAL BODY"), to which such Security Holder is subject.
(e) No consent, order, approval or authorization of, or declaration,
filing or registration with, any Governmental Body is required to be obtained
or made by such Security Holders in connection with the execution, delivery or
performance by such Security Holder of this Agreement.
2.2 Corporation hereby represents and warrants to, and covenants and
agrees with, each Security Holder as follows:
(a) The shares of Corporation Common Stock have been duly authorized
for issuance pursuant to this Agreement and, when issued and delivered to the
Security Holders in exchange for the Resources Securities pursuant hereto, will
be validly issued, fully paid and nonassessable. The issuance of the
Corporation Common Stock under this Agreement is not subject to any preemptive
rights.
(b) Corporation is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. Corporation has
the corporate power to enter into and be bound by the terms and conditions of
this Agreement, and to carry out its obligations hereunder, and the execution
and delivery by Corporation of this Agreement and the performance by
Corporation of its obligations hereunder have been duly authorized by all
necessary corporate action. This Agreement has been duly executed and
delivered by Corporation and constitutes a valid and legally binding obligation
of Corporation enforceable against it in accordance with its terms, except to
the extent enforcement may be limited (i) by applicable bankruptcy, insolvency,
moratorium, reorganization, fraudulent conveyance or similar laws from time to
time in effect which affect creditors' rights generally and (ii) by legal and
equitable limitations on the availability of equitable remedies.
(c) The execution, delivery and performance of this Agreement by
Corporation will not (i) conflict with or result in a violation of any
provision of Corporation's charter or bylaws, (ii) conflict with or result in a
violation of any provision of, or constitute (with or without the giving of
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<PAGE> 4
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, agreement or other instrument or obligation to
which Corporation is a party or by which it or any of its properties or assets
may be bound, or (iii) result in a violation by Corporation of any statute or
law or any judgment, order, decree, rule or regulation of any court or
Governmental Body to which Corporation is subject.
(d) No consent, order, approval or authorization of, or declaration,
filing or registration with, any Governmental Body is required to be obtained
or made by Corporation in connection with the execution, delivery or
performance by Corporation of this Agreement.
ARTICLE III
CONDITIONS TO THE REORGANIZATION
3.1 Conditions to the Reorganization. The obligations of each party
hereto to consummate the Reorganization are subject to the satisfaction on or
before the Closing Date of the following conditions:
(a) All the representations and warranties of the parties hereto
contained in this Agreement shall be true and correct in all material respects
on and as of the Closing Date as if made on and as of the Closing Date.
(b) The Corporation shall have adopted an Option Plan for its
officers and employees (the "OPTION PLAN"), the terms of which shall be
substantially the same as the terms of that certain Option Plan of the
Partnership adopted on March 31, 1995, which is in effect on the date hereof
(the "PARTNERSHIP OPTION PLAN"). The Option Plan shall provide that, as of the
effective date of the Reorganization, each of the Persons holding options
("PARTNERSHIP OPTIONS") granted under the Partnership Option Plan shall be
entitled to receive, in substitution for his/her Partnership Options, options
to acquire an equivalent number of shares of the Corporation Common Stock, to
be determined by reference to the number of shares to be issued in the
Reorganization for each Unit surrendered for exchange (such number of shares is
referred to herein as the "EQUIVALENT NUMBER OF OPTION SHARES"), subject to
terms and conditions substantially the same as those applicable to the
Partnership Options (the "CONVERSION").
(c) The persons holding Partnership Options shall have consented to
the Conversion and shall have surrendered such Partnership Options to the
Partnership and shall have no further rights under the Partnership Option Plan
and Partnership Options as of the Effective Date.
(d) The General Partner and the Limited Partners shall have amended
the Partnership Agreement to (i) prohibit all disposition of interests in the
Partnership and (ii) delete Section 8.2, effective immediately after the
Closing.
(e) Jack D. Hightower shall have executed and delivered to
Corporation an employment agreement, in form and substance mutually
satisfactory to the parties, that amends and restates that certain Employment
Agreement dated March 31, 1995 made by and among the General Partner, the
Partnership, and Jack D. Hightower.
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<PAGE> 5
(f) Each of the Shareholders and SIIL shall have entered into an
Amended and Restated Registration Rights Agreement with the Corporation, in
form and substance mutually satisfactory to the parties, which amends and
restates that certain Registration Rights Agreement, dated March 31, 1995, as
amended, among the Partnership, the General Partner, the Shareholders and SIIL.
(g) Each of the Shareholders, the Partnership, the Corporation and
the General Partners shall have entered into an Agreement Re: Reorganization,
in form and substance mutually satisfactory to the parties, which provides for
certain agreements during the period prior to an initial public offering of the
Corporation.
ARTICLE IV
MISCELLANEOUS
4.1 Consent and Agreement of the General Partner. The General
Partner hereby consents to the transactions contemplated hereby pursuant to
which Corporation will become the owner of all of the Units and to the
substitution of Corporation as a Limited Partner in accordance with Section 9.1
of the Partnership Agreement.
4.2 Closing. The closing of the Reorganization (the "CLOSING") shall
occur on or before the first business day following the satisfaction of all of
the conditions in Section 3.1 hereof (the "CLOSING DATE").
4.3 Modification or Amendment. Subject to applicable law, at any
time prior to the Closing, this Agreement may be modified or amended by the
mutual consent in writing of all of the parties hereto.
4.4 Waiver of Conditions. The conditions to the parties' obligations
to consummate the Reorganization may be waived in whole or in part, to the
extent permitted by applicable law, by the mutual consent in writing of all of
the parties hereto.
4.5 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
4.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without giving effect to the
principles of conflict of laws thereof.
TITAN EXPLORATION, INC.
By: /s/ JACK HIGHTOWER
---------------------------
Name: Jack Hightower
-------------------------
Title: President
------------------------
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<PAGE> 6
TITAN RESOURCES I, INC.
By: /s/ JACK HIGHTOWER
----------------------------------
Name: Jack Hightower
--------------------------------
Title: President
-------------------------------
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P.,
General Partner
By: /s/ DAVID R. ALBIN
----------------------------------
Name: David R. Albin
--------------------------------
Title: Authorized Employee
-------------------------------
NATURAL GAS PARTNERS II, L.P.
By: G.F.W. Energy II, L.P.,
General Partner
By: GFW II, L.L.C.,
General Partner
By: /s/ KENNETH A. HERSH
----------------------------------
Name: Kenneth A. Hersh
--------------------------------
Title: Authorized Member
-------------------------------
/s/ KENNETH A. HERSH
-------------------------------------
KENNETH A. HERSH
/s/ R. GAMBLE BALDWIN
-------------------------------------
R. GAMBLE BALDWIN
ALBIN INCOME TRUST
/s/ DONALD A. SHORE
-------------------------------------
By: Trustee
/s/ JOHN S. FOSTER
-------------------------------------
JOHN S. FOSTER
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<PAGE> 7
/s/ BRUCE B. SELKIRK, III
------------------------------------------
BRUCE B. SELKIRK, III
/s/ JACK D. HIGHTOWER
------------------------------------------
JACK D. HIGHTOWER
JACK D. HIGHTOWER,
Separate Property
By: /s/ JACK HIGHTOWER
---------------------------------------
Name: Jack Hightower
-------------------------------------
/s/ AMBER L. HIGHTOWER
------------------------------------------
AMBER L. HIGHTOWER
/s/ HALEY D. HIGHTOWER
------------------------------------------
HALEY D. HIGHTOWER, by Jack D. Hightower
Custodian for Haley D. Hightower under the
Texas Uniform Gifts to Minors Act.
ROBIN M. HIGHTOWER,
Separate Property
By: /s/ ROBIN M. HIGHTOWER
---------------------------------------
Name: Robin M. Hightower
-------------------------------------
/s/ GEORGE G. STALEY
------------------------------------------
GEORGE G. STALEY
/s/ THOMAS H. MOORE
------------------------------------------
THOMAS H. MOORE
/s/ RODNEY L. WOODARD
------------------------------------------
RODNEY L. WOODARD
/s/ DAN P. COLWELL
------------------------------------------
DAN P. COLWELL
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<PAGE> 8
WJV, INC.
By: /s/ WILLAM J. VAUGHAN, JR.
---------------------------------------
Name: Willam J. Vaughan, Jr.
-------------------------------------
Title: President
------------------------------------
/s/ WILLIAM J. VAUGHN, JR.
------------------------------------------
WILLIAM J. VAUGHN, JR.
/s/ SIDNEY W. VANLOH, JR.
------------------------------------------
SIDNEY W. VANLOH, JR.
/s/ TOBY R. NEUGEBAUER
------------------------------------------
TOBY R. NEUGEBAUER
/s/ R. SCOTT BROWN
------------------------------------------
R. SCOTT BROWN
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general
partner
By: /s/ WYNNE SNOOTS, JR.
---------------------------------------
Name: Wynne Snoots, Jr.
-------------------------------------
Title: Agent of Attorney
------------------------------------
FIRST UNION CORPORATION
By: /s/ SCOTT B. PERPER
---------------------------------------
Name: Scott B. Perper
-------------------------------------
Title: Senior Vice President
------------------------------------
SELMA INTERNATIONAL INVESTMENT LIMITED
By: /s/ PHILLIP M. WHITEHEAD
---------------------------------------
Name: Phillip M. Whitehead
-------------------------------------
Title: President
------------------------------------
-8-
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TITAN EXPLORATION, INC.
FIRST: The name of the corporation is TITAN EXPLORATION, INC. (the
"Corporation").
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
name of its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purpose to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 70,000,000 shares, consisting
solely of 10,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and 60,000,000 shares of Common Stock, par value $.01 per
share (the "Common Stock").
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of the classes of stock of the Corporation:
(a) Preferred Stock.
Shares of Preferred Stock may be issued from time to time in one or more
series as from time to time may be determined by the Board of Directors of the
Corporation. Each series shall be distinctly designated. The Board of
Directors of the Corporation is hereby expressly granted authority to fix, by
resolution or resolutions adopted prior to the issuance of any shares of each
particular series of Preferred Stock, the designation, powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, if any, of such series,
including, but without limiting the generality of the foregoing, the following:
(i) the designation of, and the number of shares of Preferred Stock
which shall constitute, the series, which number may be increased
(except as otherwise fixed by the Board of Directors, and in any event
not above the total number of authorized shares of the class) or
decreased (but not below the number of shares thereof then outstanding)
from time to time by action of the Board of Directors;
(ii) the rate and times at which (or the method of determination
thereof), and the terms and conditions upon which, dividends, if any, on
shares of the series shall be paid, the nature of any preferences or the
relative rights of priority of such dividends to the dividends payable
on any other class or classes of stock of the Corporation or
<PAGE> 2
on any other series of Preferred Stock, and a statement whether such
dividends shall be cumulative;
(iii) whether shares of the series shall be convertible into or
exchangeable for shares of capital stock or other securities or property
of the Corporation or of any other corporation or entity, and, if so,
the terms and conditions of such conversion or exchange, including any
provisions for the adjustment of the conversion or exchange rate in such
events as the Board of Directors shall determine;
(iv) whether shares of the series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount and type of
consideration payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(v) the rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding-up of the
Corporation;
(vi) whether shares of the series shall have a sinking fund or
purchase account for the redemption or purchase of shares of the series,
and, if so, the terms, conditions and amount of such sinking fund or
purchase account;
(vii) whether shares of the series shall have voting rights in addition
to the voting rights provided by law, which may, without limiting the
generality of the foregoing, include (A) the right to more or less than
one vote per share on any or all matters voted upon by the Corporation's
stockholders and (B) the right to vote, as a series by itself or
together with other series of Preferred Stock or together with all
series of Preferred Stock as a class or with the Common Stock as a
class, upon such matters, under such circumstances and upon such
conditions as the Board of Directors may fix, including, without
limitation, the right, voting as a series by itself or together with
other series of Preferred Stock or together with all series of Preferred
Stock as a class, to elect one or more directors of the Corporation in
the event there shall have been a default in the payment of dividends on
any one or more series of Preferred Stock or under such other
circumstances and upon such conditions as the Board of Directors may
determine; and
(viii) any other powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions, of shares of that series.
The relative powers, preferences and rights of each series of Preferred Stock
in relation to the powers, preferences and rights of each other series of
Preferred Stock shall, in each case, be as fixed from time to time by the Board
of Directors in the resolution or resolutions adopted pursuant to the authority
granted in this subsection (a), and the consent, by class or series vote or
otherwise, of the holders of Preferred Stock or such of the series of the
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Corporation of any other series of Preferred Stock, whether
the powers, preferences and rights of such other series shall be fixed by the
Board of Directors as senior to, or on
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<PAGE> 3
a parity with, the powers, preferences and rights of such outstanding series,
or any of them; provided, however, that the Board of Directors may provide in
such resolution or resolutions adopted with respect to any series of Preferred
Stock that the consent of the holders of a majority (or such greater proportion
as shall be therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other series of
Preferred Stock.
(b) Common Stock.
(i) Dividends. After the requirements with respect to preferential
dividends on Preferred Stock, if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts and subject further to any other conditions which may
be fixed in accordance with the provisions of this Certificate of
Incorporation, then, but not otherwise, the holders of Common Stock
shall be entitled to receive such dividends, if any, as may be declared
from time to time by the Board of Directors on the Common Stock, which
dividends shall be paid out of assets legally available for the payment
of dividends and shall be distributed among the holders of shares of the
Common Stock pro rata in accordance with the number of shares of such
stock held by each such holder.
(ii) Liquidation. After distribution in full of the preferential
amount, if any, to be distributed to the holders of Preferred Stock in
the event of voluntary or involuntary liquidation, distribution or sale
of assets, dissolution or winding-up of the Corporation, the holders of
the Common Stock shall be entitled to receive all the remaining assets
of the Corporation, tangible and intangible, of whatever kind available
for distribution to stockholders, which assets shall be distributed pro
rata in accordance with the number of shares of such stock held by each
such holder.
(iii) Voting. Except as may otherwise be required by law, this
Certificate of Incorporation or the provisions of the resolution or
resolutions as may be adopted by the Board of Directors pursuant to
subsection (a) of this Article FOURTH, each holder of Common Stock shall
have one vote in respect of each share of Common Stock held by such
holder on each matter voted upon by the stockholders. At all elections
of directors of the Corporation, each holder of Common Stock, or of any
class or classes or of a series or series thereof, shall be entitled to
as many votes as shall equal the number of votes which he would
otherwise be entitled to cast for the election of directors with respect
to his shares of Common Stock multiplied by the number of directors to
be elected by him, and each such holder may cast all of such votes for a
single director or may distribute his votes among the number to be voted
for, or for any two or more directors as such holder may deem fit.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
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<PAGE> 4
(a) Management. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
(b) Number of Directors. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be not less
than four nor more than nine as fixed from time to time by or pursuant to the
Bylaws of the Corporation. Each director, other than a director who may be
elected by the holders of any series of Preferred Stock under specified
circumstances, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal. Election of directors need not be
by written ballot unless the Bylaws of the Corporation so provide.
(c) Initial Directors. The names and mailing addresses of the
persons who are to serve as directors until the first annual meeting of the
holders of capital stock of the Corporation or until their successors are
elected and qualify are:
Name: Mailing Address:
- ----- ---------------
Jack D. Hightower 500 West Texas, Suite 500
Midland, Texas 79701
George Staley 500 West Texas, Suite 500
Midland, Texas 79701
Kenneth A. Hersh 777 Main St. Suite 2700
Fort Worth, Texas 776102
David R. Albin 100 N. Guadalupe Street, Suite 205
Santa Fe, New Mexico 87501
(d) Stockholder Nomination of Directors and Introduction of Business.
Advance notice of stockholder nominations for the election of directors and of
business to be brought by stockholders before any meeting of the stockholders
of the Corporation shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
(e) Bylaws. In furtherance and not in limitation of the powers
conferred by law, the Board of Directors is expressly authorized to adopt,
alter, amend and repeal the Bylaws of the Corporation by the affirmative vote
of at least eighty percent of the entire Board of Directors, subject to the
power of the stockholders of the Corporation to adopt, alter, amend and repeal
the Bylaws.
(f) Powers of Directors. In addition to the powers and authority
hereinbefore or by statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the
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<PAGE> 5
Corporation, subject, nevertheless, to the provisions of the statutes of
Delaware, this Certificate of Incorporation and any Bylaws adopted by the
stockholders; provided, however, that no Bylaws thereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such Bylaws had not been adopted.
SIXTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise arrangement and the said reorganization shall,
if sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
SEVENTH: (a) Elimination of Certain Liability of Directors. To the
fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of duty as a director. Without limiting the foregoing in any
respect, a director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of 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
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this provision
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
(b) Indemnification and Insurance.
(i) Right to Indemnification. (A) Each person who was or is made a
party or is threatened to be 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 or officer of the Corporation, or serves, in any
-5-
<PAGE> 6
capacity, any corporation, partnership or other entity in which the
Corporation has a partnership or other interest, 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 or agent or in any other capacity while serving as a director,
officer, employee 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) reasonable 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 or agent and
shall inure to the benefit of his or her heirs, executors and
administrators, and (B) the Corporation shall indemnify and hold
harmless in such manner any person designated by the Board of Directors,
or any committee thereof, as a person subject to this indemnification
provision, and who was or is made a party or is threatened to be made a
party to a proceeding by reason of the fact that he, she or a person of
whom he or she is the legal representative, is or was serving at the
request of the Board of Directors of the Corporation as a director,
officer, employee or agent of another corporation or a partnership,
joint venture, trust or other enterprise whether such request is made
before or after the acts taken or allegedly taken or events occurring or
allegedly occurring which give rise to such proceeding; provided,
however, that except as provided in subsection (b)(ii) of this Section,
the Corporation shall indemnify any such person seeking indemnification
pursuant to this subsection 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.
The right to indemnification conferred herein shall be a contract right
based upon an offer from the Corporation which shall be deemed to have
been made to a person subject to subsection (b)(i)(A) on the date hereof
and to a person subject to subsection (b)(i)(B) on the date designated
by the Board of Directors, shall be deemed to be accepted by such
person's service or continued service as a director or officer of the
Corporation for any period after the offer is made and shall include the
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 or officer in his or her
capacity as the director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit
plan) 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 director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not
entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide
indemnification to employees or agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and
officers.
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<PAGE> 7
(ii) Right of Claimant to Bring Suit. If a claim under Section (b)(i)
of this Article 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.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made
a determination prior to 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 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.
(iii) Nonexclusivity of Rights. 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 right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
(iv) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director officer, employee 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.
(v) Severability. If any subsection of this Section (b) shall be
deemed to be invalid or ineffective in any proceedings, the remaining
subsections hereof shall not be affected and shall remain in full force
and effect.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision 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, provided, that the
affirmative vote of the holders of record of outstanding shares representing at
least eighty percent (80%) of the voting power of all of the shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend,
alter, change or repeal any provisions of, or to adopt any provision or
provisions inconsistent with, this Article EIGHTH or Article FIFTH of this
Certificate of Incorporation.
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<PAGE> 8
NINTH: The name of the incorporator of the Corporation is Christopher D.
Ray, and the mailing address of such incorporator is Suite 3300, 1700 Pacific
Avenue, Dallas, Texas 75201.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, does hereby make and file this
Certificate of Incorporation, hereby declaring and certifying that the facts
herein stated are true, and accordingly has hereunto set the incorporator's
hand this 27th day of September, 1996.
/s/ Christopher D. Ray
---------------------------------
-8-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
TITAN EXPLORATION, INC.
EFFECTIVE SEPTEMBER 27, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
OFFICES . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
MEETINGS OF STOCKHOLDERS . . . . . . . . . . 1
Section 1. Place of Meeting . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings . . . . . . . . . . . . . . . . . 2
Section 4. Notice of Meetings . . . . . . . . . . . . . . . . 2
Section 5. Quorum . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Adjournments . . . . . . . . . . . . . . . . . . . 2
Section 7. Order of Business . . . . . . . . . . . . . . . . . 2
Section 8. List of Stockholders . . . . . . . . . . . . . . . 3
Section 9. Voting . . . . . . . . . . . . . . . . . . . . . . 3
Section 10. Inspectors of Election . . . . . . . . . . . . . . 4
ARTICLE III
BOARD OF DIRECTORS . . . . . . . . . . . . 4
Section 1. General Powers . . . . . . . . . . . . . . . . . . 4
Section 2. Number, Qualification and Election . . . . . . . . 4
Section 3. Notification of Nominations . . . . . . . . . . . . 5
Section 4. Quorum and Manner of Acting . . . . . . . . . . . . 5
Section 5. Place of Meeting . . . . . . . . . . . . . . . . . 5
Section 6. Regular Meetings . . . . . . . . . . . . . . . . . 5
Section 7. Special Meetings . . . . . . . . . . . . . . . . . 5
Section 8. Notice of Meetings . . . . . . . . . . . . . . . . 6
Section 9. Rules and Regulations . . . . . . . . . . . . . . . 6
Section 10. Participation in Meeting by Means of Communication
Equipment . . . . . . . . . . . . . . . . . . . . . 6
Section 11. Action Without Meeting . . . . . . . . . . . . . . 6
Section 12. Resignations . . . . . . . . . . . . . . . . . . . 6
Section 13. Removal of Directors . . . . . . . . . . . . . . . 6
Section 14. Vacancies . . . . . . . . . . . . . . . . . . . . . 6
Section 15. Compensation . . . . . . . . . . . . . . . . . . . 6
Section 16. Advisory Directors . . . . . . . . . . . . . . . . 7
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES . . . . . . . . . 7
Section 1. Executive Committee . . . . . . . . . . . . . . . . 7
Section 2. Other Committees . . . . . . . . . . . . . . . . . 8
Section 3. Procedure; Meetings; Quorum . . . . . . . . . . . . 8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V
OFFICERS . . . . . . . . . . . . . . 8
Section 1. Number; Term of Office . . . . . . . . . . . . . . 8
Section 2. Removal . . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Resignation . . . . . . . . . . . . . . . . . . . . 9
Section 4. Vacancies . . . . . . . . . . . . . . . . . . . . . 9
Section 5. The President . . . . . . . . . . . . . . . . . . . 9
Section 6. Chairman of the Board . . . . . . . . . . . . . . . 9
Section 7. Vice Presidents . . . . . . . . . . . . . . . . . . 9
Section 8. Treasurer . . . . . . . . . . . . . . . . . . . . . 9
Section 9. Secretary . . . . . . . . . . . . . . . . . . . . . 10
Section 10. Controller . . . . . . . . . . . . . . . . . . . . 10
Section 11. Assistant Treasurers, Secretaries and Controllers . 10
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS . 10
Section 1. Third Party Actions . . . . . . . . . . . . . . . . 10
Section 2. Derivative Actions . . . . . . . . . . . . . . . . 10
Section 3. Determination of Indemnification . . . . . . . . . 11
Section 4. Right to Indemnification . . . . . . . . . . . . . 11
Section 5. Advancement of Expenses . . . . . . . . . . . . . . 11
Section 6. Indemnification and Advancement of Expenses Not
Exclusive . . . . . . . . . . . . . . . . . . . . . 11
Section 7. Insurance . . . . . . . . . . . . . . . . . . . . . 11
Section 8. Definitions of Certain Terms . . . . . . . . . . . 12
Section 9. Continuation and Successors . . . . . . . . . . . . 12
Section 10. Exclusive Jurisdiction . . . . . . . . . . . . . . 12
ARTICLE VII
CAPITAL STOCK . . . . . . . . . . . . . 12
Section 1. Certificates for Shares . . . . . . . . . . . . . . 12
Section 2. Transfer of Shares . . . . . . . . . . . . . . . . 13
Section 3. Address of Stockholders . . . . . . . . . . . . . . 13
Section 4. Lost, Destroyed and Mutilated Certificates . . . . 13
Section 5. Regulations . . . . . . . . . . . . . . . . . . . . 13
Section 6. Fixing Date for Determination of Stockholders of
Record . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIII
SEAL . . . . . . . . . . . . . . . 14
ARTICLE IX
FISCAL YEAR . . . . . . . . . . . . . . 14
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE X
WAIVER OF NOTICE . . . . . . . . . . . . 14
ARTICLE XI
AMENDMENTS . . . . . . . . . . . . . . 14
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . 15
Section 1. Execution of Documents . . . . . . . . . . . . . . 15
Section 2. Deposits . . . . . . . . . . . . . . . . . . . . . 15
Section 3. Checks . . . . . . . . . . . . . . . . . . . . . . 15
Section 4. Proxies in Respect of Stock or Other Securities of
Other Corporations . . . . . . . . . . . . . . . . 15
</TABLE>
-iii-
<PAGE> 5
BYLAWS
OF
TITAN EXPLORATION, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Titan
Exploration, Inc. (hereinafter called the "Corporation") in the State of
Delaware shall be at Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle, 19801 and the registered agent in charge
thereof shall be The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
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 Meeting. All meetings of the stockholders of the
Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board of Directors, the Chairman of the Board or the President.
Section 2. Annual Meetings. Annual meetings of the stockholders of
the Corporation for the election of directors and for the transaction of such
other business as may properly come before such meetings shall be held during
each calendar year on a date and at such hour as may be fixed by the Board of
Directors, the Chairman of the Board or the President. Failure to designate a
time for the annual meeting or to hold the annual meeting at the designated
time shall not work a dissolution of the Corporation.
In order for business to be properly brought before the meeting by a
stockholder, the business must be legally proper and written notice thereof
must have been filed with the Secretary of the Corporation not less than 60 nor
more than 120 days prior to the meeting. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the proposal as the
same appears in the Corporation's records; (b) the class and number of shares
of stock of the Corporation that are beneficially owned, directly or
indirectly, by such stockholder; and (c) a clear and concise statement of the
proposal and the stockholder's reasons for supporting it.
The filing of a stockholder notice as required above shall not, in and
of itself, constitute the making of the proposal described therein.
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<PAGE> 6
If the chairman of the meeting determines that any proposed business has
not been properly brought before the meeting, he shall declare such business
out of order; and such business shall not be conducted at the meeting.
Section 3. Special Meetings. Except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of the stockholders for any purpose or purposes may be called only by
(i) the Chairman of the Board, (ii) the President, (iii) a majority of the
entire Board of Directors, or (iv) a majority of the votes entitled to be cast
by the stockholders entitled to vote at such a meeting, or (v) not more
frequently than once during each calendar year, by ten percent of the votes
entitled to be cast by the shareholders entitled to vote at such a meeting.
Only such business as is specified in the notice of any special meeting of the
stockholders shall come before such meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed
given when deposited in the United States mail, postage prepaid, directed to
the stockholder at such stockholder's address as it appears on the records of
the Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice
of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice to such stockholder, or who shall waive notice thereof as provided in
Article X of these Bylaws. Notice of adjournment of a meeting of stockholders
need not be given if the time and place to which it is adjourned are announced
at such meeting, unless the adjournment is for more than 30 days or, after
adjournment, a new record date is fixed for the adjourned meeting.
Section 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, the holders of a majority of
the votes entitled to be cast by the stockholders entitled to vote, which if
any vote is to be taken by classes shall mean the holders of a majority of the
votes entitled to be cast by the stockholders of each such class, present in
person or represented by proxy, shall constitute a quorum for the transaction
of business at any meeting of the stockholders.
Section 6. Adjournments. In the absence of a quorum, the holders of
a majority of the votes present in person or represented by proxy, may adjourn
the meeting from time to time. At any such adjourned meeting at which a quorum
may be present, any business may be transacted which might have been transacted
at the meeting as originally called.
Section 7. Order of Business. At each meeting of the stockholders,
the Chairman of the Board, or, in the absence of the Chairman of the Board, the
President, shall act as chairman. The order of business at each such meeting
shall be as determined by the chairman of the meeting. The chairman of the
meeting shall have the right and authority to prescribe such rules, regulations
and procedures and to do all such acts and things as are necessary or desirable
for the proper conduct of the meeting, including, without limitation, the
establishment of procedures for the maintenance of order and safety,
limitations on the time allotted to questions or comments on the affairs of the
Corporation, restrictions on entry to such meeting after the time prescribed
for the commencement thereof, and the opening and closing of the voting polls.
The chairman of the meeting shall announce at each such meeting the date
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<PAGE> 7
and time of the opening and the closing of the voting polls for each matter
upon which the stockholders will vote at such meeting.
Section 8. List of Stockholders. It shall be the duty of the
Secretary or other officer of the Corporation who has charge of the stock
ledger to prepare and make, at least 10 days before each meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in such stockholder's name. Such list shall be
produced and kept available at the times and places required by law.
Section 9. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, each stockholder of record of
any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation shall be entitled at each
meeting of stockholders to such number of votes for each share of such stock as
may be fixed in the Certificate of Incorporation or in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of
such stock, and each stockholder of record of Common Stock shall be entitled at
each meeting of stockholders to one vote for each share of such stock, in each
case, registered in such stockholder's name on the books of the Corporation:
(a) on the date fixed pursuant to Section 6 of Article VII of
these Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the date on which notice
of such meeting 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.
Each stockholder entitled to vote at any meeting of stockholders may
authorize not in excess of three persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact. Any such
proxy shall be delivered to the secretary of such meeting at or prior to the
time designated for holding such meeting but, in any event, not later than the
time designated in the order of business for so delivering such proxies. No
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period.
At each meeting of the stockholders, all corporate actions, other than
the election of directors, to be taken by vote of the stockholders (except as
otherwise required by law and except as otherwise provided in the Certificate
of Incorporation) shall be authorized by a majority of the votes cast by the
stockholders entitled to vote thereon, present in person or represented by
proxy. At all elections of directors of the Corporation, each holder of Common
Stock, or of any class or classes or of a series or series thereof, shall be
entitled to as many votes as shall equal the number of votes which he would
otherwise be entitled to cast for the election of directors with respect to his
shares of Common Stock multiplied by the number of directors to be elected by
him, and each such holder may cast all of such votes for a single director or
may distribute his votes among the number to be voted for, or for any two or
more directors as such holder may deem fit. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of the directors. Where a
separate vote by a class or classes is required, the affirmative vote of the
majority of shares of such class or classes present in person or represented by
proxy at the meeting shall be the act of such class.
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<PAGE> 8
Unless required by law or determined by the chairman of the meeting to
be advisable, the vote on any matter, including the election of directors, need
not be by written ballot. In the case of a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.
Section 10. Inspectors of Election. Either the Board of Directors or,
in the absence of an appointment of inspectors by the Board, the Chairman of
the Board or the President shall, in advance of each meeting of the
stockholders, appoint one or more inspectors to act at such meeting and make a
written report thereof. In connection with any such appointment, one or more
persons may, in the discretion of the body or person making such appointment,
be designated as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at any meeting of
stockholders, the chairman of such meeting shall appoint one or more inspectors
to act at such meeting. Each such inspector shall perform such duties as are
required by law and as shall be specified by the Board, the Chairman of the
Board, the President or the chairman of the meeting. Each such inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability. Inspectors need not be stockholders. No
director or nominee for the office of director shall be appointed such an
inspector.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by law or by the Certificate of
Incorporation of the Corporation directed or required to be exercised or done
by the stockholders.
Section 2. Number, Qualification and Election. Except as otherwise
provided in any resolution or resolutions adopted by the Board of Directors
pursuant to the provisions of Article FOURTH of the Certificate of
Incorporation of the Corporation relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, the number of directors of the Corporation shall
be fixed from time to time by resolution adopted by vote of a majority of the
entire Board of Directors, provided that the number so fixed shall not be less
than four nor more than nine.
The directors, other than those who may be elected by the holders of
shares of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation pursuant to the terms of any
resolution or resolutions providing for the issuance of such stock adopted by
the Board, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Each director shall be at least 21 years of age. Directors need not be
stockholders of the Corporation.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
at each annual meeting of the stockholders, all directors of the Corporation
shall be elected.
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<PAGE> 9
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected.
Section 3. Notification of Nominations. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors. Any stockholder entitled to vote for
the election of directors at a meeting may nominate persons for election as
directors only if written notice of such stockholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of stockholders, 90 days
in advance of such meeting, and (ii) with respect to an election to be held at
a special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such notice shall set forth: (a) the
name and address of the stockholder who intends to make the nomination of the
person or persons to be nominated; (b) a representation that the stockholder is
a holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been
nominated, or intended to be nominated, by the Board of Directors; and (e) the
consent of each nominee to serve as a director of the Corporation if so
elected. The chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
Section 4. Quorum and Manner of Acting. Except as otherwise provided
by law, the Certificate of Incorporation of the Corporation or these Bylaws, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business at any meeting of the Board, and, except as so
provided, the vote of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board. In the absence of a
quorum, a majority of the directors present may adjourn the meeting to another
time and place. At any adjourned meeting at which a quorum is present, any
business that might have been transacted at the meeting as originally called
may be transacted.
Section 5. Place of Meeting. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board shall from time
to time by resolution determine. If any day fixed for a regular meeting shall
be a legal holiday under the laws of the place where the meeting is to be held,
the meeting that would otherwise be held on that day shall be held at the same
hour on the next succeeding business day.
Section 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board or the
President or by a majority of the directors.
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<PAGE> 10
Section 8. Notice of Meetings. Notice of regular meetings of the
Board of Directors or of any adjourned meeting thereof need not be given.
Notice of each special meeting of the Board shall be mailed or transmitted by
delivery service to each director, addressed to such director at such
director's residence or usual place of business, at least two days before the
day on which the meeting is to be held or shall be sent to such director at
such place by telegraph or facsimile telecommunication or be given personally
or by telephone, not later than the day before the meeting is to be held, but
notice need not be given to any director who shall, either before or after the
meeting, submit a signed waiver of such notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to such
director. Every such notice shall state the time and place but need not state
the purpose of the meeting.
Section 9. Rules and Regulations. The Board of Directors may adopt
such rules and regulations not inconsistent with the provisions of law, the
Certificate of Incorporation of the Corporation or these Bylaws for the conduct
of its meetings and management of the affairs of the Corporation as the Board
may deem proper.
Section 10. Participation in Meeting by Means of Communication
Equipment. Any one or more members of the Board of Directors or any committee
thereof may participate in any meeting of the Board or of any such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 11. Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if all of the members of the Board or of any
such committee consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or of such committee.
Section 12. Resignations. Any director of the Corporation may at any
time resign by giving written notice to the Board of Directors, the Chairman of
the Board, the President or the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein or, if the time be not
specified, upon receipt thereof; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 13. Removal of Directors. Any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors, except that if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against that director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board.
Section 14. Vacancies. Subject to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, any vacancies on the Board of Directors and any
newly created directorship resulting from an increase in the authorized number
of directors, may be filled by election at an annual or special meeting of
stockholders called for that purpose or by the affirmative vote of a majority
of the remaining directors, though less than a quorum of the entire Board, and
the directors so chosen shall hold office until the next annual meeting of
stockholders and until their successors are duly elected and shall qualify,
unless sooner displaced.
Section 15. Compensation. Each director who shall not at the time
also be a salaried officer or employee of the Corporation or any of its
subsidiaries (hereinafter referred to as an "outside director"),
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in consideration of such person serving as a director, shall be entitled to
receive from the Corporation such amount per annum and such fees for attendance
at meetings of the Board of Directors or of committees of the Board, or both,
as the Board shall from time to time determine. In addition, each director,
whether or not an outside director, shall be entitled to receive from the
Corporation reimbursement for the reasonable expenses incurred by such person
in connection with the performance of such person's duties as a director.
Nothing contained in this Section 15 shall preclude any director from serving
the Corporation or any of its subsidiaries in any other capacity and receiving
proper compensation therefor.
Section 16. Advisory Directors. The Board of Directors may appoint
one or more advisory directors as it shall from time to time determine. Each
advisory director appointed shall hold office at the pleasure of the Board of
Directors. An advisory director shall be entitled, but shall have no
obligation, to attend and be present at the meetings of the Board of Directors,
although a meeting of the Board of Directors may be held without notice to any
advisory director and no advisory director shall be considered in determining
whether a quorum of the Board of Directors is present. An advisory director
shall advise and counsel the Board of Directors on the business and operations
of the Corporation as requested by the Board of Directors; however, an advisory
director shall not be entitled to vote on any matter presented to the Board of
Directors. An advisory director, in consideration of such person serving as an
advisory director, shall be entitled to receive from the Corporation such fees
for attendance at meetings of the Board of Directors as the Board shall from
time to time determine. In addition, an advisory director shall be entitled to
receive from the Corporation reimbursement for the reasonable expenses incurred
by such person in connection with the performance of such person's duties as an
advisory director.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by
resolution adopted by a majority of the entire Board, designate annually three
or more of its members to constitute members or alternate members of an
Executive Committee, which Committee shall have and may exercise, between
meetings of the Board, all the powers and authority of the Board in the
management of the business affairs of the Corporation, including, if such
Committee is so empowered and authorized by resolution adopted by a majority of
the entire Board, the power and authority to declare a dividend and to
authorize the issuance of stock, and may authorize the seal of the Corporation
to be affixed to all papers that may require it, except that the Executive
Committee shall not have such power or authority in reference to:
(a) amending the Certificate of Incorporation of the
Corporation;
(b) adopting an agreement of merger or consolidation involving
the Corporation;
(c) recommending to the stockholders the sale, lease or
exchange of all or substantially all of the property and assets of the
Corporation;
(d) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(e) adopting, amending or repealing any Bylaw;
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(f) filling vacancies on the Board or on any committee of the
Board, including the Executive Committee; or
(g) amending or repealing any resolution of the Board which by
its terms may be amended or repealed only by the Board.
The Board shall have power at any time to change the membership of the
Executive Committee, to fill all vacancies in it and to discharge it, either
with or without cause.
Section 2. Other Committees. The Board of Directors may, by
resolution adopted by a majority of the entire Board, designate from among its
members one or more other committees, each of which shall, except as otherwise
prescribed by law, have such authority of the Board as may be specified in the
resolution of the Board designating such committee. A majority of all the
members of such committee may determine its action and fix the time and place
of its meetings, unless the Board shall otherwise provide. The Board shall
have power at any time to change the membership of, to fill all vacancies in
and to discharge any such committee, either with or without cause.
Section 3. Procedure; Meetings; Quorum. Regular meetings of the
Executive Committee or any other committee of the Board of Directors, of which
no notice shall be necessary, may be held at such times and places as shall be
fixed by resolution adopted by a majority of the members thereof. Special
meetings of the Executive Committee or any other committee of the Board shall
be called at the request of any member thereof. Notice of each special meeting
of the Executive Committee or any other committee of the Board shall be sent by
mail, delivery service, facsimile telecommunication, telegraph or telephone, or
be delivered personally to each member thereof not later than the day before
the day on which the meeting is to be held, but notice need not be given to any
member who shall, either before or after the meeting, submit a signed waiver of
such notice or who shall attend such meeting without protesting, prior to or at
its commencement, the lack of such notice to such member. Any special meeting
of the Executive Committee or any other committee of the Board shall be a legal
meeting without any notice thereof having been given, if all the members
thereof shall be present thereat. Notice of any adjourned meeting of any
committee of the Board need not be given. The Executive Committee or any other
committee of the Board may adopt such rules and regulations not inconsistent
with the provisions of law, the Certificate of Incorporation of the Corporation
or these Bylaws for the conduct of its meetings as the Executive Committee or
any other committee of the Board may deem proper. A majority of the Executive
Committee or any other committee of the Board shall constitute a quorum for the
transaction of business at any meeting, and the vote of a majority of the
members thereof present at any meeting at which a quorum is present shall be
the act of such committee. The Executive Committee or any other committee of
the Board of Directors shall keep written minutes of its proceedings and shall
report on such proceedings to the Board.
ARTICLE V
OFFICERS
Section 1. Number; Term of Office. The officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice Presidents, a
Treasurer, a Secretary, a Controller, and such other officers or agents with
such titles and such duties as the Board of Directors may from time to time
determine, each to have such authority, functions or duties as in these Bylaws
provided or as the Board
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may from time to time determine, and each to hold office for such term as may
be prescribed by the Board and until such person's successor shall have been
chosen and shall qualify, or until such person's death or resignation, or until
such person's removal in the manner hereinafter provided. The Chairman of the
Board and the President shall be elected from among the directors. One person
may hold the offices and perform the duties of any two or more of said
officers; provided, however, that no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such instrument is required
by law, the Certificate of Incorporation of the Corporation or these Bylaws to
be executed, acknowledged or verified by two or more officers. The Board may
from time to time authorize any officer to appoint and remove any such other
officers and agents and to prescribe their powers and duties. The Board may
require any officer or agent to give security for the faithful performance of
such person's duties.
Section 2. Removal. Any officer may be removed, either with or
without cause, by the Board of Directors at any meeting thereof called for that
purpose, or, except in the case of any officer elected by the Board, by any
committee or superior officer upon whom such power may be conferred by the
Board.
Section 3. Resignation. Any officer may resign at any time by giving
notice to the Board of Directors, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the date of receipt of
such notice or at any later date specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these Bylaws for election to such
office.
Section 5. The President. The President shall be the chief executive
officer of the Corporation and as such shall have general supervision and
direction of the business and affairs of the Corporation, subject to the
control of the Board of Directors. The President shall, if present and in the
absence of the Chairman of the Board, preside at meetings of the stockholders,
meetings of the Board and meetings of the Executive Committee. The President
shall perform such other duties as the Board may from time to time determine.
The President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments authorized by the Board or any
committee thereof empowered to authorize the same.
Section 6. Chairman of the Board. The Chairman of the Board shall,
if present, preside at meetings of the stockholders, meetings of the Board and
meetings of the Executive Committee. The Chairman of the Board shall counsel
with and advise the President and perform such other duties as the President or
the Board or the Executive Committee may from time to time determine.
Section 7. Vice Presidents. Each Vice President shall have such
powers and duties as shall be prescribed by the President, the Chairman of the
Board or the Board of Directors. Any Vice President may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board or any committee thereof empowered to
authorize the same.
Section 8. Treasurer. The Treasurer shall perform all duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to the Treasurer by the President, the Chairman of the Board or
the Board of Directors.
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Section 9. Secretary. It shall be the duty of the Secretary to act
as secretary at all meetings of the Board of Directors, of the Executive
Committee and of the stockholders and to record the proceedings of such
meetings in a book or books to be kept for that purpose; the Secretary shall
see that all notices required to be given by the Corporation are duly given and
served; the Secretary shall be custodian of the seal of the Corporation and
shall affix the seal or cause it to be affixed to all certificates of stock of
the Corporation (unless the seal of the Corporation on such certificates shall
be a facsimile, as hereinafter provided) and to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these Bylaws. The Secretary shall have
charge of the stock ledger and also of the other books, records and papers of
the Corporation and shall see that the reports, statements and other documents
required by law are properly kept and filed; and the Secretary shall in general
perform all the duties incident to the office of Secretary and such other
duties as from time to time may be assigned to such person by the President,
the Chairman of the Board or the Board of Directors.
Section 10. Controller. The Controller shall perform all of the
duties incident to the office of the Controller and such other duties as from
time to time may be assigned to such person by the President, the Chairman of
the Board or the Board of Directors.
Section 11. Assistant Treasurers, Secretaries and Controllers. The
Assistant Treasurers, the Assistant Secretaries and the Assistant Controllers
shall perform such duties as shall be assigned to them by the Treasurer,
Secretary or Controller, respectively, or by the President, the Chairman of the
Board or the Board of Directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 1. Third Party Actions. 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 such person 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 actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in
a manner such person 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 or her 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 such person 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 reasonable cause to believe that his or her
conduct was unlawful.
Section 2. Derivative Actions. 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 such
person 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
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venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the Corporation, 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 to the Corporation unless and only to the extent
that the Court of Chancery of Delaware 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 of Delaware or such other court shall deem proper.
Section 3. Determination of Indemnification. Any indemnification
under Section 1 or 2 of this Article VI (unless ordered by a court) shall be
made by the Corporation 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 such person has met the applicable
standard of conduct set forth in Section 1 or 2 of this Article VI. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
Section 4. Right to Indemnification. Notwithstanding the other
provisions of this Article VI, 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 Section 1 or 2 of this
Article VI, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 5. Advancement of Expenses. The Corporation shall pay the
expenses (including attorneys' fees) incurred in defending any civil, criminal,
administrative or investigative action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding, provided, however, that
the payment of expenses incurred by a director, officer, employee or agent in
advance of the final disposition of the action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay all amounts advanced if it should be
ultimately determined that such person is not entitled to be indemnified under
this Article VI or otherwise.
Section 6. Indemnification and Advancement of Expenses Not Exclusive.
The indemnification and advancement of expenses provided by, or granted
pursuant to the other Sections of this Article VI shall not be deemed exclusive
of any other rights to which any person seeking indemnification may be entitled
under any law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office. All rights to
indemnification under this Article VI shall be deemed to be provided by a
contract between the Corporation and the director, officer, employee or agent
who served in such capacity at any time while these Bylaws and other relevant
provisions of the Delaware General Corporation Law and other applicable law, if
any, are in effect. Any repeal or modification thereof shall not affect any
rights or obligations then existing.
Section 7. Insurance. The Corporation may 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 such person and
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incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the applicable provisions of
the Delaware General Corporation Law.
Section 8. Definitions of Certain Terms. For purposes of this
Article VI, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Article VI with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
For purposes of this Article VI, references to "other enterprise" shall
include employee benefit plans; references to "fines" shall include any excise
tax assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article VI.
Section 9. Continuation and Successors. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article VI
shall, unless otherwise provided when authorized or ratified, 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 a
person.
Section 10. Exclusive Jurisdiction. The Delaware Court of Chancery is
vested with exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this Article VI or
under any statute, agreement, vote of stockholders or disinterested directors,
or otherwise. The Delaware Court of Chancery may summarily determine the
Corporation's obligation to advance expenses (including attorneys' fees).
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates for Shares. Certificates representing shares
of stock of each class of the Corporation, whenever authorized by the Board of
Directors, shall be in such form as shall be approved by the Board. The
certificates representing shares of stock of each class shall be signed by, or
in the name of, the Corporation by the Chairman of the Board or the President
or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer of the Corporation, and sealed with the
seal of the Corporation, which may be by a facsimile thereof. Any or all such
signatures may be facsimiles if countersigned by a transfer agent or registrar.
Although any officer, transfer agent or registrar whose manual or facsimile
signature is affixed to such a certificate
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ceases to be such officer, transfer agent or registrar before such certificate
has been issued, it may nevertheless be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still such at the
date of its issue.
The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any other officer or
agent designated by the Board.
Section 2. Transfer of Shares. Transfer of shares of stock of each
class of the Corporation shall be made only on the books of the Corporation by
the holder thereof, or by such holder's attorney thereunto authorized by a
power of attorney duly executed and filed with the Secretary of the Corporation
or a transfer agent for such stock, if any, and on surrender of the certificate
or certificates for such shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of all taxes thereon. The person
in whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation; provided, however,
that whenever any transfer of shares shall be made for collateral security and
not absolutely, and written notice thereof shall be given to the Secretary or
to such transfer agent, such fact shall be stated in the entry of the transfer.
No transfer of shares shall be valid as against the Corporation, its
stockholders and creditors for any purpose, except to render the transferee
liable for the debts of the Corporation to the extent provided by law, until it
shall have been entered in the stock records of the Corporation by an entry
showing from and to whom transferred.
Section 3. Address of Stockholders. Each stockholder shall designate
to the Secretary or transfer agent of the Corporation an address at which
notices of meetings and all other corporate notices may be served or mailed to
such person, and, if any stockholder shall fail to designate such address,
corporate notices may be served upon such person by mail directed to such
person at such person's post office address, if any, as the same appears on the
share record books of the Corporation or at such person's last known post
office address.
Section 4. Lost, Destroyed and Mutilated Certificates. The holder of
any share of stock of the Corporation shall immediately notify the Corporation
of any loss, theft, destruction or mutilation of the certificate therefor; the
Corporation may issue to such holder a new certificate or certificates for
shares, upon the surrender of the mutilated certificate or, in the case of
loss, theft or destruction of the certificate, upon satisfactory proof of such
loss, theft or destruction; the Board of Directors, or a committee designated
thereby, or the transfer agents and registrars for the stock, may, in their
discretion, require the owner of the lost, stolen or destroyed certificate, or
such person's legal representative, to give the Corporation a bond in such sum
and with such surety or sureties as they may direct to indemnify the
Corporation and said transfer agents and registrars against any claim that may
be made on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 5. Regulations. The Board of Directors may make such
additional rules and regulations as it may deem expedient concerning the issue
and transfer of certificates representing shares of stock of each class of the
Corporation and may make such rules and take such action as it may deem
expedient concerning the issue of certificates in lieu of certificates claimed
to have been lost, destroyed, stolen or mutilated.
Section 6. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or
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exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any other
action. A determination of stockholders entitled to notice of or to vote at a
meeting of the 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.
ARTICLE VIII
SEAL
The Board of Directors shall provide a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Corporation and the
words and figures "Corporate Seal 1996 Delaware", or such other words or
figures as the Board of Directors may approve and adopt. The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given by these Bylaws,
by the Certificate of Incorporation of the Corporation or by law, the person
entitled thereto may, either before or after the meeting or other matter in
respect of which such notice is to be given, waive such notice in writing,
which writing shall be filed with or entered upon the records of the meeting or
the records kept with respect to such other matter, as the case may be, and in
such event such notice need not be given to such person and such waiver shall
be deemed equivalent to such notice.
ARTICLE XI
AMENDMENTS
Any Bylaw (including this Article XI) may be adopted, repealed, altered
or amended at any meeting of the Board of Directors by the affirmative vote of
at least eighty percent of the entire Board of Directors, provided that such
proposed action in respect thereof shall be stated in the notice of such
meeting. The stockholders of the Corporation shall have the power to adopt,
repeal, alter or amend any provision of these Bylaws only to the extent and in
the manner provided in the Certificate of Incorporation of the Corporation.
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ARTICLE XII
MISCELLANEOUS
Section 1. Execution of Documents. The Board of Directors or any
committee thereof shall designate the officers, employees and agents of the
Corporation who shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, notes, checks, drafts and other orders for the
payment of money and other documents for and in the name of the Corporation and
may authorize such officers, employees and agents to delegate such power
(including authority to redelegate) by written instrument to other officers,
employees or agents of the Corporation. Such delegation may be by resolution
or otherwise and the authority granted shall be general or confined to specific
matters, all as the Board or any such committee may determine. In the absence
of such designation referred to in the first sentence of this Section 1, the
officers of the Corporation shall have such power so referred to, to the extent
incident to the normal performance of their duties.
Section 2. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board of Directors or any committee thereof or any officer
of the Corporation to whom power in that respect shall have been delegated by
the Board or any such committee shall select.
Section 3. Checks. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation, and all notes or other
evidence of indebtedness of the Corporation, shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board of Directors or of any committee thereof.
Section 4. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board of Directors or any committee thereof shall designate
the officers of the Corporation who shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and on
behalf of the Corporation the powers and rights that the Corporation may have
as the holder of stock or other securities in any other corporation, and to
vote or consent in respect of such stock or securities; such designated
officers may instruct the person or persons so appointed as to the manner of
exercising such powers and rights; and such designated officers may execute or
cause to be executed in the name and on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights.
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EXHIBIT 10.1
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AGREEMENT OF LIMITED PARTNERSHIP
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TITAN RESOURCES, L.P.
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Dated as of March 31, 1995
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
ARTICLE I FORMATION OF PARTNERSHIP . . . . . . . . . . . 1
SECTION 1.1. Formation . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Name . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.3. Business . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.4. Places of Business; Registered Agent; Names and
Addresses of Partners . . . . . . . . . . . . . . . 2
SECTION 1.5. Term . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6. Filings . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.7. Title to Partnership Property . . . . . . . . . . . . 3
ARTICLE II DEFINITIONS AND REFERENCES . . . . . . . . . . . 3
SECTION 2.1. Defined Terms . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.2. References and Titles . . . . . . . . . . . . . . . . 5
ARTICLE III CAPITALIZATION . . . . . . . . . . . . . . 6
SECTION 3.1. Capital Contributions of Partners . . . . . . . . . . 6
SECTION 3.2. Issuances of Additional Securities . . . . . . . . . 6
SECTION 3.3. Return of Contributions . . . . . . . . . . . . . . . 8
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . 8
SECTION 4.1. Allocation Among Limited Partners. . . . . . . . . . 8
SECTION 4.2. Allocation of Costs and Expenses . . . . . . . . . . 8
SECTION 4.3. Allocation of Revenues . . . . . . . . . . . . . . . 8
SECTION 4.4. Income Tax Allocations . . . . . . . . . . . . . . . 9
SECTION 4.5. Distributions . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V MANAGEMENT . . . . . . . . . . . . . . . 12
SECTION 5.1. Power and Authority of General Partner . . . . . . . 12
SECTION 5.2. Certain Restrictions on General Partner's Power
and Authority . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.3. Duties and Services of the General Partner . . . . . 15
SECTION 5.4. Liability of Partners and Indemnification . . . . . . 16
SECTION 5.5. Contracts with Affiliates . . . . . . . . . . . . . . 17
SECTION 5.6. Reimbursement of General Partner . . . . . . . . . . 17
SECTION 5.7. Insurance . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.8. Tax Elections . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.9. Tax Returns . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.10. Tax Matters Partner . . . . . . . . . . . . . . . . . 18
SECTION 5.11. Withdrawal by the General Partner . . . . . . . . . . 18
SECTION 5.12. Certain Decisions . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VI RIGHTS OF LIMITED PARTNERS . . . . . . . . . . . 19
SECTION 6.1. Rights of Limited Partners . . . . . . . . . . . . . 19
SECTION 6.2. Limitations on Limited Partners . . . . . . . . . . . 20
SECTION 6.3. Liability of Limited Partners . . . . . . . . . . . . 20
SECTION 6.4. Withdrawal and Return of Capital Contributions . . . 20
ARTICLE VII BOOKS, REPORTS, MEETINGS AND CONFIDENTIALITY . . . . . . 20
SECTION 7.1. Capital Accounts, Books and Records . . . . . . . . . 20
SECTION 7.2. Bank Accounts . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.3. Reports . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.4. Meetings of Partners . . . . . . . . . . . . . . . . 23
SECTION 7.5. Confidentiality . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII DISSOLUTION, LIQUIDATION AND TERMINATION . . . . . . . 24
SECTION 8.1. Dissolution . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.2. Reconstitution . . . . . . . . . . . . . . . . . . . 24
SECTION 8.3. Liquidation and Termination . . . . . . . . . . . . . 24
ARTICLE IX ASSIGNMENTS OF INTERESTS . . . . . . . . . . . 25
SECTION 9.1. Assignment by Partners . . . . . . . . . . . . . . . 25
SECTION 9.2. Removal of the General Partner . . . . . . . . . . . 26
SECTION 9.3. Right of General Partner Upon Removal . . . . . . . . 27
ARTICLE X REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 28
SECTION 10.1. Representations and Warranties . . . . . . . . . . . . 28
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . 30
SECTION 11.1. Notices . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.2. Amendment . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.3. Partition . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.4. Entire Agreement . . . . . . . . . . . . . . . . . . . 30
SECTION 11.5. Severability . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.6. No Waiver . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.7. Applicable Law . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.8. Successors and Assigns . . . . . . . . . . . . . . . . 30
SECTION 11.9. Counterparts . . . . . . . . . . . . . . . . . . . . . 31
SCHEDULE 1
NAMES, ADDRESSES AND CAPITAL CONTRIBUTIONS
OF THE LIMITED PARTNERS
</TABLE>
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<PAGE> 4
AGREEMENT OF LIMITED PARTNERSHIP
OF
TITAN RESOURCES, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement"), dated as of
March 31, 1995, is made by and among Titan Resources I, Inc., a Texas
corporation, as the general partner (the "General Partner"), and the persons
who have executed a counterpart signature page to this Agreement as the Limited
Partners (individually, a "Limited Partner" and collectively, the "Limited
Partners").
ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1. Formation. Subject to the provisions of this Agreement,
the parties do hereby form a Partnership which shall be considered and
construed as a limited partnership pursuant to the provisions of the Texas
Revised Limited Partnership Act, Article 6132a-1, Vernon's Texas Civil
Statutes, as amended from time to time, and any successor statute or statutes
(the "Act").
SECTION 1.2. Name. The name of the Partnership shall be Titan
Resources, L.P. Subject to all applicable laws, the business of the
Partnership shall be conducted in the name of the Partnership unless under the
law of some jurisdiction in which the Partnership does business such business
must be conducted under another name or unless the General Partner determines
that it is advisable to conduct Partnership business under another name. In
such a case, the business of the Partnership in such jurisdiction or in
connection with such determination may be conducted under such other name or
names as the General Partner shall determine to be necessary. The General
Partner shall cause to be filed on behalf of the Partnership such partnership
or assumed or fictitious name certificate or certificates or similar
instruments as may from time to time be required by law.
SECTION 1.3. Business. The business of the Partnership shall be (a) to
explore for, develop, produce, store, treat, process, gather, transport,
purchase or market oil, gas and related hydrocarbons, (b) to acquire properties
which may be used in oil and gas activities, including but not limited to (i)
leasehold interests, mineral interests and royalty interests, (ii) plants,
pipelines, wells, facilities, equipment and other assets relating to such
activities or properties and (iii) contracts, easements, servitudes, permits,
licenses and other rights relating to the foregoing; (c) to farmout, sell,
abandon and otherwise dispose of Partnership assets; (d) to effectuate
commodity hedging transactions in order to minimize the risk associated with
the fluctuation of prices to be received by the Partnership from the sale of
oil, gas and related hydrocarbons and minerals from Partnership properties; (e)
to purchase or otherwise acquire, and to sell or otherwise dispose of,
securities of issuers engaged in the foregoing activities, including each and
every kind of security, whether recourse or nonrecourse to the issuer and
without regard to whether such securities are publicly traded, readily
marketable or restricted as to transfer or resale; (f) to purchase, possess,
sell, transfer or otherwise deal in, and to exercise all rights, powers,
privileges and other incidents of ownership or possession with respect to,
securities held or owned by the Partnership; (g) to
<PAGE> 5
participate in any of the foregoing activities either directly or indirectly
through another partnership, joint venture, corporation or other arrangement;
and (h) to take all such other actions incidental to any of the foregoing as
the General Partner may determine to be necessary or desirable.
SECTION 1.4. Places of Business; Registered Agent; Names and Addresses
of Partners.
(a) The address of the principal United States office and place of
business of the Partnership and its street address shall be 500 West Texas
Avenue, Suite 500, Midland, Texas 79701. The General Partner, at any time and
from time to time, may change the location of the Partnership's principal place
of business and may establish such additional place or places of business of
the Partnership as the General Partner shall determine to be necessary or
desirable.
(b) The registered office of the Partnership in the State of Texas
shall be 500 West Texas Avenue, Suite 500, Midland, Texas 79701, and the
registered agent for service of process on the Partnership shall be the General
Partner, whose business address is the same as the Partnership's registered
office. The General Partner, at any time and from time to time, may change the
Partnership's registered office or registered agent or both by complying with
the applicable provisions of the Act, and may establish, appoint and change
additional registered offices and registered agents of the Partnership in such
other states as the General Partner shall determine to be necessary or
advisable.
(c) The General Partner is the sole general partner of the
Partnership. The General Partner's mailing address and the street address of
its business is 500 West Texas Avenue, Suite 500, Midland, Texas 79701.
(d) The mailing address and street address of each of the Limited
Partners is set forth on Schedule 1 of this Agreement.
SECTION 1.5. Term. The Partnership shall be formed and commence upon
the execution by the General Partner and the Limited Partners of this Agreement
on the date hereof and the concurrent completion of filing for record an
initial certificate of limited partnership of the Partnership with the
Secretary of State of the State of Texas, and the Partnership shall continue
until terminated in accordance with Article VIII.
SECTION 1.6. Filings. Upon the request of the General Partner, the
Limited Partners shall promptly execute and deliver all such certificates and
other instruments conforming hereto as shall be necessary for the General
Partner to accomplish all filing, recording, publishing and other acts
appropriate to comply with all requirements for the formation and operation of
a limited partnership under the laws of the State of Texas and for the
qualification and operation of a limited partnership (or a partnership in which
the Limited Partners have limited liability) in all other jurisdictions where
the Partnership shall propose to conduct business. Prior to conducting
business in any jurisdiction, the General Partner shall use its reasonable good
faith efforts to cause the Partnership to comply with all requirements for the
qualification of the Partnership to conduct business as a limited partnership
(or a partnership in which the Limited Partners have limited liability) in such
jurisdiction.
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<PAGE> 6
SECTION 1.7. Title to Partnership Property. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually,
shall have any ownership of such property. The Partnership may hold its
property in its own name or in the name of a nominee which may be the General
Partner or any of its Affiliates or any trustee or agent designated by it.
ARTICLE II
DEFINITIONS AND REFERENCES
SECTION 2.1. Defined Terms. When used in this Agreement, the following
terms shall have the respective meanings set forth below:
"Act" shall have the meaning assigned to such term in Section 1.1.
"Adjusted Capital Account" shall mean the capital account maintained for
each Partner as provided in Section 7.1(b), (a) increased by (i) the amount of
any unpaid Capital Contributions agreed to be contributed by such Partner under
Article III, if any, (ii) an amount equal to such Partner's allocable share of
Minimum Gain as computed on the last day of such fiscal year in accordance with
the applicable Treasury Regulations, and (iii) the amount of Partnership
liabilities allocable to such Partner under Section 752 of the Internal Revenue
Code with respect to which such Partner bears the economic risk of loss to the
extent such liabilities do not constitute Partner Nonrecourse Debt, and (b)
reduced by (i) the amount of all losses and deductions reasonably expected to
be allocated to such Partner in subsequent years under Sections 704(e) (2) and
706(d) of the Internal Revenue Code and Treasury Regulation Section 1.751-
1(b)(2)(ii)(d), and (ii) the amount of all distributions reasonably expected to
be made to such Partner to the extent they exceed offsetting increases to such
Partner's capital account that are reasonably expected to occur during (or
prior to) the year in which such distributions are reasonably expected to be
made.
"Affiliate" shall mean (a) any person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting
securities of the General Partner, (b) any person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by the General Partner, (c) any person directly or
indirectly controlling, controlled by or under common control with the General
Partner, and (d) any officer, director, member, partner or sanguinal or affinal
kin of the General Partner or any person described in subsection (a), (b) or
(c) of this paragraph. As used in this Agreement, the term "person" shall
include an individual, an estate, a corporation, a partnership, a limited
liability company, an association, a joint stock company, a trust or any other
entity.
"Capital Contributions" shall mean for any Partner at the particular
time in question the aggregate of the dollar amounts of any cash, or the fair
market value of any property, contributed to the capital of the Partnership,
or, if the context in which such term is used so indicates, the dollar amounts
of cash or the fair market value of any property agreed to be contributed, or
requested to be contributed, by such Partner to the capital of the Partnership.
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<PAGE> 7
"Confidential Information" shall mean, without limitation, all
proprietary information of the Partnership, including business opportunities of
the Partnership, intellectual property, and any other information heretofore or
hereafter acquired, developed or used by the Partnership relating to its
business, including without limitation any confidential information contained
in any lease files, well files and records, land files, abstracts, title
opinions, title or curative matters, contract files, seismic records,
production records, electric logs, core data, pressure data, production
records, geological and geophysical reports and related data, memoranda, notes,
records, drawings, manuals, correspondence, financial and accounting
information, customer lists, statistical data and compilations, patents,
copyrights, trademarks, trade names, inventions, formulae, methods, processes,
agreements, contracts, manuals or any other documents relating to the business
of the Partnership, developed by, or originated by any third party and brought
to the attention of, the Partnership.
"General Partner" shall mean Titan Resources I, Inc., a Texas
corporation, and any person who becomes a substituted general partner of the
Partnership pursuant to the terms hereof.
"Hightower" shall mean Jack D. Hightower.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute or statutes.
"Limited Partners" shall mean the persons who from time to time shall
execute a counterpart signature page to this Agreement as the Limited Partners,
and any person who becomes a substituted Limited Partner of the Partnership
pursuant to the terms hereof.
"Majority Interest" of the Limited Partners, as to any agreement,
election, vote or other action of the Limited Partners, shall mean those
Limited Partners whose combined Sharing Ratios exceed 50% of the Sharing Ratios
of all Limited Partners.
"Minimum Gain" shall mean (i) with respect to Partnership Nonrecourse
Liabilities, the amount of gain that would be realized by the Partnership if it
disposed of (in a taxable transaction) all Partnership properties that are
subject to Partnership Nonrecourse Liabilities in full satisfaction of
Partnership Nonrecourse Liabilities, computed in accordance with applicable
Treasury Regulations, or (ii) with respect to each Partner Nonrecourse Debt,
the amount of gain that would be realized by the Partnership if it disposed of
(in a taxable transaction) the Partnership property that is subject to such
Partner Nonrecourse Debt in full satisfaction of such Partner Nonrecourse Debt,
computed in accordance with applicable Treasury Regulations.
"Partner Nonrecourse Debt" shall mean any nonrecourse debt of the
Partnership for which any Partner bears the economic risk of loss.
"Partner Nonrecourse Deductions" shall mean the amount of deductions,
losses and expenses equal to the net increase during the year in Minimum Gain
attributable to a Partner Nonrecourse Debt, reduced (but not below zero) by
proceeds of such Partner Nonrecourse Debt
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<PAGE> 8
distributed during the year to the Partners who bear the economic risk of loss
for such debt, as determined in accordance with applicable Treasury
Regulations.
"Partners" shall mean the General Partner and the Limited Partners.
"Partnership" shall mean Titan Resources, L.P., a Texas limited
partnership.
"Partnership Nonrecourse Liabilities" shall mean nonrecourse liabilities
(or portions thereof) of the Partnership for which no Partner bears the
economic risk of loss.
"Partnership Securities" shall have the meaning set forth in Section
3.2(a) hereof.
"Sharing Ratio" shall mean for any Limited Partner, the proportion that
such Limited Partner's Units bear to the total number of Units outstanding as
of the date of such determination (unless any class or series of Units issued
pursuant to Section 3.2 shall have designations, preferences or special rights
such that a Unit of such class or series shall represent a greater or lesser
interest than a Unit of any other class or series, in which event the Sharing
Ratio represented by a Unit of such class or series shall be that determined in
accordance with such designations, preferences and special rights as are fixed
by the General Partner pursuant to Section 3.2 with respect to such class or
series of Units).
"Simulated Basis", "Simulated Depletion", "Simulated Gain", and
"Simulated Loss" shall have the meanings assigned to them in Section 7.1(b).
"Unit" shall mean a unit of Partnership interest of a Limited Partner
representing a percentage interest in the Partnership equal to a fraction, the
numerator of which is one and the denominator of which is the total number of
Units outstanding. At the time of the formation of the Partnership, Schedule 1
reflects that each Limited Partner shall receive one Unit in consideration for
each dollar of Capital Contributions made to the Partnership, and that the
total number of Units outstanding is 20,334,600. Notwithstanding the preceding
sentences of this definition, the Partnership shall have the right to issue any
class or series of Units pursuant to Section 3.2 that shall have designations,
preferences or special rights such that a Unit of such class or series shall
represent a greater or lesser interest in the Partnership than a Unit of any
other class or series, in which event the interest in the Partnership
represented by a Unit of such class or series shall be that determined in
accordance with such designations, preferences and special rights as are fixed
by the General Partner pursuant to Section 3.2 with respect to such class or
series of Units.
SECTION 2.2. References and Titles. All references in this Agreement
to articles, sections, subsections and other subdivisions refer to
corresponding articles, sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained in such subdivisions. The words "this Agreement," "herein,"
"hereof," "hereby," "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. Pronouns in masculine, feminine and neuter genders shall be construed
to
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<PAGE> 9
include any other gender, and words in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise requires.
ARTICLE III
CAPITALIZATION
SECTION 3.1. Capital Contributions of Partners.
(a) The General Partner shall contribute in cash to the Partnership
such amounts as shall be necessary to pay timely the costs and expenses
allocated and charged to the General Partner in Section 4.2. Such Capital
Contributions shall be paid to the Partnership by the General Partner from time
to time in the appropriate amounts.
(b) Within five days of the execution of this Agreement, each Limited
Partner shall make the Capital Contribution to the Partnership of cash and/or
services as is reflected opposite each such Limited Partner's name on Schedule
1 attached hereto and made a part hereof. The Partners agree that the value of
the services contributed to the Partnership by Sydney W. Vanloh, Jr., Toby R.
Neugebauer and R. Scot Brown, the partners of The Windrock Group, Ltd., in
payment for their services rendered in connection with the formation of the
Partnership shall have the value set forth on Schedule 1, which amounts shall
be added to the capital account of such Limited Partners in accordance with
Section 7.1(b). Such amount set forth opposite each Limited Partner's name
shall represent the maximum Capital Contribution to the Partnership that such
Limited Partner shall be required to make to the Partnership (unless the
General Partner requests and such Limited Partner otherwise elects to make
additional Capital Contributions and thereby acquire additional Units in the
Partnership). In return for such Capital Contribution, the entirety of each
Limited Partner's interest in the Partnership shall consist of the number of
Units set forth opposite such Limited Partner's name on Schedule 1, which
entitle each such Limited Partner to all of the rights and obligations of a
Limited Partner pursuant to this Agreement.
SECTION 3.2. Issuances of Additional Securities.
(a) The General Partner is hereby authorized to cause the Partnership
to issue, in addition to the Units issued at the time of the formation of the
Partnership, such additional Units, or classes or series thereof, or options,
rights, warrants or appreciation rights relating thereto, or any other type of
equity security that the Partnership may lawfully issue ("Partnership Equity
Securities"), any unsecured or secured debt obligations of the Partnership or
debt obligations of the Partnership convertible into any class or series of
equity securities of the Partnership ("Partnership Debt Securities")
(collectively, "Partnership Securities"), upon compliance with this Section
3.2. The General Partner may cause the Partnership to issue such Partnership
Securities at any time and from time to time if (i) the Partnership shall have
a need for additional Capital Contributions for any proper Partnership purpose
and (ii) the General Partner shall provide each existing Limited Partner with
the right to acquire such newly-issued Partnership Securities so that such
Limited Partner may retain its Sharing Ratio at the time immediately prior to
the issuance of such Partnership Securities. Notwithstanding the immediately
preceding sentence, the General Partner may waive the requirements thereof in
the event that (x) a Majority Interest of the
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<PAGE> 10
Limited Partners consent to waive the requirements of subsection (ii) of such
sentence prior to the issuance of any such Partnership Securities, (y) the
General Partner issues options to acquire Partnership Securities to employees
of the Partnership or employees of the General Partner engaged primarily in the
business and affairs of the Partnership pursuant to an incentive option plan
theretofore adopted by the General Partner or (z) the General Partner shall
issue such Partnership Securities for consideration other than for cash.
Subject to the immediately preceding sentences, the General Partner may issue
such Partnership Securities to such persons for such consideration and on such
terms and conditions as shall be established by the General Partner in its sole
discretion. The General Partner shall have sole discretion, subject to the
guidelines set forth in this Section 3.2 and the requirements of the Act, in
determining the consideration and terms and conditions with respect to any
future issuance of Partnership Securities.
(b) Additional Partnership Securities to be issued by the Partnership
pursuant to this Section 3.2 shall be issuable in one or more classes, or one
or more series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers, and duties,
including rights, powers and duties senior to existing classes and series of
Partnership Securities, all as shall be fixed by the General Partner in the
exercise of its sole and complete discretion, subject to Texas law and the
terms of the Agreement, including, without limitation, (i) the allocations of
items of Partnership income, gain, loss and deduction to each such class or
series of Partnership Securities; (ii) the right of each such class or series
of Partnership Securities to share in Partnership distributions; (iii) the
rights of each such class or series of Partnership Securities upon dissolution
and liquidation of the Partnership; (iv) whether such class or series of
additional Partnership Securities is redeemable by the Partnership and, if so,
the price at which, and the terms and conditions upon which, such class or
series of additional Partnership Securities may be redeemed by the Partnership;
(v) whether such class or series of additional Partnership Securities is issued
with the privilege of conversion and, if so, the rate at which, and the terms
and conditions upon which, such class or series of Partnership Securities may
be converted into any other class or series of Partnership Securities; (vi) the
terms and conditions upon which each such class or series of Partnership
Securities will be issued and assigned or transferred; and (vii) the right, if
any, of each such class or series of Partnership Securities to vote on
Partnership matters, including matters relating to the relative rights,
preferences and privileges of each such class or series.
(c) The General Partner is hereby authorized and directed to take all
actions which it deems appropriate or necessary in connection with each
issuance of Partnership Securities pursuant to this Section 3.2 and to amend
this Agreement in any manner which it deems appropriate or necessary to provide
for each such issuance, to admit additional Limited Partners in connection
therewith and to specify the relative rights, powers and duties of the holders
of the Partnership Securities being so issued. The General Partner shall do
all things necessary to comply with the Act and is authorized and directed to
do all things it deems to be necessary or advisable in connection with any
future issuance of Partnership Securities, including compliance with any
statute, rule, regulation or guideline of any federal, state or other
governmental agency or any national securities exchange on which any
Partnership Securities are listed for trading.
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<PAGE> 11
SECTION 3.3. Return of Contributions. No interest shall accrue on any
contributions to the capital of the Partnership, and no Partner shall have the
right to withdraw or to be repaid any capital contributed by such Partner
except as otherwise specifically provided in this Agreement.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1. Allocation Among Limited Partners. Except as set forth in
Section 4.3(a), each Limited Partner shall share Partnership profits and losses
and all related items of income, gain, loss, deduction and credit allocated,
charged or credited to the Limited Partners herein in accordance with the
Sharing Ratio of such Limited Partner.
SECTION 4.2. Allocation of Costs and Expenses. All costs and expenses
of the Partnership shall be allocated and charged to the Partners 1% to the
General Partner and 99% to the Limited Partners.
SECTION 4.3. Allocation of Revenues.
(a) All revenues of the Partnership (which shall not include Capital
Contributions and loans to the Partnership) shall be allocated and credited to
the Partners as follows:
(i) Insurance proceeds shall be allocated among the Partners
in the same proportions as costs and expenses were allocated and charged
hereunder at the time of the accident or other occurrence giving rise to such
insurance proceeds.
(ii) All revenues used to repay any principal, interest or
other amounts owing with respect to any Partnership borrowings or indebtedness
shall be allocated to the Partners in the same proportions as the costs and
expenses paid with such borrowings or indebtedness were allocated to the
Partners (and, with respect to any indebtedness to which any property acquired
by the Partnership is subject at the time of its acquisition, in the same
proportions as costs are allocated under Section 4.2 at the time such property
is acquired by the Partnership).
(iii) After making the allocation provided for in Section
4.3(a)(ii) and taking into account the revenues allocated therein, all
additional revenues resulting from the sale or other disposition of depletable
property (as defined in Section 4.4(b)) shall be allocated, to the extent such
revenues constitute a recovery of Simulated Basis of such property, to the
Partners in the same percentages as the costs of the property sold were
allocated up to an amount equal to each Partner's share of the Partnership's
Simulated Basis in such property at the time of such sale. Thereafter,
revenues resulting from any such sale or disposition shall be allocated to the
Partners in a manner which will cause the aggregate of all revenues allocated
to the Partners from such sale or disposition and all prior sales or other
dispositions of depletable property (to the extent possible) to equal the
amounts which would have been allocated under paragraph (iv) of this Section
4.3(a) in the absence of this paragraph (iii).
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<PAGE> 12
(iv) All other revenues of the Partnership not specifically
allocated above shall be allocated 1% to the General Partner and 99% to the
Limited Partners.
(b) All dry hole and bottom hole and similar contributions shall not
be considered to be revenues hereunder but shall be applied to reduce the costs
of the respective wells to which they relate.
SECTION 4.4. Income Tax Allocations. Except as otherwise provided
herein, for purposes of any applicable federal, state or local income tax law,
rule or regulation items of income, gain, deduction, loss, credit and amount
realized shall be allocated to the Partners as follows:
(a) Income from the sale of oil or gas production (together with any
credits associated with such production under Section 29 of the Internal
Revenue Code) shall be allocated in the same manner as revenue therefrom is
allocated and credited pursuant to Section 4.3.
(b) Cost and percentage depletion deductions and the gain or loss on
the sale or other disposition of property the production from which is subject
to depletion (herein sometimes called "depletable property") shall be computed
separately by the Partners rather than the Partnership. For purposes of
Section 613A(c)(7)(D) of the Internal Revenue Code, the Partnership's adjusted
basis in each depletable property shall be allocated to the Partners in
proportion to each Partner's respective share of the costs and expenses which
entered into the Partnership's adjusted basis for each depletable property, and
the amount realized on the sale or other disposition of each depletable
property shall be allocated to the Partners in proportion to each Partner's
respective share of the revenue from the sale or other disposition of such
property provided for in Section 4.3. For purposes of allocating amounts
realized upon any such sale or disposition which are deemed to be received for
federal income tax purposes and are attributable to Partnership indebtedness or
indebtedness to which the depletable property is subject at the time of such
sale or disposition, such amounts shall be allocated in the same manner as
Partnership revenues used for the repayment of such indebtedness would have
been allocated under Section 4.3(a)(ii).
(c) Items of deduction, loss and credit not specifically provided for
above (other than loss from the sale or other disposition of Partnership
property), including depreciation, cost recovery and amortization deductions,
shall be allocated to the Partners in the same manner that the costs and
expenses of the Partnership that gave rise to such items of deduction, loss and
credit were borne.
(d) Gain from the sale or other disposition of Partnership property
that is not specifically provided for above shall be allocated to the Partners
in a manner which reflects each Partner's allocable share of the revenue from
the sale of the Partnership property provided for in Section 4.3, and loss from
the sale or other disposition of Partnership property that is not specifically
provided for above shall be allocated to the Partners in a manner which
reflects each Partner's allocable share of the costs and expenses of the
Partnership property provided for in Section 4.2.
(e) All recapture of income tax deductions resulting from the sale or
other disposition of Partnership property shall, to the maximum extent
possible, be allocated to the Partner to
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whom the deduction that gave rise to such recapture was allocated hereunder to
the extent that such Partner is allocated any gain from the sale or other
disposition of such property.
(f) Income resulting from the Partnership's receipt of dry hole,
bottom hole or similar contributions shall be allocated in the same manner as
the costs to which they were applied were allocated.
(g) Any other items of Partnership income or gain not specifically
provided for above shall be allocated in the same manner as such revenue is
allocated and credited pursuant to Section 4.3.
(h) Notwithstanding any of the provisions of this Section 4.4 to the
contrary:
(i) If during any fiscal year of the Partnership there is a net
increase in Minimum Gain attributable to a Partner Nonrecourse Debt that
gives rise to Partner Nonrecourse Deductions, each Partner bearing the
economic risk of loss for such Partner Nonrecourse Debt shall be
allocated items of Partnership deductions and losses for such year
(consisting first of cost recovery or depreciation deductions with
respect to property that is subject to such Partner Nonrecourse Debt and
then, if necessary, a pro rata portion of the Partnership's other items
of deductions and losses, with any remainder being treated as an
increase in Minimum Gain attributable to Partner Nonrecourse Debt in the
subsequent year) equal to such Partner's share of Partner Nonrecourse
Deductions, as determined in accordance with applicable Treasury
Regulations.
(ii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to Partnership Nonrecourse
Liabilities, each Partner shall be allocated items of Partnership income
and gain for such year (consisting first of gain recognized from the
disposition of Partnership property subject to one or more Partnership
Nonrecourse Liabilities and then, if necessary, for subsequent years)
equal to such Partner's share of such net decrease (except to the extent
such Partner's share of such net decrease is caused by a change in debt
structure with such Partner commencing to bear the economic risk of loss
as to all or part of any Partnership Nonrecourse Liability or by such
Partner contributing capital to the Partnership that the Partnership
uses to repay a Partnership Nonrecourse Liability), as determined in
accordance with applicable Treasury Regulations.
(iii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to a Partner Nonrecourse Debt,
each Partner shall be allocated items of Partnership income and gain for
such year (consisting first of gain recognized from the disposition of
Partnership property subject to Partner Nonrecourse Debt, and then if
necessary, a pro rata portion of the Partnership's other items of income
and gain, and if necessary, for subsequent years) equal to such
Partner's share of such net decrease (except to the extent such
Partner's share of such net decrease is caused by a change in debt
structure or by the Partnership's use of capital contributed by such
Partner to repay the Partner's Nonrecourse Debt) as determined in
accordance with applicable Treasury Regulations.
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(i) If for any fiscal year of the Partnership the allocation of any
loss or deduction (net of any income or gain) to any Partner would cause or
increase a negative balance in such Partner's Adjusted Capital Account as of
the end of such fiscal year (a "Deficit Partner") after taking into account the
provisions of subsection (h) of this Section 4.4, only the amount of such loss
or deduction that reduces the balance to zero shall be allocated to such
Deficit Partner and the remaining loss or deduction shall be allocated to the
Partners whose Adjusted Capital Accounts have a positive balance remaining at
such time (the "Positive Partners") in proportion to such positive balances.
After any such allocation, any Partnership income or gain that would otherwise
be allocated to the Deficit Partner shall be allocated instead to the Positive
Partners up to an amount equal to the Partnership loss or deduction allocated
to the Positive Partners under the preceding sentence; provided, however, that
no allocation of income, gain or amount realized shall be made under this
sentence if the effect of such allocation would be to cause the Adjusted
Capital Account of a Deficit Partner to be less than zero. If, after taking
into account the allocation in the first sentence of this Section 4.4(i), the
Adjusted Capital Account balance of a Deficit Partner remains less than zero at
the end of a fiscal year, a pro rata portion of each item of Partnership income
or gain otherwise allocable to the Positive Partners for such fiscal year (or
if there is no such income or gain allocable to the Positive Partners for such
fiscal year, all such income or gain so allocable in the succeeding fiscal year
or years) shall be allocated to the Deficit Partner in an amount necessary to
cause its Adjusted Capital Account balance to equal zero; provided, however,
that no allocation under this sentence shall have the effect of causing any
Positive Partner's Adjusted Capital Account to be less than zero. After any
such allocation, any Partnership gain resulting from the sale or other
disposition of Partnership property that would otherwise be allocated to a
Deficit Partner for any fiscal year under this Section 4.4 shall be allocated
instead to the Positive Partners until the amount of gain so allocated equals
the amount of gain previously allocated to such Deficit Partner under the
preceding sentence of this Section 4.4(i); provided, however, that no
allocation of gain shall be made under this sentence if the effect of such
allocation would be to cause the Adjusted Capital Account of a Deficit Partner
to be less than zero.
SECTION 4.5. Distributions. The General Partner may distribute funds
of the Partnership which the General Partner reasonably determines are not
needed for the payment of existing or foreseeable Partnership obligations and
expenditures to the Partners at such times and in such amounts as the General
Partner, in its sole discretion, determines to be appropriate. Subject to the
next sentence of this Section 4.5 and applicable law, the General Partner shall
distribute to the Partners within 90 days after the end of each year an amount
equal to the highest marginal federal income tax rate for ordinary income to
individuals multiplied by such Partner's share of the net income of the
Partnership for such year that would be considered ordinary income plus the
highest capital gains rate multiplied by such Partner's share of the net income
of the Partnership for such year that would be considered net capital gains
income. Notwithstanding the immediately preceding sentence, (a) at any time
prior to the termination of Section 1 of the Voting and Shareholders Agreement
among the General Partner, Jack D. Hightower, Natural Gas Partners, L.P. and
Natural Gas Partners II, L.P. dated even date with this Agreement, those
Limited Partners whose combined Sharing Ratios exceed 75% of the Sharing Ratios
of all Limited Partners may waive the requirement of the immediately preceding
sentence, and (b) at any time subsequent to the termination of Section 1 of the
Voting and Shareholders Agreement, a Majority Interest of the Limited Partners
may waive the requirement of the immediately
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preceding sentence. All such distributions shall be made to the Partners 1% to
the General Partner and 99% to the Limited Partners.
ARTICLE V
MANAGEMENT
SECTION 5.1. Power and Authority of General Partner.
(a) The General Partner shall conduct, direct and exercise full
control over all activities of the Partnership. Except as otherwise expressly
provided in Section 5.2 and elsewhere in this Agreement, all management powers
over the business and affairs of the Partnership shall be exclusively vested in
the General Partner, and the Limited Partners shall have no right of control
over the business and affairs of the Partnership. In addition to the powers
now or hereafter granted a general partner of a limited partnership under the
Act or which are granted to the General Partner under any other provision of
this Agreement, the General Partner shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of the
Partnership in the name of the Partnership, including, without limitation
(except as aforesaid), the right and power to:
(1) acquire leases, mineral interests, royalty or overriding
royalty interests, fee rights, licenses, concessions or other rights
covering oil, gas and related hydrocarbons (or contractual rights to
acquire any such interest) or an undivided interest therein or portion
thereof, together with all appurtenances, easements, permits, licenses,
servitudes and rights-of-way situated upon or used or held for future
use in connection with any such interest or the exploration, development
or operation thereof, and otherwise act for, in the name of and on
behalf of the Partnership with respect to such properties, all in
accordance with the terms of this Agreement;
(2) purchase or otherwise acquire other real or personal
property of every nature considered necessary or appropriate to carry on
and conduct the business of the Partnership;
(3) borrow monies for the purchase, development, exploration
and maintenance of Partnership assets and other aspects of the
Partnership's business and from time to time to draw, make, execute and
issue promissory notes and other negotiable or non-negotiable
instruments and evidences of indebtedness; to secure the payment of the
sums so borrowed and to mortgage, pledge or assign in trust all or any
part of the property of the Partnership, and to assign any monies owing
or to be owing to the Partnership;
(4) enter into any agreements of joint venture or partnership
or for sharing of risks, expenses or profits, with any person, firm,
corporation, government or agency thereof engaged in any business or
transaction in which the Partnership is authorized to engage;
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(5) explore and prospect by geological, geophysical or other
methods for the location of anomalies or other indications favorable to
the accumulation of oil and gas, including specifically the power to
contract with third parties for such purposes;
(6) maintain, develop, operate, manage and defend Partnership
property; to drill, test, plug and abandon or complete and equip, rework
and recomplete any number of wells on Partnership properties for the
production of oil and gas located thereunder; to contract with third
parties for such purposes; to carry out a program or programs of
enhanced recovery operations on Partnership properties and to do any and
all other things necessary or appropriate to carry out the terms and
provisions of this Agreement which would or might be done by a normal
and prudent operator in the development, operation and management of its
own property;
(7) enter into and execute operating agreements, drilling
contracts, farmouts, dry and bottom hole and acreage contribution
letters, participation agreements, gas processing agreements and any
other agreements customarily employed in the oil and gas industry in
connection with the acquisition, sale, development, exploration or
operation of oil and gas properties, agreements as to rights-of-way and
any and all other instruments or documents considered by the General
Partner to be necessary or appropriate to carry on and conduct the
business of the Partnership, for such consideration and on such terms as
the General Partner may determine to be in the best interests of the
Partnership;
(8) sell the production accruing to Partnership properties and
to execute gas sales contracts, casinghead gas contracts, transfer
orders, division orders, or any other instruments in connection with the
sale of production from the Partnership's interest in such properties;
(9) farm-out, sell, assign, convey or otherwise dispose of,
for such consideration and upon such terms and conditions as the General
Partner may determine to be in the best interests of the Partnership,
all or any part of the Partnership property, any interest therein, or
any interest payable therefrom, and in connection therewith to execute
and deliver such deeds, assignments and conveyances containing such
warranties as the General Partner may determine to be appropriate;
(10) purchase, lease, rent or otherwise acquire or obtain the
use of facilities, machinery, equipment, tools, materials and all other
kinds and types of real or personal property that may in anyway be
deemed necessary, convenient, or advisable in connection with carrying
on the business of the Partnership;
(11) pay delay rentals, bonus payments, shut-in gas royalty
payments, property taxes, surface damages, rights-of-way, easements and
any other amounts necessary or appropriate to the maintenance or
operation of any Partnership property;
(12) make and to enter into such agreements and contracts with
such parties and to give such receipts, releases and discharges with
respect to any and all of the foregoing
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and any matters incident thereto as the General Partner may deem
advisable or appropriate;
(13) procure and maintain in force such insurance as the
General Partner shall deem prudent to serve as protection against
liability for loss and damage which may be occasioned by the activities
to be engaged in by the Partnership or the General Partner on behalf of
the Partnership;
(14) quitclaim, surrender, release or abandon any Partnership
property, with or without consideration therefor;
(15) enter into commodity hedging transactions of any type
whatsoever;
(16) exercise of all rights, powers, privileges and other
incidents of ownership or possession with respect to securities and
other assets owned by the Partnership;
(17) prepay in whole or in part, refinance, recast, increase,
modify or extend any liabilities affecting the Partnership property and
in connection therewith execute any extensions or renewals of
encumbrances on any or all of the Partnership property;
(18) contract on behalf of the Partnership for the employment
and services of employees and/or independent contractors, such as
lawyers, financial advisors, underwriters, consultants and accountants;
(19) take, or refrain from taking, all actions, not expressly
proscribed or limited by this Agreement, as may be necessary or
appropriate to accomplish the purposes of the Partnership;
(20) institute, prosecute, defend, mediate, arbitrate and
settle lawsuits or other judicial or administrative proceedings brought
on or in behalf of, or against, the Partnership or the Partners in
connection with activities arising out of, connected with, or incidental
to this Agreement, and to engage counsel or others in connection
therewith; and
(21) take such other acts as may be incidental to the acts and
things expressly authorized by this Agreement.
(b) In accomplishing all of the foregoing and in fulfilling its
obligations pursuant to this Agreement, the General Partner may, in its sole
discretion, retain or use any Affiliates' personnel, properties and equipment
or the General Partner may hire or rent those of third parties and may employ
on a temporary or continuing basis outside accountants, attorneys, consultants
and others on such terms as the General Partner deems advisable. No person,
firm or corporation dealing with the Partnership shall be required to inquire
into the authority of the General Partner to take any action or make any
decision.
SECTION 5.2. Certain Restrictions on General Partner's Power and
Authority. Notwithstanding anything else expressed or implied to the contrary
in this Agreement, the General
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Partner shall not have the power or authority to cause the Partnership to, and
shall not do, perform or authorize any of the following acts without having
previously obtained the consent of a Majority Interest of the Limited Partners,
which consent may be obtained at a meeting of the Partners or by means of a
written consent of a Majority Interest of the Limited Partners:
(a) do any act in contravention of this Agreement or the
organizational documents (including, without limitation, the provisions of
Article Four of the Bylaws) of the General Partner;
(b) confess a judgment against the Partnership;
(c) possess property, or assign rights in specific property, for
other than a Partnership purpose;
(d) knowingly perform any act that would subject any Limited Partner
to liability as a general partner in any jurisdiction;
(e) mortgage, pledge, assign in trust or otherwise encumber the
Partnership's right to receive Capital Contributions from the Limited Partners;
(f) guarantee in the name or on behalf of the Partnership the payment
of money or the performance of any contract or other obligation of any person
other than the Partnership;
(g) make any advance payments of compensation or other consideration
to the General Partner or any of its Affiliates, except to the extent expressly
permitted herein;
(h) use the Partnership name, credit or property for other than
Partnership purposes;
(i) merge or consolidate the Partnership with any other person; or
(j) except as expressly provided herein, to take any action with
respect to the assets or property of the Partnership which benefits the General
Partner or an Affiliate thereof to the detriment of the Limited Partners or the
Partnership, including, among other things, utilization of funds of the
Partnership as compensating balances for the benefit of the General Partner.
SECTION 5.3. Duties and Services of the General Partner. The General
Partner shall comply in all respects with the terms of this Agreement. In the
conduct of the business and operations of the Partnership, the General Partner
shall (a) use its reasonable good faith efforts to cause the Partnership (i) to
comply with the terms and provisions of all agreements to which the Partnership
is a party or to which its properties are subject, (ii) to comply with all
applicable laws, ordinances or governmental rules and regulations to which the
Partnership is subject and (iii) to obtain and maintain all licenses, permits,
franchises and other governmental authorizations necessary with respect to the
ownership of Partnership properties and the conduct of the Partnership's
business and operations and (b) attend to other day-to-day affairs of the
Partnership in a manner which is in the best interests of the Partnership. The
General Partner shall be obligated to perform the duties, responsibilities and
obligations of the General Partner hereunder
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only to the extent that funds of the Partnership are available therefor.
During the existence of the Partnership, the General Partner shall devote such
time and effort to the Partnership's business as may be necessary to promote
adequately the interests of the Partnership and the mutual interests of the
Partners.
SECTION 5.4. Liability of Partners and Indemnification.
(a) The General Partner, the Limited Partners and their Affiliates,
and their partners, officers, directors, employees and agents, shall not be
liable, responsible or accountable in damages or otherwise to the Partnership
or the other Partners for any acts or omissions that do not constitute gross
negligence, willful misconduct, a breach of fiduciary duty or a breach of the
express terms of this Agreement, and the Partnership shall indemnify to the
maximum extent permitted under the Act and save harmless the General Partner
and the Partners and their Affiliates, and their partners, officers, directors,
employees and agents (individually, "Indemnitee") from all liabilities for
which indemnification is permitted under the Act. Any act or omission
performed or omitted by an Indemnitee on advice of legal counsel or an
independent consultant who has been employed or retained by the Partnership
shall be presumed to have been performed or omitted in good faith without gross
negligence or willful misconduct. THE PARTIES RECOGNIZE THAT THIS PROVISION
SHALL RELIEVE ANY SUCH INDEMNITEE FROM ANY AND ALL LIABILITIES, OBLIGATIONS,
DUTIES, CLAIMS, ACCOUNTS AND CAUSES OF ACTION WHATSOEVER ARISING OR TO ARISE
OUT OF ANY ORDINARY NEGLIGENCE BY ANY SUCH INDEMNITEE, AND SUCH INDEMNITEE
SHALL BE ENTITLED TO INDEMNIFICATION FROM ACTS OR OMISSIONS THAT MAY CONSTITUTE
ORDINARY NEGLIGENCE.
(b) The Partnership shall, to the maximum extent permitted under the
Act, pay or reimburse expenses incurred by an Indemnitee in connection with the
Indemnitee's appearance as a witness or other participation in a proceeding
involving or affecting the Partnership at a time when the Indemnitee is not a
named defendant or respondent in the proceeding.
(c) The General Partner shall have the right to require that any
contract entered into by the Partnership provide that the General Partner shall
have no personal liability for the obligations of the Partnership thereunder.
(d) The indemnification provided by this Section 5.4 shall be in
addition to any other rights to which each Indemnitee may be entitled under any
agreement or vote of the Partners, as a matter of law or otherwise, both as to
action in the Indemnitee's capacity as a Partner or an officer, director,
employee or agent of a Partner or as a person serving at the request of the
Partnership as set forth above and to action in another capacity, and shall
continue as to an Indemnitee who has ceased to serve in such capacity and shall
inure to the benefit of the heirs, successors, assigns, administrators and
personal representatives of the Indemnitees.
(e) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of this indemnification provision.
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(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 5.4 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
SECTION 5.5. Contracts with Affiliates. The Partnership may enter into
contracts and agreements with any Partner and/or any of its Affiliates for the
rendering of services and the sale and lease of supplies and equipment on such
arms-length terms that (i) are no less favorable to the Partnership than those
available from unrelated third parties and (ii) are approved by the board of
directors of the General Partner in accordance with the terms of its bylaws.
SECTION 5.6. Reimbursement of General Partner. The Partnership shall
pay or reimburse to the General Partner, as a Partnership expense, all
reasonable direct and indirect costs and expenses incurred by the General
Partner in organizing the Partnership and in managing and conducting the
business and affairs of the Partnership, including, without limitation, (i) all
costs and expenses incurred in any business of the Partnership, (ii)
secretarial, telephone, office rent and other office expenses, (iii) salaries
and other compensation expenses of employees, officers and directors, (iv)
other administrative expenses, (v) travel expenses, (vi) legal and accounting
costs and expenses and (vii) expenses incurred in providing or obtaining such
other professional, technical, administrative services and advice as the
General Partner may deem necessary or desirable. The General Partner may
utilize the services of any of its Affiliates in the course of conducting the
business and affairs of the Partnership, and the Partnership may pay, and any
such Affiliate shall be entitled to receive, a reasonable fee for any services
performed at the request of the General Partner for the Partnership. The
General Partner shall determine which expenses are allocable to the Partnership
in a manner which is fair and reasonable to the General Partner and the
Partnership, and if such allocation is made by the General Partner in good
faith it shall be conclusive in the absence of manifest error.
SECTION 5.7. Insurance. The General Partner shall acquire and maintain
for the Partnership at its expense insurance covering such risks and in such
amounts as the General Partner shall from time to time determine to be
necessary or appropriate.
SECTION 5.8. Tax Elections. The General Partner shall make such tax
elections on behalf of the Partnership as it shall deem appropriate in its sole
discretion.
SECTION 5.9. Tax Returns. The General Partner shall deliver necessary
tax information to each Partner after the end of each fiscal year of the
Partnership. Not less than 60 days prior to the date (as extended) on which
the Partnership intends to file its federal income tax return or any state
income tax return but in any event no earlier than March 1 of each year, the
return proposed to be filed by the General Partner shall be furnished to the
Limited Partners for review, comments and approval. No such federal income tax
return or state income tax return may be filed with the appropriate
governmental authority unless specifically approved by a Majority Interest of
the Limited Partners. In addition, not more than 10 days after the date on
which the Partnership files its federal income tax return or any state income
tax return, a copy of the return so filed by the General Partner shall be
furnished to the Limited Partners.
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SECTION 5.10. Tax Matters Partner. The General Partner shall be
designated the tax matters partner under Section 6231 of the Internal Revenue
Code. The General Partner is authorized to take such actions and to execute
and file all statements and forms on behalf of the Partnership which may be
permitted or required by the applicable provisions of the Internal Revenue Code
or Treasury Regulations issued thereunder. The General Partner shall have full
and exclusive power and authority on behalf of the Partnership to represent the
Partnership (at the Partnership's expense) in connection with all examinations
of the Partnership's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. Such power and authority
shall include, without limitation, the power and authority to extend the
statute of limitations, file a request for administrative adjustment, file suit
concerning any Partnership tax matter, and to enter into a settlement agreement
relating to any Partnership tax matter.
SECTION 5.11. Withdrawal by the General Partner. The General Partner
shall not voluntarily withdraw from the Partnership unless a Majority Interest
of the Limited Partners shall consent to such withdrawal. In the event that a
Majority Interest of the Limited Partners shall consent to the withdrawal of
the General Partner, the General Partner shall not be deemed to be liable with
respect to any debts or liabilities that the Partnership incurs subsequent to
the date of withdrawal, provided that such withdrawal shall not diminish or in
any way affect the liability of the General Partner with respect to any debts
or liabilities that the Partnership incurred prior to such date.
SECTION 5.12. Certain Decisions. (a) Unless otherwise expressly
provided in this Agreement (i) whenever a conflict of interest exists or arises
between the General Partner, on the one hand, and the Partnership or the
Limited Partners, on the other hand, or (ii) whenever this Agreement provides
that the General Partner shall act in a manner which is or provide terms which
are fair and are reasonable to the Partnership or the Limited Partners, the
General Partner shall resolve such conflict of interest, take such action or
provide such terms considering, in each case, the relative interests of each
party to such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting or engineering
practices or principles, and in the absence of bad faith by the General
Partner, the resolution, action or terms so made, taken or provided by the
General Partner shall not constitute a breach of this Agreement or a breach of
any standard of care or duty imposed herein or under the Act or any other
applicable law, rule or regulation. Unless otherwise expressly provided in
this Agreement, any provision contained herein shall control to the fullest
extent possible if it is in conflict with such standard of care or duty, the
Act or any other applicable law, rule or regulation; and each Partner hereby
waives such standard of care or duty under the Act and such applicable law,
rule or regulation and agrees that the same shall be modified and/or waived to
the extent necessary to permit the General Partner to act as described above
and to give effect to the foregoing provisions of this Section 5.12.
(b) Whenever in this Agreement the General Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion", or
under a grant of similar authority or latitude, the General Partner shall be
entitled to consider only such interests and factors as it desires and shall
have no duty or obligation to give any consideration to any interests or
factors affecting the Partnership or the Limited Partners or (ii) in "good
faith" or under another express
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standard, the General Partner shall act under such express standard and shall
not be subject to any other or different standards imposed by this Agreement or
under the Act or any other applicable law, rule or regulation. Each Partner
hereby consents and agrees that the General Partner may so act, waives any
standard of care or duty imposed in this Agreement or under the Act or any
other applicable law, rule or regulation, waives the rights and protection
provided and afforded thereby, and agrees that the same shall be modified
and/or waived to the extent necessary to permit the General Partner to act as
described above and to give effect to the foregoing provision of this Section
5.12.
(c) With respect to each transaction between the General Partner, on
the one hand, and the Partnership or the Limited Partners, on the other hand,
which is authorized by or consummated in accordance with Section 5.12(a) or
(b), or with respect to any actions taken by the General Partner with respect
to the Partnership, each Limited Partner hereby (i) consents and agrees to and
ratifies each such transaction to the extent that the Act and the laws of any
jurisdiction to which the Partnership or this Agreement is subject require the
consent to or approval or ratification of such transaction and (ii) agrees that
such consent, agreement and ratification shall be valid and effective despite
the fact that it is necessarily being given in advance and without full
disclosure of the facts and circumstances that will pertain to future
transactions of such nature.
(d) No transaction between the General Partner, on the one hand, and
the Partnership or the Limited Partners, on the other hand, or any actions
taken by the General Partner with respect to the Partnership, will be void or
voidable solely for this reason and/or under the Act or any other applicable
law, rule or regulation, and no person having an interest in any such
transaction shall have any liability to the Partnership or any Partner solely
by virtue of such relationship or conflict, if the material facts as to the
relationship and transaction are disclosed or are known to the Limited Partners
and the transaction is approved by a Majority Interest of the Limited Partners;
provided, however, that this Section 5.12(d) shall not imply any duty or
obligation upon the General Partner to seek or obtain any such approval.
ARTICLE VI
RIGHTS OF LIMITED PARTNERS
SECTION 6.1. Rights of Limited Partners. Each of the Limited Partners
shall have the right to: (a) have the Partnership books and records
(including, without limitation, those required under the Act) kept at the
principal United States office of the Partnership and at all reasonable times
to inspect and copy any of them at the sole expense of such Limited Partner;
(b) have on demand true and full information of all things affecting the
Partnership and a formal account of Partnership affairs whenever circumstances
render it just and reasonable; (c) have dissolution and winding up of the
Partnership by decree of court as provided for in the Act; and (d) exercise all
rights of a limited partner under the Act (except to the extent otherwise
specifically provided herein). Notwithstanding the foregoing, the Limited
Partners shall not have the right to receive data pertaining to the properties
of the Partnership if the General Partner is subject to a valid
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agreement prohibiting the distribution of such data or if the General Partner
shall otherwise determine that such data is Confidential Information.
SECTION 6.2. Limitations on Limited Partners. The Limited Partners
shall not: (a) be permitted to take part in the business or control of the
business or affairs of the Partnership; (b) have any voice in the management or
operation of any Partnership property; or (c) have the authority or power to
act as agent for or on behalf of the Partnership or any other Partner, to do
any act which would be binding on the Partnership or any other Partner, or to
incur any expenditures on behalf of or with respect to the Partnership. No
Partner shall hold out or represent to any third party that the Limited
Partners have any such power or right or that the Limited Partners are anything
other than "limited partners" in the Partnership.
SECTION 6.3. Liability of Limited Partners. The Limited Partners shall
not be liable for the debts, liabilities, contracts or other obligations of the
Partnership except (a) for any unpaid Capital Contributions agreed to be made
by such Limited Partner, (b) to the extent of the Limited Partners' share of
the assets (including undistributed revenues) of the Partnership and (c) as
otherwise provided in the Act.
SECTION 6.4. Withdrawal and Return of Capital Contributions. No
Limited Partner shall be entitled to (a) withdraw from the Partnership except
upon the assignment by such Limited Partner of all of its interest in the
Partnership in accordance with Article IX, or (b) the return of its Capital
Contributions except to the extent, if any, that distributions made pursuant to
the express terms of this Agreement may be considered as such by law or upon
dissolution and liquidation of the Partnership, and then only to the extent
expressly provided for in this Agreement and as permitted by law.
ARTICLE VII
BOOKS, REPORTS, MEETINGS AND CONFIDENTIALITY
SECTION 7.1. Capital Accounts, Books and Records.
(a) The General Partner shall keep books of account for the
Partnership in accordance with the terms of this Agreement. Such books shall
be maintained at the principal office of the Partnership.
(b) An individual capital account shall be maintained by the
Partnership for each Partner as provided below:
(i) The capital account of each Partner shall, except as
otherwise provided herein, be (A) credited by such Partner's Capital
Contributions when made, (B) credited by the fair market value of any property
contributed to the Partnership by such Partner (net of liabilities secured by
such contributed property that the Partnership is considered to assume or take
subject to under Section 752 of the Internal Revenue Code), (C) credited with
the amount of any item of taxable income or gain and the amount of any item of
income or gain exempt from tax
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allocated to such Partner, (D) credited with the Partner's share of Simulated
Gain as provided in subparagraph (ii) of this Section 7.1(b), (E) debited by
the amount of any item of tax deduction or loss allocated to such Partner, (F)
debited with the Partner's share of Simulated Loss and Simulated Depletion as
provided in subparagraph (ii) of this Section 7.1(b), (G) debited by such
Partner's allocable share of expenditures of the Partnership not deductible in
computing the Partnership's taxable income and not properly chargeable as
capital expenditures, including any non-deductible book amortizations of
capitalized costs, and (H) debited by the amount of cash or the fair market
value of any property distributed to such Partner (net of liabilities secured
by such distributed property that such Partner is considered to assume or take
subject to under Section 752 of the Internal Revenue Code). Immediately prior
to any distribution of assets by the Partnership that is not pursuant to a
liquidation of the Partnership or all or any portion of a Partner's interest
therein, the Partners' capital accounts shall be adjusted by (X) assuming that
the distributed assets were sold by the Partnership for cash at their
respective fair market values as of the date of distribution by the Partnership
and (Y) crediting or debiting each Partner's capital account with its
respective share of the hypothetical gains or losses, including Simulated Gains
and Simulated Losses, resulting from such assumed sales in the same manner as
each such capital account would be debited or credited for gains or losses on
actual sales of such assets. Notwithstanding the foregoing sentence, the
Partnership shall not distribute any property in kind to any Partner except as
provided in Section 8.3.
(ii) The allocation of basis prescribed by Section
613A(c)(7)(D) of the Internal Revenue Code and provided for in Section 4.4(b)
and each Partner's separately computed depletion deductions shall not reduce
such Partner's capital account, but such Partner's capital account shall be
decreased by an amount equal to the product of the depletion deductions that
would otherwise be allocable to the Partnership in the absence of Section
613A(c)(7)(D) of the Internal Revenue Code (computed without regard to any
limitations which theoretically could apply to any Partner) times such
Partner's percentage share of the adjusted basis of the property (determined
under Section 4.4(b)) with respect to which such depletion is claimed (herein
called "Simulated Depletion"). The Partnership's basis in any oil or gas
property as adjusted from time to time for the Simulated Depletion allocable to
all Partners (and where the context requires, each Partner's allocable share
thereof, which share shall be determined in the same manner as the allocation
of basis prescribed in Section 4.4(b)) is herein called "Simulated Basis". No
Partner's capital account shall be decreased, however, by Simulated Depletion
deductions attributable to any depletable property to the extent such
deductions exceed such Partner's allocable share of the Partnership's remaining
Simulated Basis in such property. The Partnership shall compute simulated gain
("Simulated Gain") or simulated loss ("Simulated Loss") attributable to the
sale or other disposition of a depletable property based on the difference
between the amount realized from such sale or other disposition and the
Simulated Basis of such property, as theretofore adjusted. Any Simulated Gain
shall be allocated to the Partners and shall increase their respective capital
accounts in the same manner as the amount realized from such sale or other
disposition in excess of Simulated Basis shall have been allocated pursuant to
Section 4.4(b). Any Simulated Loss shall be allocated to the Partners and
shall reduce their respective capital accounts in the same percentages as the
costs of the property sold were allocated up to an amount equal to each
Partner's share of the Partnership's Simulated Basis in such property at the
time of such sale.
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(iii) Any adjustments of basis of Partnership property provided
for under Sections 734 and 743 of the Internal Revenue Code and comparable
provisions of state law (resulting from an election under Section 754 of the
Internal Revenue Code or comparable provisions of state law) and any election
by an individual Partner under Section 59(e)(4) of the Internal Revenue Code to
amortize such Partner's share of intangible drilling and development costs
shall not affect the capital accounts of the Partners (unless otherwise
required by applicable Treasury Regulations), and the Partners' capital
accounts shall be debited or credited pursuant to the terms of this Section 7.1
as if no such election had been made.
(iv) Capital accounts shall be adjusted, in a manner consistent
with this Section 7.1, to reflect any adjustments in items of Partnership
income, gain, loss or deduction that result from amended returns filed by the
Partnership or pursuant to an agreement by the Partnership with the Internal
Revenue Service or a final court decision.
(v) In the case of property contributed to the Partnership by
a Partner, and in the case of any revaluation of the Partners' capital accounts
as required under applicable Treasury Regulations, the Partners' capital
accounts shall be debited or credited for items of depreciation, cost recovery,
Simulated Depletion, amortization and gain or loss with respect to any such
contributed or revalued property computed in the same manner as such items
would be computed if the adjusted tax basis of such property were equal to its
fair market value on the date of its contribution or revaluation, in lieu of
the capital account adjustments provided above for such items, all in
accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
(vi) It is the intention of the Partners that the capital
accounts of each Partner be kept in the manner required under Treasury
Regulation Section 1.704-1(b)(2)(iv). To the extent any additional adjustment
to the capital accounts is required by such regulation, the General Partner is
hereby authorized to make such adjustment after notice to the Limited Partners.
SECTION 7.2. Bank Accounts. The General Partner shall cause one or
more accounts to be maintained in a bank (or banks) which is a member of the
Federal Deposit Insurance Corporation or some other financial institution,
which accounts shall be used for the payment of the expenditures incurred by
the Partnership in connection with the business of the Partnership, and in
which shall be deposited any and all receipts of the Partnership. The General
Partner shall determine the number of and the persons who will be authorized as
signatories on each such bank account. The General Partner may invest the
Partnership funds in such money market accounts or other investments as the
General Partner shall determine to be necessary or appropriate.
SECTION 7.3. Reports. The Partnership shall provide each Partner with
the following financial statements and reports at the times indicated below:
(a) Monthly within 30 days after the end of each month, financial
statements with respect to such month, including income statements, balance
sheets and cash flow statements. Such financial statements shall be subject to
audit by any of the Partners at any time at their request at their own expense.
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(b) Annually within 75 days after the end of each fiscal year of the
Partnership, financial statements, including income statements, balance sheets
and cash flow statements with respect to such fiscal year, which financial
statements shall be audited by an independent certified public accounting firm
appointed by the General Partner and acceptable to a Majority Interest of the
Limited Partners. Such financial statements shall be subject to audit by any
of the Partners at any time at their request at their own expense.
(c) As soon as practicable, but in no event later than 60 days after
the close of each semi-annual period (i.e, the periods ending on June 30 and
December 31 of each year) of the Partnership, a reserve report as of the last
day of such semi-annual period prepared by a petroleum engineer (who may be an
employee of the General Partner or the Partnership) designated by the General
Partner and acceptable to a Majority Interest of the Limited Partners that sets
forth with respect to the Partnership as a whole, proved reserves, future net
revenues relating thereto (based upon pricing and other assumptions specified
by the General Partner) and the present discounted value of such future net
revenues (the rate of discount to be specified by the General Partner).
(d) Such other reports and financial information as the General
Partner shall determine from time to time.
SECTION 7.4. Meetings of Partners. The General Partner shall hold
meetings of the Partners from time to time to inform and consult with the
Limited Partners concerning the Partnership's assets and such other matters as
the General Partner deems appropriate. Such meetings shall be held at such
times and places, as often and in such manner as shall be determined by the
General Partner. Unless objected to by a Majority Interest of the Limited
Partners, the General Partner at its election may separately inform and consult
with the Limited Partners for the above purposes without the necessity of
calling and/or holding a meeting of the Limited Partners. Notwithstanding the
foregoing provisions of this Section 7.4, the Limited Partners shall not be
permitted to take part in the business or control of the business of the
Partnership; it being the intention of the parties that the involvement of the
Limited Partners as contemplated in this Section 7.4 is for the purpose of
informing the Limited Partners with respect to various Partnership matters,
explaining any information furnished to the Limited Partners in connection
therewith, answering any questions the Limited Partners may have with respect
thereto and receiving any ideas or suggestions the Limited Partners may have
with respect thereto; it being the further intention of the parties that the
General Partner shall have full and exclusive power and authority on behalf of
the Partnership to acquire, manage, control and administer the assets, business
and affairs of the Partnership in accordance with Section 5.1 of this Agreement
and the other applicable provisions of this Agreement.
SECTION 7.5. Confidentiality. No Partner shall use, publish,
disseminate or otherwise disclose, directly or indirectly, any Confidential
Information that should come into the possession of such Partner for other than
a proper Partnership purpose. No Partner shall disclose any such Confidential
Information except as expressly authorized by this Agreement or by the General
Partner, or as required by law or governmental or regulatory authority. Each
Partner shall instruct all Affiliates (including their representatives, agents
and counsel) to comply with this Section 7.5. If a Partner is required by law
or court order to disclose information that would
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otherwise be Confidential Information under this Agreement, such Partner shall
immediately notify the General Partner of such notice and provide the General
Partner the opportunity to resist such disclosure by appropriate proceedings.
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 8.1. Dissolution. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of December 31, 2003.
(b) The sale, disposition or termination of all or substantially all
of the property then owned by the Partnership.
(c) The occurrence of an event of withdrawal from the Partnership by
the General Partner as provided for in this Agreement or the Act.
(d) The consent in writing of the General Partner and a Majority
Interest of the Limited Partners.
(e) The occurrence of any event which, under the Act, causes the
dissolution of a limited partnership.
SECTION 8.2. Reconstitution. Upon the dissolution of the Partnership
as a result of an event described in Section 8.1(c) or, to the extent permitted
under the Act, Section 8.1(e), the Partnership may be reconstituted and its
business continued without being wound up as provided in Section 8.03 of the
Act, and the provisions of Section 6.02 of the Act shall be applicable.
SECTION 8.3. Liquidation and Termination. Upon dissolution of the
Partnership, unless reconstituted under Section 8.2, the General Partner or, if
the withdrawal of the General Partner caused the dissolution of the
Partnership, a person selected by a Majority Interest of the Limited Partners,
shall act as liquidator or shall appoint one or more liquidators who shall have
full authority to wind up the affairs of the Partnership and make final
distribution as provided herein. The liquidator shall continue to operate the
Partnership properties with all of the power and authority of the General
Partner. The steps to be accomplished by the liquidator are as follows:
(a) As promptly as possible after dissolution and again after final
liquidation, the liquidator, if requested by any Partner, shall cause a proper
accounting to be made by the Partnership's independent accountants of the
Partnership's assets, liabilities and operations through the last day of the
month in which the dissolution occurs or the final liquidation is completed, as
appropriate.
(b) The liquidator shall pay all of the debts and liabilities of the
Partnership (including all expenses incurred in liquidation) or otherwise make
adequate provision therefor (including
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without limitation the establishment of a cash escrow fund for contingent
liabilities in such amount and for such term as the liquidator may reasonably
determine). After making payment or provision for all debts and liabilities of
the Partnership, the Partners' capital accounts shall then be adjusted by (i)
assuming the sale of all remaining assets of the Partnership for cash at their
respective fair market values (as determined by an appraiser selected by the
liquidator) as of the date of termination of the Partnership, (ii) assuming the
distribution of such cash at such time in the percentages required under
Section 4.5, and (iii) debiting or crediting each Partner's capital account
with its respective share of the hypothetical gains or losses resulting from
such assumed sales in the same manner as each such capital account would be
debited or credited with gains or losses on actual sales of such assets. The
liquidator shall then by payment of cash or property (valued as of the date of
termination of the Partnership at its fair market value by the appraiser
selected in the manner provided above) distribute to the Partners such amounts
as are required to pay the positive balances of their respective capital
accounts. Such a distribution shall be in cash or in kind as determined by the
liquidator. Any distribution to the Partners in liquidation of the Partnership
shall be made by the later of either the end of the taxable year in which the
liquidation occurs or 90 days after the date of such liquidation. For purposes
of the preceding sentence, the term "liquidation" shall have the same meaning
as set forth in Treasury Regulation Section 1.704-1(b)(2)(ii) as in effect at
such time. Each Partner shall have the right to designate another person to
receive any property which otherwise would be distributed in kind to that
Partner pursuant to this Section 8.3.
(c) Except as expressly provided herein, the liquidator shall comply
with any applicable requirements of the Act and all other applicable laws
pertaining to the winding up of the affairs of the Partnership and the final
distribution of its assets.
(d) Notwithstanding any provision in this Agreement to the contrary,
no Partner shall be obligated to restore a deficit balance in its capital
account at any time.
The distribution of cash and/or property to the Partners in accordance
with the provisions of this Section 8.3 shall constitute a complete return to
the Partners of their Capital Contributions and a complete distribution to the
Partners of their interest in the Partnership and all Partnership property.
ARTICLE IX
ASSIGNMENTS OF INTERESTS
SECTION 9.1. Assignment by Partners.
(a) No Partner's interest in the Partnership or rights therein shall
be assigned, mortgaged, pledged, subjected to a security interest or otherwise
encumbered, in whole or in part, without the prior written consent of the other
Partners; provided, however, that each of Natural Gas Partners, L.P., a
Delaware limited partnership, and Natural Gas Partners II, L.P., a Delaware
limited partnership, shall have the right to assign its respective interest to
its respective partners
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without such consent. Any attempt by a Partner to assign its interest without
the required consent shall be void ab initio.
(b) Unless an assignee of an interest in the Partnership becomes a
substituted Partner in accordance with the provisions set forth below, such
assignee shall not be entitled to any of the rights granted to a Partner
hereunder, other than the right to receive allocations of income, gains,
losses, deductions, credits and similar items and distributions to which the
assignor would otherwise be entitled, to the extent such items are assigned.
(c) An assignee of an interest in the Partnership shall become a
substituted Partner entitled to all of the rights of a Partner if, and only if,
(i) the assignor gives the assignee such right, (ii) the General Partner and
Limited Partners whose combined Sharing Ratios exceed 80% of the Sharing Ratios
of all Limited Partners consent in writing to such substitution, the granting
or denying of which shall be in such Partners' sole discretion, (iii) the
assignee executes and delivers such instruments, in form and substance
satisfactory to the General Partner (if the assignee is the assignee of a
Limited Partner), or 80% in interest of the Limited Partners (if the assignee
is the assignee of the General Partner), as the General Partner (or 80% in
interest of the Limited Partners, as the case may be) may deem necessary or
desirable to effect such substitution and to confirm the agreement of the
assignee to be bound by all of the terms and provisions of this Agreement, and
(iv) if the General Partner so requires, the assignee reimburses the
Partnership for any costs incurred by the Partnership in connection with such
assignment and substitution. Upon the satisfaction of such requirements, such
assignee shall be admitted as of such date as shall be provided for in any
document evidencing such assignment as a substituted Partner of the
Partnership.
(d) The Partnership and the General Partner shall be entitled to
treat the record owner of any Partnership interest as the absolute owner
thereof in all respects and shall incur no liability for distributions of cash
or other property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.
SECTION 9.2. Removal of the General Partner. Subject to the provisions
hereof and provided that the combined Sharing Ratios of the Limited Partners
that elect a new General Partner to continue the Partnership must exceed 50%,
(a) at any time prior to the termination of Section 1 of the Voting and
Shareholders Agreement among the General Partner, Jack D. Hightower, Natural
Gas Partners, L.P. and Natural Gas Partners II, L.P. dated even date with this
Agreement, those Limited Partners whose combined Sharing Ratios exceed 75% of
the Sharing Ratios of all Limited Partners may remove the General Partner and
select a new General Partner to operate and carry on the business and affairs
of the Partnership and (b) at any time subsequent to the termination of Section
1 of the Voting and Shareholders Agreement, a Majority Interest of the Limited
Partners may remove the General Partner and select a new General Partner to
operate and carry on the business and affairs of the Partnership. Any such
successor General Partner will be named in, and its appointment as such will be
effective as of a date specified in, a notice to the General Partner from the
Limited Partners exercising the right to remove the General Partner and select
the successor General Partner. The removal of the General Partner shall be
effective only if and when the following conditions have been satisfied:
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(a) A successor General Partner shall have been selected and shall
have agreed to accept the responsibilities of a General Partner and shall have
made arrangements to release the removed General Partner from personal
liability on all permitted Partnership indebtedness; and if the Partnership
creditors will not consent to such release, the new General Partner shall
indemnify, in a manner reasonably satisfactory to the removed General Partner,
the removed General Partner for such liability.
(b) This Agreement and the Certificate of Limited Partnership of the
Partnership shall have been duly amended to name the new General Partner. To
the extent required by the laws of any jurisdiction to which the Partnership or
this Agreement is subject, the Partners hereby unanimously consent to the
admission of such successor General Partner and hereby appoint such successor
General Partner as the agent and attorney in fact for each Partner (including
without limitation the retiring General Partner) for the purpose of signing,
swearing to and filing an amendment to the certificate of limited partnership
of the Partnership and all other necessary or appropriate documents in
connection with the substitution of such successor General Partner.
(c) Either (i) a favorable ruling shall have been received by the
Partnership from the Internal Revenue Service to the effect that neither the
grant nor the exercise of the powers described in this Section 9.2 will
adversely affect the tax status of the Partnership, or any of the Partners, or
(ii) counsel for the Limited Partners shall have delivered to the Limited
Partners an opinion to the same effect.
The provisions of this Section 9.2 shall not be the sole remedy of the
Limited Partners in the event the General Partner is removed, and in such event
the Partnership and/or the Limited Partners shall have all other rights and
remedies as shall be available to them pursuant to this Agreement, at law or in
equity to redress any wrong or damage, if any, arising from the event or
circumstances giving rise to the General Partner's removal.
SECTION 9.3. Right of General Partner Upon Removal. In the event the
General Partner is removed in accordance with Section 9.2, the incoming General
Partner shall have the right to purchase from the removed General Partner a one
percent general partner interest in the Partnership at a price equal to the
appraised value thereof. Such appraised value shall be determined by a
qualified independent appraiser who is mutually agreed upon by both the removed
General Partner and the incoming General Partner within 30 days after the
selection of the incoming General Partner. If the removed General Partner and
the incoming General Partner cannot mutually agree upon a single independent
appraiser within such period, they shall each select their own independent
appraiser and those two appraisers shall select a third independent appraiser.
The cost of such appraisal shall be borne equally by the Partnership and by the
removed General Partner. The incoming General Partner's option to acquire such
interest must be exercised by notice in writing to the removed General Partner
not more than 20 days after the selection of the incoming General Partner and
the purchase price for such interest shall be paid in cash not more than 30
days after receipt by the parties of the report of the appraiser setting forth
the appraised value. In the event the incoming General Partner does not elect
to purchase the one percent general partner interest of the removed General
Partner pursuant to the provisions of this Section 9.3, or in the event that
the General Partner owns an interest in the Partnership in excess of one
percent, the remaining interest of the General Partner, if any, shall be
converted
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to a limited partner interest in the Partnership and the removed General
Partner shall continue as a Limited Partner in accordance with Section 6.02 of
the Act.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
SECTION 10.1. Representations and Warranties. Each Limited Partner
acknowledges and agrees that its interest in the Partnership (the "Partnership
Interest") is being purchased for such Limited Partner's own account as part of
a private offering, exempt from registration under the Securities Act of 1933,
as amended (the "Securities Act") and all applicable state securities or blue
sky laws, for investment only and not with a view to the distribution nor other
sale thereof and that an exemption from registration under the Securities Act
or any applicable state securities laws under the Securities Act or any
applicable state securities laws may not be available if the Partnership
Interest is acquired by such Limited Partner with a view to resale or
distribution thereof under any conditions or circumstances as would constitute
a distribution of such Partnership Interest within the meaning and purview of
the Securities Act or the applicable state securities laws. Accordingly, each
Limited Partner represents and warrants to the General Partner, the Partnership
and all other interested parties that:
(a) Such Limited Partner has sufficient financial resources to
continue such Limited Partner's investment in the Partnership for an indefinite
period.
(b) Such Limited Partner has adequate means of providing for its
current needs and contingencies and can afford a complete loss of its
investment in the Partnership.
(c) No other person will acquire, directly or indirectly, any
interest in such Limited Partner's Partnership Interest (or any portion
thereof) as a result of such Limited Partner's acquisition of such Partnership
Interest pursuant to this Agreement.
(d) It is such Limited Partner's intention to acquire and hold its
Partnership Interest solely for its private investment and for its own account
and with no view or intention to distribute, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of such Partnership Interest (or
any portion thereof).
(e) Such Limited Partner has no contract, undertaking, agreement, or
arrangement with any person to sell or otherwise transfer to any person, or to
have any person sell on behalf of such Limited Partner, its Partnership
Interest (or any portion thereof), and such Limited Partner is not engaged in
and does not plan to engage within the foreseeable future in any discussion
with any person relative to the sale or any transfer of its Partnership
Interest (or any portion thereof).
(f) Such Limited Partner is not aware of any occurrence, event, or
circumstance upon the happening of which such Limited Partner intends to
attempt to sell, transfer, or otherwise dispose of its Partnership Interest (or
any portion thereof), and such Limited Partner does not
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have any present intention of selling, transferring, or otherwise disposing of
its Partnership Interest (or any portion thereof) after the lapse of any
particular period of time.
(g) Such Limited Partner, by making other investments of a similar
nature and/or by reason of its business and financial experience or the
business and financial experience of those persons it has retained to advise
such Limited Partner with respect to its investment in the Partnership, is a
sophisticated investor who has the capacity to protect its own interest in
investments of this nature and is capable of evaluating the merits and risks of
this investment.
(h) Such Limited Partner has had all documents, records, books and
due diligence materials pertaining to this investment made available to such
Limited Partner and such Limited Partner's accountants and advisors; such
Limited Partner has also had an opportunity to ask questions of and receive
answers from the General Partner concerning this investment; and such Limited
Partner has all of the information deemed by such Limited Partner to be
necessary or appropriate to evaluate the investment and the risks and merits
thereof.
(i) Such Limited Partner has a close business association with the
General Partner or certain of its Affiliates thereby making the Limited Partner
a well-informed investor for purposes of this investment.
(k) Such Limited Partner is aware of the following:
(i) The Partnership is newly organized and has no financial or
operating history and, further, the investment in the Partnership is
speculative and involves a high degree of risk of loss by the Limited
Partner of its entire investment, with no assurance of any income from
such investment;
(ii) No federal or state agency has made any finding or
determination as to the fairness of the investment, or any
recommendation or endorsement, of such investment;
(iii) There are substantial restrictions on the transferability
of the Partnership Interest of such Limited Partner, there will be no
public market for the Partnership Interest and, accordingly, it may not
be possible for such Limited Partner readily to liquidate its investment
in the Partnership in case of emergency; and
(iv) Any federal or state income tax benefits which may be
available to such Limited Partner may be lost through changes to
existing laws and regulations or in the interpretation of existing laws
and regulations; such Limited Partner in making this investment is
relying, if at all, solely upon the advice of its own tax advisors with
respect to the tax aspects of an investments in the Partnership.
(l) Such Limited Partner further covenants and agrees that (A) its
Partnership Interest will not be resold unless the provisions set forth in
Article IX above are complied with, and (B) such Limited Partner shall have no
right to require registration of its Partnership Interest under the Securities
Act or applicable state securities laws, and, in view of the nature of the
Partnership and its business, such registration is neither contemplated nor
likely.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) United States mail, (c) expedited
delivery service with proof of delivery, or (d) via facsimile with confirmation
of delivery, addressed to the respective addressee(s). Any Partner may change
its address by giving notice in writing to the other Partners of his or her new
address.
SECTION 11.2. Amendment. This Agreement may be changed, modified or
amended only by an instrument in writing agreed upon by the General Partner and
a Majority Interest of the Limited Partners; provided, however, that the
provisions of Section 8.1(a) may not be amended to extend the term of the
Partnership beyond December 31, 2005 without the approval of Limited Partners
whose combined Sharing Ratios are at least 80% of the Sharing Ratios of all
Limited Partners. The General Partner shall notify all Partners upon final
adoption of any proposed amendment.
SECTION 11.3. Partition. Each of the Partners hereby irrevocably
waives for the term of the Partnership any right that such Partner may have to
maintain any action for partition with respect to the Partnership property.
SECTION 11.4. Entire Agreement. This Agreement constitutes the full
and complete agreement of the parties hereto with respect to the subject matter
hereof.
SECTION 11.5. Severability. Every provision in this Agreement is
intended to be severable. If any term or provision hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remainder of this Agreement.
SECTION 11.6. No Waiver. The failure of any Partner to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
constitute a waiver of such Partner's right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of any breach or
default in the performance of any obligation hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of
the same or any other obligation hereunder.
SECTION 11.7. Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted,
construed and enforced in accordance with the laws of the State of Texas.
SECTION 11.8. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that no
Partner may sell, assign, transfer or otherwise dispose of all
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or any part of its rights or interest in the Partnership or under this
Agreement except in accordance with Article IX.
SECTION 11.9. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which shall
constitute but one and the same document.
* * * *
[SIGNATURE PAGES OF PARTNERS ATTACHED]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GENERAL PARTNER:
TITAN RESOURCES I, INC.
By: /s/ JACK D. HIGHTOWER
---------------------------------
Jack D. Hightower, President
<PAGE> 36
LIMITED PARTNER SIGNATURE PAGE (INDIVIDUAL)
The undersigned, desiring to become a Limited Partner of the
Partnership, hereby agrees to all of the terms and provisions of the Agreement
of Limited Partnership, and agrees to be bound by the terms and provisions of
this Limited Partner Signature Page which, together with other Limited Partner
Signature Pages, is hereby incorporated into the said Agreement of Limited
Partnership. The undersigned hereby joins and executes the said Agreement of
Limited Partnership, hereby authorizing this Limited Partner Signature Page to
be attached thereto. The place of residence or principal business address of
the undersigned is as shown below.
IN WITNESS WHEREOF, the undersigned has executed this Limited Partner
Signature Page to the Agreement of Limited Partnership as of the date set forth
hereinafter.
Date: March 31, 1995 INDIVIDUAL LIMITED PARTNER:
--------------------------
1.
-------------------------------------
(Signature of Limited Partner)
2.
-------------------------------------
(Name of Limited Partner-printed)
<PAGE> 37
LIMITED PARTNER SIGNATURE PAGE (ENTITY)
The undersigned, desiring to become a Limited Partner of the
Partnership, hereby agrees to all of the terms and provisions of the Agreement
of Limited Partnership, and agrees to be bound by the terms and provisions of
this Limited Partner Signature Page which, together with other Limited Partner
Signature Pages, is hereby incorporated into the said Agreement of Limited
Partnership. The undersigned hereby joins and executes the said Agreement of
Limited Partnership, hereby authorizing this Limited Partner Signature Page to
be attached thereto. The place of residence or principal business address of
the undersigned is as shown below.
IN WITNESS WHEREOF, the undersigned has executed this Limited Partner
Signature Page to the Agreement of Limited Partnership as of the date set forth
hereinafter.
Date: March 31, 1995 ENTITY LIMITED PARTNER:
----------------------
1.
----------------------------------------
(Name of Entity Printed)
2.
----------------------------------------
(Name of General Partner or Trustee of
Entity, if applicable)
3.
----------------------------------------
(Signature of Officer or Trustee)
4.
----------------------------------------
(Name of Officer Printed)
5.
----------------------------------------
(Title of Officer)
<PAGE> 1
EXHIBIT 10.1.2
AMENDMENT NO. 1
TO THE
AGREEMENT OF LIMITED PARTNERSHIP
OF
TITAN RESOURCES, L.P.
THIS AMENDMENT NO. 1 TO THE AGREEMENT OF LIMITED PARTNERSHIP OF TITAN
RESOURCES, L.P. (this "Amendment"), dated as of December 11, 1995, is made by
and among Titan Resources I, Inc., a Texas corporation, as the general partner
(the "General Partner"), and a Majority Interest of the Limited Partners.
W I T N E S S E T H :
WHEREAS, the General Partner and the Limited Partners are the parties to
that certain Agreement of Limited Partnership dated as of March 31, 1995 (the
"Partnership Agreement"), providing for the formation and operation of Titan
Resources, L.P., a Texas limited partnership (the "Partnership"); and
WHEREAS, the parties hereto desire to enter into this Amendment in order
to amend the Partnership Agreement in certain respects so as to admit certain
persons as Limited Partners of the Partnership and to make certain other
amendments to the Partnership Agreement in connection therewith;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and in the Partnership Agreement and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the General Partner and a Majority Interest of the Limited
Partners (acting on behalf of all of the Limited Partners) hereby agree as
follows:
1. Certain Definitions. Terms used in this Amendment and not
otherwise defined shall have the meanings set forth in the Partnership
Agreement.
2. Issuances of Additional Securities. Section 3.2(a) of the
Partnership Agreement is hereby amended to read in its entirety as follows:
(a) The General Partner is hereby authorized to cause the
Partnership to issue, in addition to the Units issued at the time of the
formation of the Partnership, such additional Units, or classes or
series thereof, or options, rights, warrants or appreciation rights
relating thereto, or any other type of equity security that the
Partnership may lawfully issue ("Partnership Equity Securities"), any
debt obligations of the Partnership convertible into any class or series
of equity securities of the Partnership ("Partnership Debt Securities")
(collectively, "Partnership Securities"), upon compliance with this
Section 3.2. The General Partner may cause the Partnership to issue
such Partnership
<PAGE> 2
Securities at any time and from time to time if (i) the Partnership
shall have a need for additional Capital Contributions for any proper
Partnership purpose and (ii) the General Partner shall provide each
existing Limited Partner with the right to acquire such newly-issued
Partnership Securities so that such Limited Partner may retain its
Sharing Ratio at the time immediately prior to the issuance of such
Partnership Securities. Notwithstanding the immediately preceding
sentence, the General Partner may waive the requirements thereof in the
event that (x) a Majority Interest of the Limited Partners consent to
waive the requirements of subsection (ii) of such sentence prior to the
issuance of any such Partnership Securities in the event that such
Partnership Securities are to be issued for cash, and such waiver shall
pertain to all Partners and not purport to waive such preemptive right
of any particular Partner or class of Partners or any Partner to which
the Partnership has granted a preemptive right in a separate agreement,
(y) the General Partner issues options to acquire Partnership Securities
to employees of the Partnership or employees of the General Partner
engaged primarily in the business and affairs of the Partnership
pursuant to the incentive option plan adopted by the Partnership on
March 31, 1995 or (z) the General Partner shall issue such Partnership
Securities for consideration other than for cash. Subject to the
immediately preceding sentences, the General Partner may issue such
Partnership Securities to such persons for such consideration and on
such terms and conditions as shall be established by the General Partner
in its sole discretion. The General Partner shall have sole discretion,
subject to the guidelines set forth in this Section 3.2 and the
requirements of the Act, in determining the consideration and terms and
conditions with respect to any future issuance of Partnership
Securities.
3. Distributions. Section 4.5 of the Partnership Agreement is
hereby amended in its entirety to read as follows:
SECTION 4.5. Distributions. The General Partner may distribute
funds of the Partnership which the General Partner reasonably determines
are not needed for the payment of existing or foreseeable Partnership
obligations and expenditures to the Partners at such times and in such
amounts as the General Partner, in its sole discretion, determines to be
appropriate. Subject to the next sentence of this Section 4.5 and
applicable law, the General Partner shall distribute to each Partner
within 90 days after the end of each year an amount equal to the highest
marginal federal income tax rate for ordinary income or capital gains
income to individuals, as applicable, multiplied by the estimated amount
of all Partnership ordinary income (net of ordinary deductions,
including for this purpose, each Partner's actual depletion deductions)
and capital gains (net of all capital losses and taking into account
such Partner's actual gains or losses from sales or dispositions of oil
and gas properties), as applicable, actually allocated, charged or
credited to such Partner for such year taking into account any items of
income, gain, loss or deduction specially allocated to such Partner
under Section 704(c) of the Internal Revenue Code or under Section
704(c) principles, as required under applicable Treasury Regulations.
Notwithstanding the immediately preceding sentence, (a) at any time
prior to the termination of Section 1 of the Amended and Restated Voting
and Shareholders Agreement among the General Partner, Jack D. Hightower,
Natural Gas Partners, L.P.,
-2-
<PAGE> 3
Natural Gas Partners II, L.P., Joint Energy Development Investments
Limited Partnership and First Union Corporation dated even date with
this Agreement (the "Voting and Shareholders Agreement"), those Limited
Partners whose combined Sharing Ratios exceed 85% of the Sharing Ratios
of all Limited Partners may waive the requirement of the immediately
preceding sentence, and (b) at any time subsequent to the termination of
Section 1 of the Voting and Shareholders Agreement, a Majority Interest
of the Limited Partners may waive the requirement of the immediately
preceding sentence. All such distributions shall be made to the
Partners 1% to the General Partner and 99% to the Limited Partners.
4. Admission of Additional Partners. A new Section 4.6 is hereby
added into the Partnership Agreement to read in its entirety as follows:
SECTION 4.6. Admission of a New Partner. For federal income tax
purposes, the allocation of costs, revenue, income, gains, losses,
deductions, credits and items of tax preference of the Partnership,
including depletion and depreciation, during the calendar year in which
a new Partner is admitted to the Partnership shall be allocated among
the Partners on the basis of the interim closing of the books method in
accordance with Section 706(d) of the Internal Revenue Code.
5. Indemnification. The Partners hereby agree that the term
"Indemnitee" as used in Section 5.4 of the Partnership Agreement shall include
persons who are duly elected or appointed advisory directors of the General
Partner.
6. Section 754 Elections. The following provision is hereby added
to the end of Section 5.8 of the Partnership to read as follows:
;provided, however, that the Partnership shall make an election to
adjust the basis of properties of the Partnership on the appropriate tax
returns of the Partnership, pursuant to Section 754 of the Internal
Revenue Code, upon the written request of any Partner after a
distribution of property of the Partnership, as described in Section 734
of the Internal Revenue Code, or after there shall be a transfer of a
Partnership interest as described in Section 743 of the Internal Revenue
Code.
7. Assignment of Interests.
(a) Section 9.1(a) of the Partnership Agreement is hereby amended to
read in its entirety as follows:
(a) No Partner's interest in the Partnership or rights therein
shall be assigned, mortgaged, pledged, subjected to a security interest
or otherwise encumbered, in whole or in part, without the prior written
consent of the General Partner and (i) if the assignor is the General
Partner, without the additional consent of Limited Partners whose
combined Sharing Ratios exceed 75% of the Sharing Ratios of all Limited
Partners, (ii) if the
-3-
<PAGE> 4
assignor is either of Natural Gas Partners, L.P., a Delaware limited
partnership, or Natural Gas Partners II, L.P., a Delaware limited
partnership (collectively, "NGP"), without the additional consent of
Hightower (or his permitted successors or assigns), or (iii) if the
assignor is Hightower, without the additional consent of NGP (or their
respective permitted successors or assigns). Notwithstanding the
immediately preceding sentence (1) NGP shall have the right to assign
their respective interests to their respective partners without such
consent, and (2) the Partnership may provide in a separate agreement
with any Limited Partner that such Limited Partner may assign, mortgage,
pledge, subject to a security interest or otherwise encumber, in whole
or in part, such Limited Partner's interest in the Partnership without
obtaining such consent. Any attempt by a Partner to assign its interest
without the required consent (to the extent necessary) shall be void ab
initio.
(b) Section 9.1(c) of the Partnership Agreement is hereby amended to
read in its entirety as follows:
(c) An assignee of an interest in the Partnership shall become
a substituted Partner entitled to all of the rights of a Partner if, and
only if, (i) the assignor gives the assignee such right, (ii) the
General Partner (if the assignee is the assignee of a Limited Partner),
Limited Partners whose combined Sharing Ratios exceed 75% of the Sharing
Ratios of all Limited Partners (if the assignee is the assignee of the
General Partner), the General Partner and Hightower or his permitted
successors or assigns (if the assignee is the assignee of NGP), or the
General Partner and NGP or their permitted successors or assigns (if the
assignee is the assignee of Hightower) consent in writing to such
substitution, the granting or denying of which shall be in such
Partners' sole discretion, (iii) the assignee executes and delivers such
instruments, in form and substance satisfactory to the requisite
Partners that must consent to such substitution pursuant to clause (ii)
above as such requisite Partners (as applicable) may deem necessary or
desirable to effect such substitution and to confirm the agreement of
the assignee to be bound by all of the terms and provisions of this
Agreement, and (iv) if the General Partner so requires, the assignee
reimburses the Partnership for any costs incurred by the Partnership in
connection with such assignment and substitution. Upon the satisfaction
of such requirements, such assignee shall be admitted as of such date as
shall be provided for in any document evidencing such assignment as a
substituted Partner of the Partnership. Notwithstanding the immediately
preceding sentence, the Partnership (acting through the General Partner,
the board of directors of which must have approved such agreement in
accordance with the provisions of its bylaws) may provide in a separate
agreement with any Limited Partner that such Limited Partner need not
comply with all of such requirements prior to allowing the assignee of
such Limited Partner to become a substituted Limited Partner.
8. Representations of Partners. Section 10.1(l) of the Partnership
Agreement is hereby amended to read in its entirety as follows:
-4-
<PAGE> 5
(l) Such Limited Partner further covenants and agrees that (A)
its Partnership Interest will not be resold unless the provisions set
forth in Article IX above are complied with, and (B) such Limited
Partner shall have no right to require registration of its Partnership
Interest under the Securities Act or applicable state securities laws
other than pursuant to an agreement executed between the Limited Partner
and the Partnership.
9. Amendment to Schedule 1. Pursuant to Section 3.2 of the
Partnership Agreement, the General Partner hereby amends Schedule 1 to the
Partnership Agreement in order to reflect the admission of additional Limited
Partners to the Partnership, effective at such time as such additional Limited
Partners shall deliver a counterpart signature page to the Partnership
Agreement in the form attached to this Amendment, which amended Schedule 1 is
attached to this Amendment.
10. Power and Authority to Enter into Amendment. Pursuant to Section
11.2 of the Partnership Agreement, a Majority Interest of the Limited Partner
hereby executes this Amendment in order to consent to the amendments set forth
herein.
11. Ratification of Partnership Agreement. The Partnership
Agreement, as amended by this Amendment, is hereby ratified and confirmed in
all respects.
12. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
GENERAL PARTNER:
TITAN RESOURCES I, INC.
By: /s/ JACK D. HIGHTOWER
--------------------------------------
Jack D. Hightower, President
LIMITED PARTNERS:
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its general
partner
By: /s/ DAVID R. ALBIN
--------------------------------------
David R. Albin, Authorized Employee
NATURAL GAS PARTNERS II, L.P.
By: G.F.W. Energy II, L.P., its general
partner
By: GFW II, L.L.C., its general partner
By: /s/ KENNETH A. HERSH
--------------------------------------
Kenneth A. Hersh
/s/ JACK D. HIGHTOWER
-----------------------------------------
Jack D. Hightower
/s/ JACK D. HIGHTOWER
-----------------------------------------
Jack D. Hightower, Separate Property
<PAGE> 7
LIMITED PARTNER SIGNATURE PAGE (ENTITY)
The undersigned, desiring to become a Limited Partner of the
Partnership, hereby agrees to all of the terms and provisions of the Agreement
of Limited Partnership, and agrees to be bound by the terms and provisions of
this Limited Partner Signature Page which, together with other Limited Partner
Signature Pages, is hereby incorporated into the said Agreement of Limited
Partnership. The undersigned hereby joins and executes the said Agreement of
Limited Partnership, hereby authorizing this Limited Partner Signature Page to
be attached thereto. The place of residence or principal business address of
the undersigned is as shown below.
IN WITNESS WHEREOF, the undersigned has executed this Limited Partner
Signature Page to the Agreement of Limited Partnership as of the date set forth
hereinafter.
Date: December __, 1995 ENTITY LIMITED PARTNER:
----------------------
1.
---------------------------------------
(Name of Entity Printed)
2.
---------------------------------------
(Name of General Partner or Trustee of
Entity, if applicable)
3.
---------------------------------------
(Signature of Officer or Trustee)
4.
---------------------------------------
(Name of Officer Printed)
5.
---------------------------------------
(Title of Officer)
<PAGE> 1
EXHIBIT 10.1.3
AMENDMENT NO. 2
TO THE
AGREEMENT OF LIMITED PARTNERSHIP
OF
TITAN RESOURCES, L.P.
THIS AMENDMENT NO. 2 TO THE AGREEMENT OF LIMITED PARTNERSHIP OF TITAN
RESOURCES, L.P. (this "Amendment") dated as of September 27, 1996, is made by
and among Titan Resources I, Inc., a Texas corporation, as the general partner
(the "General Partner"), and a Majority Interest of the Limited Partners (on
behalf of all of the Limited Partners).
WITNESSETH:
WHEREAS, the General Partner and the Limited Partners are the parties to
that certain Agreement of Limited Partnership dated as of March 31, 1995, as
amended by that certain Amendment No. 1 dated as of December 11, 1995 (the
"Partnership Agreement"), providing for the formation and operation of Titan
Resources, L.P., a Texas limited partnership (the "Partnership"); and
WHEREAS, the parties hereto desire to enter into this Amendment to amend
Schedule 1 to the Partnership Agreement in order to reflect the admission of
Selma International Investment Limited as a Limited Partner of the Partnership;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and in the Partnership Agreement and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the General Partner and a Majority Interest of the Limited
Partners (acting on behalf of all of the Limited Partners) hereby agree as
follows:
1. Certain Definitions. Terms used in this Amendment and not
otherwise defined shall have the meanings set forth in the Partnership
Agreement.
2. Amendment to Schedule 1. Pursuant to Section 3.2 of the
Partnership Agreement, the General Partner hereby amends Schedule 1 to the
Partnership Agreement in order to reflect the admission of an additional
Limited Partner to the Partnership, effective at such time as such additional
Limited Partner shall deliver a counterpart signature page to the Partnership
Agreement.
3. Power and Authority to Enter into Amendment. Pursuant to Section
11.2 of the Partnership Agreement, a Majority Interest of the Limited Partners
hereby executes this Amendment in order to consent to the amendment set forth
herein.
<PAGE> 2
4. Ratification of Partnership Agreement. The Partnership
Agreement, as amended by this Amendment, is hereby ratified and confirmed in
all respects.
5. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
GENERAL PARTNER:
TITAN RESOURCES I, INC.
By: /s/ JACK D. HIGHTOWER
------------------------------------
Jack D. Hightower, President
LIMITED PARTNERS:
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its general
partner
By: /s/ DAVID R. ALBIN
------------------------------------
NATURAL GAS PARTNERS II, L.P.
By: G.F.W. Energy II, L.P., its general
partner
By: GFW II, L.L.C., its general partner
By: /s/ KENNETH A. HERSH
------------------------------------
Kenneth A. Hersh
Authorized Member
/s/ JACK D. HIGHTOWER
---------------------------------------
Jack D. Hightower
/s/ JACK D. HIGHTOWER
---------------------------------------
Jack D. Hightower, Separate Property
<PAGE> 4
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general
partner
By: /s/ WYNNE SNOOTS, JR.
----------------------------------
Wynne Snoots, Jr.
FIRST UNION CORPORATION
By: /s/ TED A. GARDNER
----------------------------------
Ted A. Gardner
<PAGE> 1
EXHIBIT 10.1.4
AMENDMENT NO. 3
TO THE
AGREEMENT OF LIMITED PARTNERSHIP
OF
TITAN RESOURCES, L.P.
This AMENDMENT NO. 3 TO THE AGREEMENT OF LIMITED PARTNERSHIP OF TITAN
RESOURCES, L.P. (this "Amendment"), dated as of September 30, 1996, is made by
and among Titan Resources I, Inc., a Texas corporation, as the general partner
(the "General Partner"), and a Majority Interest of the Limited Partners.
W I T N E S S E T H :
WHEREAS, the General Partner and the Limited Partners are the parties
to that certain Agreement of Limited Partnership dated as of March 31, 1995, as
amended by that certain Amendment No. 1 to the Partnership Agreement dated as
of December 11, 1995, and as amended by that certain Amendment No. 2 to the
Partnership Agreement dated as of September 27, 1996 (the "Partnership
Agreement"), providing for the formation and operation of Titan Resources,
L.P., a Texas limited partnership (the "Partnership"); and
WHEREAS, the parties hereto desire to amend the Partnership Agreement
in certain respects (i) in order to reflect the admission of Titan Exploration,
Inc., a Delaware corporation, as a substituted Limited Partner of the
Partnership, and (ii) effective upon such admission of Titan Exploration, Inc.
to the Partnership, to prohibit all further dispositions of interests in the
Partnership and to rescind the ability of the partners to reconstitute the
Partnership upon an event causing the dissolution of the Partnership;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and in the Partnership Agreement and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the General Partner and a Majority Interest of the Limited
Partners (acting on behalf of all of the Limited Partners) hereby agree as
follows:
1. Certain Definitions. Terms used in this Amendment and not
otherwise defined shall have the meanings set forth in the Partnership
Agreement.
2. Withdrawal. Section 6.4 of the Partnership Agreement is
hereby amended to read in its entirety as follows:
No Limited Partner shall be entitled to (a) withdraw from the
Partnership, or (b) the return of its Capital Contributions except to
the extent, if any, that distributions made pursuant to the express
terms of this Agreement may be considered as such by law or upon
dissolution and liquidation of the Partnership, and then only to the
extent expressly provided for in this Agreement and as permitted by
law.
<PAGE> 2
3. Reconstitution. Section 8.2 of the Partnership Agreement is
hereby deleted in its entirety and is of no force or effect.
4. Liquidation and Termination. Section 8.3 of the Partnership
Agreement is hereby changed to Section 8.2 and amended to read in its entirety
as follows:
SECTION 8.2. Liquidation and Termination. Upon dissolution
of the Partnership, the General Partner or, if the withdrawal of the
General Partner caused the dissolution of the Partnership, a person
selected by all of the Limited Partners, shall act as liquidator or
shall appoint one or more liquidators who shall have full authority to
wind up the affairs of the Partnership and make final distribution as
provided herein. The liquidator shall continue to operate the
Partnership properties with all of the power and authority of the
General Partner. The steps to be accomplished by the liquidator are
as follows:
(a) As promptly as possible after dissolution and again
after final liquidation, the liquidator, if requested by any Partner,
shall cause a proper accounting to be made by the Partnership's
independent accountants of the Partnership's assets, liabilities and
operations through the last day of the month in which the dissolution
occurs or the final liquidation is completed, as appropriate.
(b) The liquidator shall pay all of the debts and
liabilities of the Partnership (including all expenses incurred in
liquidation) or otherwise make adequate provision therefor (including
without limitation the establishment of a cash escrow fund for
contingent liabilities in such amount and for such term as the
liquidator may reasonably determine). After making payment or
provision for all debts and liabilities of the Partnership, the
Partners' capital accounts shall then be adjusted by (i) assuming the
sale of all remaining assets of the Partnership for cash at their
respective fair market values (as determined by an appraiser selected
by the liquidator) as of the date of termination of the Partnership,
(ii) assuming the distribution of such cash at such time in the
percentages required under Section 4.5, and (iii) debiting or
crediting each Partner's capital account with its respective share of
the hypothetical gains or losses resulting from such assumed sales in
the same manner as each such capital account would be debited or
credited with gains or losses on actual sales of such assets. The
liquidator shall then by payment of cash or property (valued as of the
date of termination of the Partnership at its fair market value by the
appraiser selected in the manner provided above) distribute to the
Partners such amounts as are required to pay the positive balances of
their respective capital accounts. Such a distribution shall be in
cash or in kind as determined by the liquidator. Any distribution to
the Partners in liquidation of the Partnership shall be made by the
later of either the end of the taxable year in which the liquidation
occurs or 90 days after the date of such liquidation. For purposes of
the preceding sentence, the term "liquidation" shall have the same
meaning as set forth in Treasury Regulation Section 1.704-1(b)(2)(ii)
as in effect at such time. Each Partner shall have the right to
designate another person to receive any property which otherwise would
be distributed in kind to that Partner pursuant to this Section 8.2.
-2-
<PAGE> 3
(c) Except as expressly provided herein, the liquidator
shall comply with any applicable requirements of the Act and all other
applicable laws pertaining to the winding up of the affairs of the
Partnership and the final distribution of its assets.
(d) Notwithstanding any provision in this Agreement to
the contrary, no Partner shall be obligated to restore a deficit
balance in its capital account at any time.
The distribution of cash and/or property to the Partners in
accordance with the provisions of this Section 8.2 shall constitute a
complete return to the Partners of their Capital Contributions and a
complete distribution to the Partners of their interest in the
Partnership and all Partnership property.
5. Assignment by Partners. Section 9.1 of the Partnership
Agreement is hereby amended to read in its entirety as follows:
No Partner's interest in the Partnership or rights therein shall be
assigned, mortgaged, pledged, subjected to a security interest or
otherwise encumbered, in whole or in part, under any circumstances.
Any attempt by a Partner to assign its interest shall be void ab
initio.
6. Representations and Warranties. Section 10.1(l) of the
Partnership Agreement is hereby amended to read in its entirety as follows:
Such Limited Partner further covenants and agrees that (A) its
Partnership Interest will not be resold under any circumstances, and
(B) such Limited Partner shall have no right to require registration
of its Partnership Interest under the Securities Act or applicable
state securities laws, and, in view of the nature of the Partnership
and its business, such registration is neither contemplated nor
likely.
7. Successors and Assigns. Section 11.8 of the Partnership
Agreement is hereby amended to read in its entirety as follows:
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns; provided, however, that no Partner may sell,
assign, transfer or otherwise dispose of all or any part of its rights
or interest in the Partnership or under this Agreement under any
circumstances.
8. Amendment to Schedule 1. Pursuant to Section 3.2 of the
Partnership Agreement, the General Partner hereby amends Schedule 1 to the
Partnership Agreement in order to reflect the admission of Titan Exploration,
Inc. as substituted Limited Partner to the Partnership, effective at such time
as such additional Limited Partner shall deliver a counterpart signature page
to the Partnership Agreement in the form attached to this Amendment, which
amended Schedule 1 is attached to this Amendment.
-3-
<PAGE> 4
9. Power and Authority to Enter into Amendment. Pursuant to
Section 11.2 of the Partnership Agreement, a Majority Interest of the Limited
Partners hereby executes this Amendment in order to consent to the amendments
set forth herein.
10. Ratification of Partnership Agreement. The Partnership
Agreement, as amended by this Amendment, is hereby ratified and confirmed in
all respects.
11. Effective Time. This Amendment shall become effective
concurrently with the admission of Titan Exploration, Inc. as substituted
Limited Partner to the Partnership.
12. Counterparts. This Amendment may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
GENERAL PARTNER:
TITAN RESOURCES I, INC.
By: /s/ JACK D. HIGHTOWER
---------------------------------------------
Jack D. Hightower, President
LIMITED PARTNERS:
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its general pa
By: /s/ DAVID R. ALBIN
---------------------------------------------
NATURAL GAS PARTNERS II, L.P.
By: G.F.W. Energy II, L.P., its general
By: GFW II, L.L.C., its general partner
By: /s/ KENNETH A. HERSH
---------------------------------------------
Kenneth A. Hersh, Authorized Member
/s/ JACK D. HIGHTOWER
-------------------------------------------------
Jack D. Hightower
/s/ JACK D. HIGHTOWER
-------------------------------------------------
Jack D. Hightower, Separate Property
<PAGE> 6
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited Partnership,
its general partner
By: Enron Capital Corp., its general partner
By: /s/ WYNNE SNOOTS, JR.
--------------------------------------------
Name: Wynne Snoots, Jr.
Title: Agent and Attorney in Fact
FIRST UNION CORPORATION
By: /s/ SCOTT R. PERPER
--------------------------------------------
Name: Scott R. Perper
Title: Senior Vice President
-6-
<PAGE> 7
LIMITED PARTNER SIGNATURE PAGE (ENTITY)
The undersigned, desiring to become a Limited Partner of the
Partnership, hereby agrees to all of the terms and provisions of the Agreement
of Limited Partnership, and agrees to be bound by the terms and provisions of
this Limited Partner Signature Page which, together with other Limited Partner
Signature Pages, is hereby incorporated into the said Agreement of Limited
Partnership. The undersigned hereby joins and executes the said Agreement of
Limited Partnership, hereby authorizing this Limited Partner Signature Page to
be attached thereto. The place of residence or principal business address of
the undersigned is as shown below.
IN WITNESS WHEREOF, the undersigned has executed this Limited Partner
Signature Page to the Agreement of Limited Partnership as of the date set forth
hereinafter.
Date: September 30, 1996 ENTITY LIMITED PARTNER:
1.
-----------------------------------------
(Name of Entity Printed)
2.
-----------------------------------------
(Name of General Partner or Trustee of
Entity, if applicable)
3.
-----------------------------------------
(Signature of Officer or Trustee)
4.
-----------------------------------------
(Name of Officer Printed)
5.
-----------------------------------------
(Title of Officer)
<PAGE> 1
EXHIBIT 10.2
TITAN RESOURCES I, INC.
AMENDED AND RESTATED VOTING AND SHAREHOLDERS AGREEMENT
This AMENDED AND RESTATED VOTING AND SHAREHOLDERS AGREEMENT (this
"Agreement"), made and entered into as of December 11, 1995, by and among
Titan Resources I, Inc., a Texas corporation (the "Company"), Jack D. Hightower
("Management Owner"), Natural Gas Partners, L.P. ("NGP I") and Natural Gas
Partners II, L.P. ("NGP II" and collectively with NGP I, "NGP"), Joint Energy
Development Investments Limited Partnership ("JEDI") and First Union
Corporation ("First Union") (the Management Owner, NGP, JEDI and First Union
are sometimes collectively referred to herein as the "Owners" and individually
as a "Owner"), amends and restates in its entirety that certain Voting and
Shareholders Agreement dated March 31, 1995 between Management Owner and NGP
(the "Original Agreement").
W I T N E S S E T H:
WHEREAS, the Company was created and organized to act as the general
partner of Titan Resources, L.P., a Texas limited partnership ("Partnership"),
and the Original Agreement was entered in connection therewith; and
WHEREAS, JEDI and First Union have proposed to purchase shares of the
Company's Common Stock, par value $.01 per share ("Common Stock") and units of
limited partnership interests in the Partnership; and
WHEREAS, it is a condition to the consummation of JEDI's and First
Union's purchase of the Common Stock and limited partnership interests that the
parties hereto agree to amend the Original Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and conditions contained herein, the parties hereto hereby agree that
the Original Agreement shall be amended in its entirety, as follows:
Section 1. Voting Agreement.
(a) General Rights. From and after the date hereof and until the
provisions of this Section 1 shall terminate as provided in subsection (b)
hereof, the Owners hereby agree to vote all of their "Owner Shares" (as defined
below) and any other voting securities of the Company over which they have
voting control at any annual or special shareholders meeting or to execute any
written consent in lieu thereof, and the Company will take all reasonable
actions within its control, that may be necessary in order to cause:
(i) the authorized number of directors on the Board to
be established at four directors, provided that, if JEDI provides
written notice to the Company that it is exercising its right to
designate a representative to the Board of Directors (the "JEDI Director
Option"), the authorized number of directors on the Board shall, within
30 days of the receipt of such notice, be established at five directors;
(ii) the election to the Board of two representatives
designated by the Management Owner;
<PAGE> 2
(iii) the election to the Board of two representatives
designated by an authorized representative of NGP;
(iv) prior to the exercise of the JEDI Director Option,
the appointment of two advisory directors designated by an authorized
representative of JEDI (the "JEDI Advisory Directors"), one of whom
shall also be entitled to act as an advisory director to any Executive
Committee that may hereafter be authorized;
(v) upon the exercise of the JEDI Director Option, the
removal of one of the JEDI Advisory Directors, the election to the Board
of one representative designated by an authorized representative of JEDI
and the continued appointment of one JEDI Advisory Director designated
by an authorized representative of JEDI, who shall also be entitled to
act as an advisory director to any Executive Committee that may
hereafter be authorized;
(vi) the appointment of one advisory director designated
by an authorized representative of First Union (the "First Union
Advisory Director"), who shall also be entitled to act as an advisory
director to any Executive Committee that may hereafter be authorized;
(vii) the removal from the Board (with or without cause)
of either or both of the representatives designated by the Management
Owner hereunder at the written request of the Management Owner (but only
upon such written request and under no other circumstances);
(viii) the removal from the Board (with or without cause)
of either or both of the representatives designated by NGP hereunder at
the written request of an authorized representative of NGP (but only
upon such written request and under no other circumstances);
(ix) the removal from the Board (with or without cause)
of the representatives designated by JEDI hereunder, or the removal of a
JEDI Advisory Director (with or without cause), at the written request
of an authorized representative of JEDI (but only upon such written
request and under no other circumstances);
(x) the removal of the First Union Advisory Director
(with or without cause), at the written request of an authorized
representative of First Union (but only upon such written request and
under no other circumstances);
(xi) in the event that any director designated by the
Management Owner hereunder for any reason ceases to serve as a member of
the Board during his term of office, the resulting vacancy on the Board
to be filled by a representative designated by the Management Owner
hereunder;
(xii) in the event that any director designated by NGP
hereunder for any reason ceases to serve as a member of the Board during
his term of office, the resulting vacancy on the Board to be filled by a
representative designated by an authorized representative of NGP;
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<PAGE> 3
(xiii) in the event that any director or advisory director
designated by JEDI hereunder for any reason ceases to serve as a member
of the Board or as an advisory director, as applicable, during his term
of office, the resulting vacancy, to be filled by a representative
designated by an authorized representative of JEDI;
(xix) in the event that any advisory director designated
by First Union hereunder for any reason ceases to serve as an advisory
director during his term of office, the resulting vacancy to be filled
by a representative designated by an authorized representative of First
Union;
(xx) in the event there shall be submitted to the Owners
any proposal concerning the amendment or repeal of, or the adoption of
new bylaws to replace, any of provisions of the Company's Bylaws set
forth in Article Two - Sections 1 through 7, in Article Three - Sections
2, 3, 4, 6, 7, 8, 9 and 14, in Article Four, in Article Five or in
Article Eleven, such proposal to be defeated unless each of the Owners
shall have consented in writing to such amendment, repeal or
replacement; and
(xxi) in the event there shall be submitted to the Owners
any proposal concerning (A) the designation of the directors to
constitute the Executive Committee created pursuant to Article Five of
the Company's Bylaws, such proposal to be defeated unless each of NGP
and the Management Owner shall have consented in writing to each of the
directors to be so designated, or (B) the delegation to the Executive
Committee created pursuant to Article Five of the Company's Bylaws, of
authority and powers of the Board of Directors in addition to the
authority to approve those matters described in Section 2 of Article
Four of such Bylaws, such proposal to be defeated unless each of NGP and
the Management Owner shall have consented in writing to such proposed
delegation of authority and powers.
(b) Termination. The voting rights set forth in this Section 1 shall
terminate upon the earlier of (i) the date upon which Management Owner's
employment shall have terminated pursuant to Section 2 as in effect on the date
hereof of that certain Employment Agreement dated as of March 31, 1995 among
the Company and the Management Owner, (ii) the first date on which the
Management Owner ceases to own all of the Owner Shares initially owned by the
Management Owner as of the date hereof (as appropriately adjusted for any stock
splits, combinations or similar changes), or (iii) the tenth anniversary of the
date hereof, unless extended by the parties hereto.
Section 2. Special Agreements Pertaining to Option Vesting.
(a) Solicitation of Bona Fide Purchase Offers. If the conditions to
the vesting of all Options granted by the Partnership under the terms of the
Partnership's Option Plan dated effective as of March 31, 1995 ("Plan") shall
not have been satisfied as of March 31, 2000, then at the request of the
Management Owner, the Owners agree to take such actions as may be
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<PAGE> 4
required to authorize the Management Owner and the other officers of the
Company, acting in their capacity as officers of the General Partner of the
Partnership, to solicit bona-fide offers in writing from unrelated third
parties to purchase for cash all, but not less than all, of the outstanding
partnership interests of the Partnership or substantially all of the
Partnership's assets (any such sale is referred to herein as a "Liquidating
Transaction"), which such offer may not be subject to any financing
contingencies and must provide that such Liquidating Transaction shall be
consummated not later than 120 days after the date of such offer and in no
event later than March 31, 2001 (any such offer which complies with such terms
is referred to as a "Bona Fide Purchase Offer").
(b) NGP's Evaluation of Offer. The Management Owner shall promptly
notify NGP of the receipt of any Bona Fide Purchase Offer and shall provide to
NGP all information then in the possession of the Company and the Management
Owner relating to same. NGP shall provide notice to the Company and the
Management Owner not later than the close of business on the 30th day following
the date NGP receives notice of such offer of NGP's election, which may be
exercised in its sole and absolute discretion, to accept or reject such Bona
Fide Purchase Offer. During such 30 day period the Management Owner agrees to
obtain and provide to NGP any additional information requested by NGP regarding
the offeror or the terms of the offer which is reasonably obtainable by the
Management Owner. Any failure by NGP to provide notice of its acceptable or
rejection of a Bona Fide Purchase Offer prior to the end of such 30 day period
shall be deemed to be a rejection of such offer.
(c) Acceptance of Offer. If NGP shall elect to accept the Bona Fide
Purchase Offer, then the Owners mutually agree to take all such actions as may
be required to effectuate the Liquidating Transaction in accordance with the
terms of the Bona Fide Purchase Offer, including, without, limitation, voting
in their capacity as Owners of the Common Stock, as directors of the Company
and as owners of LP Units in favor of authorizing and consummating the
Liquidating Transaction.
(d) Rejection of Offer. If NGP shall reject the Bona Fide Purchase
Offer, then the Owners agree to take such actions as may be necessary (i) to
cause the Board to include in its determination of "Realized Equity Value" (as
defined in each of the B Options, C Options and D Options granted under the
Plan) the cash purchase price set forth in the Bona Fide Purchase Offer, and
(ii) if the addition of such amount shall cause the Realized Equity Value to be
established at an amount which allows the B Options, C Options or D Options to
vest in accordance with the terms thereof, to cause the Board to amend the Plan
to provide for a two-year extension of the time to exercise such vested
Options.
(e) Termination. The provisions of this Section 2 shall terminate on
the date on which Section 1 terminates.
Section 3. Restrictions on Transfers of Shares and LP Units.
(a) General. In addition to any restrictions on the Transfer of
Owner Shares and LP Units that are imposed under applicable securities laws and
under the Partnership Agreement, no
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<PAGE> 5
Owner shall Transfer all or any part of his or her Owner Shares or LP Units,
except upon compliance with this Section 3.
(b) General Right to Transfer.
(i) Subject to compliance with subsection (c) hereof, NGP may
transfer all or any part of its Owner Shares either (A) in an Excluded
Affiliate Transfer, or (B) with the prior written consent of Management
Owner;
(ii) Subject to compliance with subsection (c) hereof,
Management Owner may transfer all or any part of his Owner Shares with
the prior written consent of NGP; and
(iii) any other party hereto may transfer all or any portion of
its Owner Shares to the extent that a corresponding percentage of the LP
Units owned by it is permitted to be transferred under the Partnership
Agreement or any other agreements pertaining to the transferability of
such LP Units; provided that, any restrictions and procedures which must
be complied with as a pre-requisite to the transferability of such LP
Units must also be applied to and complied with as to the Owner Shares,
as a prerequisite to the transferability of such Owner Shares.
(c) Special Tag-Along Rights of JEDI and First Union.
(i) In the event that NGP or Management Owner (either a
"Seller" and both "Sellers") shall receive a bona-fide written offer or
series of offers ("Offer") from an unrelated third party (the "Buyer")
pursuant to which the Seller(s) propose(s) to dispose of Owner Shares or
LP Units and such proposed disposition would result in a Change in
Control Transaction, then each Seller desiring to transfer its Owner
Shares or LP Units, shall, as a condition precedent to its right to
accept the offer of Buyer, notify JEDI and First Union in writing of the
receipt of such offer, the identity of the Buyer, the offered price on a
per Owner Share and per LP Unit basis, as applicable (the "Specified
Price"), for the Owner Shares and/or LP Units that are the subject of
such offer (the "Offered Interest") and all other terms and conditions
of such offer and shall cause the Buyer to offer to purchase a
"proportionate number" (as defined below) of each of JEDI's and First
Union's Owner Shares and LP Units (the "Tag-Along Interest"), at the
Specified Price and on the same terms offered by the Buyer. Each of
JEDI and First Union shall have the right, but not the obligation,
either to (A) sell the Tag-Along Interest at the Specified Price to the
Buyer along with the sale of the Seller's Owner Shares and/or LP Units,
or (B) to retain its interest in the Partnership and/or the Company, and
shall notify the Partnership and the Seller(s) in writing of its
election within ten (10) days of its receipt of such offer. Failure by
either of JEDI or First Union to give notice within the required ten
(10) day period shall be deemed an election by it not to sell its
Tag-Along Interest. If either or both of JEDI and First Union elect to
sell the Tag-Along Interest, each party hereto electing to sell Owner
Shares or LP Units shall be entitled to sell its proportionate share of
the Offered Interest and shall use its reasonable best efforts to
effectuate the sale to the Buyer upon the terms and conditions of the
Offer. For the purposes of this subsection (c), a "proportionate
number" of Owner Shares or LP Units of any party hereto (as applicable)
shall be equal to (i) the product of the total number of Owner Shares or
LP Units (as applicable) comprising the Offered Interest times the
percentage obtained by
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<PAGE> 6
dividing the number of Owner Shares or LP Units (as applicable) owned by
such party (as applicable) by the aggregate number of Owner Shares or LP
Units (as applicable) owned by all parties electing to sell in the
Offer.
(ii) If, following the procedures set forth in clause (i) of
this subsection (c), JEDI or First Union fails to take the requisite
actions specified in such clause (i) to sell the Tag-Along Interest, the
Seller(s) shall, during a 90-day period commencing after the expiration
of the ten (10) day period described in clause (i), be free to sell the
Offered Interest to the Buyer, on the terms and provisions specified in
its original notice of intention, and if the Offered Interest is not so
disposed of within such 90-day period, the Sellers shall continue to own
and hold the Offered Interest, and its remaining LP Units and Owner
Shares, subject to the terms and provisions of this subsection (c).
(iii) The Partnership and the Company shall not allow or consent
to a transfer of Owner Shares or LP Units in a Change of Control
Transaction without requiring the Sellers to comply with this subsection
(c).
(d) Termination. This Section 3 shall terminate upon the earlier of
any one or more of the following events: (i) the consolidation or merger of the
Company or the Partnership with or into another corporation or other entity
(other than a merger in which the Company or the Partnership is the continuing
or surviving entity) or the conveyance to another entity of the assets of the
Company or the Partnership as an entirety or substantially as an entirety; (ii)
the adjudication of the Company or the Partnership as a bankrupt, the execution
by the Company or the Partnership of an assignment for the benefit of creditors
or the appointment of a receiver of the Company; (iii) the voluntary or
involuntary dissolution of the Company or the Partnership; (iv) upon the death
of the Management Owner or when there is otherwise only one surviving Owner as
a party to this Agreement; or (v) the agreement of all the Owners.
Section 4. Definitions. As used in this Agreement, the following
terms shall have the meanings assigned to them in this Section 4:
"Change in Control Transaction" means any of the following:
(i) any disposition of Owner Shares or LP Units by the Management Owner
or NGP (A) which causes a Conversion Event, (B) pursuant to which NGP assigns
or delegates to a transferee which is not an Affiliate, the right under this
Agreement to designate one or more representatives to the Board, or (C) which
permits the transferee of such Owner Shares or LP Units to have the opportunity
to elect a majority of the members of the Board of Directors of the Company; or
(ii) any disposition by the Management Owner or NGP of LP Units
constituting 40% or more of the number of LP Units owned by the Management
Owner or NGP, as applicable, as of the date hereof.
"Conversion Event" the events defined as such in that certain Agreement
Re: Conversion Event dated as of the date hereof among the parties hereto.
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<PAGE> 7
"Excluded Affiliate Transfers" means any transfer of Owner Shares by NGP
(whether voluntarily or by operation of law) to a partner or other affiliate or
a legal successor of NGP I or NGP II.
"Initial Public Offering" means the first offering to the public of
equity securities of the Company or the Partnership pursuant to a registration
statement on Form S-1 (or a comparable form used in connection with an initial
public offering) under the Securities Act of 1933, as amended.
"LP Units" means with respect to any Owner (i) all units of limited
partnership interests held by such Owner, (ii) any equity securities issued or
issuable directly or indirectly to an Owner with respect to the units referred
to in clause (i) above by way of distribution or split or in connection with a
combination of units, conversion, recapitalization, merger, consolidation or
other reorganization, and (iii) any other units or class or series of security
of the Company currently held or held in the future by a Owner.
"Owner Shares" means with respect to any Owner (i) all shares of Common
Stock held by such Owner, (ii) any equity securities issued or issuable
directly or indirectly to an Owner with respect to the Common Stock referred to
in clause (i) above by way of stock dividend or stock split or in connection
with a combination of shares, conversion, recapitalization, merger,
consolidation or other reorganization, and (iii) any other shares of any class
or series of voting security of the Company currently held or held in the
future by an Owner.
"NGP Parties" means collectively NGP I, NGP II and any subsequent owner
of Owner Shares who acquires such shares in an Excluded Affiliate Transfer.
"Partnership Agreement" means the Agreement of Limited Partnership of
the Partnership, as amended.
"Pledge" means any pledge of an interest in, or other encumbrance
placed upon, Owner Shares as security for indebtedness or for other purposes.
"Transfer" means any sale, assignment or other disposition of Owner
Shares, other than a Pledge.
Section 5. Enforcement; Legends. No Owner Shares or LP Units shall
be transferred on the books of the Company nor shall any sale, assignment,
transfer, pledge or other disposition thereof be effective unless and until the
terms and provisions of this Agreement are first complied with and, in case of
violation of this Agreement by the attempted transfer of Owner Shares or LP
Units without compliance with the terms and provisions hereof, such sale,
assignment, transfer, pledge or other disposition shall be invalid and of no
effect. The Owners will cause the Company to imprint a legend on any
certificates evidencing Owner Shares which are subject to this Agreement
referring to the voting rights and the restrictions on transfer of the Owner
Shares imposed hereunder. Any such legend shall be removed from the
certificates evidencing any shares which cease to be "Owner Shares", as set
forth in the definition of such term in Section 4 hereof. The Owners shall
cause the Partnership to identify the existence of this Agreement relating to
the LP Units of NGP and the Management Owner on Schedule 1 to the Partnership
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<PAGE> 8
Agreement until such time that such limited partnership interests are not LP
Units as set forth in the definition of such term in Section 4 hereof.
Section 6. Termination. This Agreement shall terminate upon the
earlier of (i) the termination of Section 1, Section 2 and Section 3 hereof, or
(ii) upon completion of an Initial Public Offering.
Section 7. Miscellaneous.
(a) Benefit. Except as expressly provided in Section 7(f), this
Agreement will only bind and inure to the benefit of, and will only be
enforceable by and against, the Owners and their respective successors and
permitted assigns; provided that, under no circumstances may the right to
designate a representative to the Board pursuant to Section 1 be held by more
than one transferee of each Owner. Consequently, if any Owner should assign
less than all of its Owner Shares or LP Units to a permitted transferee, then
at the time of such transfer, the Owner must designate whether it is retaining
the rights under Section 1 hereof or whether such rights are transferred to the
transferee. The Person so designated as holding such rights (i.e., either the
transferring Owner or the transferee), shall be entitled to exercise all rights
and shall be bound by all obligations applicable to all of the Owner Shares
initially owned by the transferring Owner, as specified on the execution pages
hereof.
(b) Notices. Whenever in this Agreement, notice is required to be
given it shall be given in writing, and if such notice is given by registered
mail it shall be deemed to have been received on the second business day after
the date such notice is posted. All notices hereunder to the Company shall be
mailed to it at the address of its principal place of business and all notices
to the Owners shall be mailed to them at their last known address as shown on
the books and records of the Company. Any party may change its or his or her
mailing address by giving written notice of such change to all other parties.
(c) Governing Law. This Agreement and the rights and duties of the
parties hereto shall be governed by and construed in accordance with the laws
of the State of Texas.
(d) Number. Words in the singular shall be construed to include the
plural and vice versa, unless the context otherwise requires.
(e) Headings. The headings appearing in this Agreement are inserted
only for convenience of reference and in no way shall be construed to define,
limit or describe the scope or intent of any provision of this Agreement.
(f) Joinder. The spouse, if any, of the Management Owner joins in
the execution and delivery of this Agreement for the express purpose of binding
her community property interests, if any, in the Owner Shares.
(g) Severability. Every provision in this Agreement is intended to
be severable. In the event that any provision in this Agreement shall be held
invalid, the same shall not affect in any respect whatsoever the validity of
the remaining provisions of this Agreement; provided, however, that if any such
provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent
permitted by applicable law.
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<PAGE> 9
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
(i) Entirety; Amendments and Modifications. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof. This Agreement may be amended at any time to add
additional parties hereto and make corresponding modifications in connection
therewith, by a written instrument executed by NGP and Management Owner;
provided that, no amendment or modification of this Agreement may terminate,
waive or limit in any respect a right of an Owner under this Agreement without
that party's written consent thereto (it being acknowledged that the dilution
of an Owner's representation on the Board solely as a result of the addition of
directors to the Board will not be deemed to be a modification of an Owner's
rights hereunder); provided further that, before a Conversion Event has
occurred no amendment may expand the number of directors on the Board to more
than five directors, unless the Bylaws of the Company are amended to provide:
(i) for three separate classes of directors, with one class
established for the two directors then designated by NGP pursuant to
Section 1(a)(iii) of this Agreement (Class A), one class established for
the two director(s) then designated by the Management Owner pursuant to
Section 1(a)(ii) of this Agreement (Class B), one class established for
any of the directors then designated by First Union and the JEDI
Parties, and, if applicable, any other directors (Class C); and
(ii) that no matter coming before the Board of Directors may be
approved without the affirmative vote of at least one Class A and one
Class B director and that any matter may be approved by the affirmative
vote of all of the Class A and Class B directors.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
TITAN RESOURCES I, INC.
By: /s/ JACK D. HIGHTOWER
---------------------------------
Name: Jack D. Hightower
----------------------------
Title: President
---------------------------
NATURAL GAS PARTNERS, L.P.
Initial Number of
Owner Shares: By: G.F.W. Energy, L.P.,
7749.9 General Partner
By: /s/ DAVID R. ALBIN
---------------------------------
David R. Albin
Authorized Employee
NATURAL GAS PARTNERS II, L.P.
Initial Number of
Owner Shares: By: G.F.W. Energy II, L.P.,
8129.3 General Partner
By: GFW II, L.L.C.,
General Partner
By: /s/ KENNETH A. HERSH
---------------------------------
Kenneth A. Hersh
Authorized Member
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<PAGE> 11
Initial Number of
Owner Shares: /s/ JACK D. HIGHTOWER
------------------------------------
4660.8 JACK D. HIGHTOWER
/s/ ROBIN M. HIGHTOWER
------------------------------------
Spouse
JOINT ENERGY DEVELOPMENT
Initial Number of INVESTMENTS LIMITED PARTNERSHIP
Owner Shares:
5135 By: Enron Capital Corp., its general
partner
By: /s/ WYNNE SNOOTS, JR.
---------------------------------
Name: Wynne Snoots, Jr.
----------------------------
Title: Agent and Attorney in Fact
---------------------------
FIRST UNION CORPORATION
Initial Number of
Owner Shares
2567.5
By: /s/ TED A. GARDNER
---------------------------------
Name: Ted A. Gardner
----------------------------
Title: Senior Vice President
---------------------------
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<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement"), made and entered into as of September 30, 1996, by and among
Titan Exploration, Inc., a Delaware corporation (the "Company"), Jack D.
Hightower, an individual residing in Midland, Texas ("Hightower"), Natural Gas
Partners, L.P., a Delaware limited partnership ("NGP I"), Natural Gas Partners
II, L.P., a Delaware limited partnership ("NGP II"), Joint Energy Development
Investments Limited Partnership, a Delaware limited partnership ("JEDI"), First
Union Corporation, a North Carolina Corporation ("First Union") and Selma
International Investment Limited, a Delaware corporation ("Selma")
(collectively, Hightower, NGP I, NGP II, JEDI, First Union, and Selma are the
"Owners"), amends and restates in its entirety that certain Registration Rights
Agreement dated as of March 31, 1995, as amended by that certain Amendment No.
1 to the Registration Rights Agreement dated as of December 11, 1995, as
amended by that certain Amendment No. 2 to the Registration Rights Agreement
dated as of September 27, 1996 (the "Original Agreement"), among the Owners,
Titan Resources, L.P., a Texas limited partnership (the "Partnership") and
Titan Resources I, Inc., a Texas corporation (the "General Partner").
1. Background. The Owners are holders of limited partnership
interests ("Units") in the Partnership and common stock ("Stock") of the
General Partner. The Original Agreement grants to the Owners certain
registration rights with respect to the Units. The Company and the Owners are
parties to that certain Exchange Agreement and Plan of Reorganization dated as
of September 30, 1996 (the "Exchange Agreement"), pursuant to which the Owners,
along with the other limited partners of the Partnership, will exchange all of
the outstanding Units and Stock for shares of the Company's common stock, par
value $.01 per share (the "Company Common Stock"), as more fully described in
the Exchange Agreement (the "Proposed Transaction"). The parties hereto desire
to enter into this Agreement in order to give effect to the rights of the
Owners under the Original Agreement by granting to the Owners registration
rights with respect to the Company Common Stock. The execution and delivery of
this Agreement is a condition to the consummation of the Proposed Transaction.
2. Registration under Securities Act, etc.
2.1. Registration on Request.
(a) Concurrently with or from time to time after the Initial
Registration Date, upon the written request of one or more holders of
Registrable Securities, requesting that the Company effect the registration
under the Securities Act of all or a portion of such holders' Registrable
Securities and specifying the intended method of disposition thereof and
whether or not such requested registration is to be an underwritten offering,
the parties hereto agree as follows:
(i) The Company will promptly give written notice of such
requested registration to all other holders of Registrable Securities,
if any;
<PAGE> 2
(ii) Promptly after providing the notice required by clause (i)
of this Section 2.1(a), and subject to the limitations set forth in
subsection (e) of this Section 2.1, the Company will use its best
efforts to effect the registration under the Securities Act of:
(A) the Registrable Securities which the Company has
been so requested to register by such holders, and
(B) all other Registrable Securities which the Company
has been requested to register by the holders thereof by written
request given to the Company within 30 days after the giving of
such written notice by the Company (which request shall specify
the intended method of disposition of such Registrable
Securities), all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering by one or more holders of Registrable Securities, no
securities other than Registrable Securities shall be included among the
securities covered by such registration unless (i) the managing underwriter of
such offering shall have advised each holder of Registrable Securities to be
covered by such registration in writing that the inclusion of such other
securities would not adversely affect such offering or (ii) the holders of all
Registrable Securities to be covered by such registration shall have consented
in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission (i) as
shall be selected by the Company and as shall be reasonably acceptable to the
Requisite Holders, and (ii) as shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods of disposition
specified in their request for such registration. The Company agrees to
include in any such registration statement all information which holders of
Registrable Securities being registered shall reasonably request.
(d) Expenses. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 2.1. Any
Selling Expenses in connection with any registration requested under this
Section 2.1 shall be allocated among all Persons on whose behalf securities of
the Company are included in such registration, on the basis of the respective
amounts of the securities then being registered on their behalf.
(e) Limitations on Requested Registrations. The Company's obligation
to take or continue any action to effect a requested registration under this
Section 2.1 shall be subject to the following:
(i) The Company shall not be required to effect more than three
registrations requested pursuant to this section 2.1; provided that, a
registration requested pursuant to
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this Section 2.1 shall not be deemed to have been effected (A) unless a
registration statement with respect thereto has been declared effective
for a period of at least 90 days, (B) if after a registration statement
has become effective, such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason, or (C) if the
conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration
are not satisfied, other than as a result of the voluntary termination
of such offering by the Requisite Holders;
(ii) The Company shall not be required to effect a registration
pursuant to this Section 2.1 unless such registration has been requested
by the holders of Registrable Securities which (A) represent at least
35% (by number of shares) of the Registrable Securities then
outstanding, and (B) have an estimated aggregate offering price to the
public of at least $3,000,000; and
(iii) The Company shall not be required to effect a registration
pursuant to this Section 2.1 during the 180 day period after a
registration statement shall have been filed and declared effective
under the Securities Act with respect to the public offering of any
class of the Company's equity securities (which shall exclude a
registration of securities with respect to an employee benefit,
retirement or similar plan).
(f) Selection of Underwriters. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by the Company with the approval of
the Requisite Holders.
(g) Priority in Requested Registrations. If a requested
registration pursuant to this Section 2.1 involves an underwritten offering,
and the managing underwriter shall advise the Company in writing (with a copy
to each holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering within a price range
acceptable to the Requisite Holders, the Company will include in such
registration to the extent of the number which the Company is so advised can be
sold in such offering, Registrable Securities requested to be included in such
registration, pro rata among the holders thereof requesting such registration
on the basis of the percentage of the Registrable Securities of the Company
held by the holders of Registrable Securities which have requested that such
Securities be included. In connection with any registration as to which the
provisions of this clause (g) apply, no securities other than Registrable
Securities shall be covered by such registration.
2.2. Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at
any time proposes to register any of its securities under the Securities Act
(other than (i) in connection with a registration of any employee benefit,
retirement or similar plan, or (ii) with respect to a Rule 145 transaction, or
(iii) pursuant to Section 2.1), whether or not for sale for its own account, it
will
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each such time give prompt written notice to all holders of Registrable
Securities of its intention to do so and of such holders' rights under this
Section 2.2. Upon the written request of any such holder made within 30 days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company will use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holders
thereof, to the extent requisite to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities so to
be registered, provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any holder
or holders of Registrable Securities entitled to do so to request that such
registration be effected as a registration under Section 2.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall be deemed to have been effected pursuant to Section 2.1 or shall
relieve the Company of its obligation to effect any registration upon request
under Section 2.1. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 2.2 and any Selling Expenses shall be allocated among all
Persons on whose behalf securities of the Company are included in such
registration, on the basis of the respective amounts of the securities then
being registered on their behalf.
(b) Priority in Incidental Registrations. If (i) a
registration pursuant to this Section 2.2 involves an underwritten offering of
the securities so being registered, whether or not for sale for the account of
the Company, to be distributed (on a firm commitment basis) by or through one
or more underwriters of recognized standing under underwriting terms
appropriate for such a transaction, and (ii) the managing underwriter of such
underwritten offering shall inform the Company and the holders of the
Registrable Securities requesting such registration by letter of its belief
that the number of securities requested to be included in such registration
exceeds the number which can be sold in (or during the time of) such offering,
then the Company will include in such registration, to the extent of the number
which the Company is so advised can be sold in (or during the time of) such
offering, first, all securities proposed by the Company to be sold for its own
account, second, such Registrable Securities requested to be included in such
registration pro rata on the basis of the number of shares of such securities
so proposed to be sold and so requested to be included, and third, all other
securities of the Company requested to be included in such registration pro
rata on the basis of the number of shares of such securities so proposed to be
sold and so requested to be included.
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2.3. Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1 and 2.2, the
Company will as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event
no later than 60 days after the end of the period within which requests
for registration may be given to the Company) file with the Commission
the requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to
become effective, provided that the Company may discontinue any
registration of its securities which are not Registrable Securities
(and, under the circumstances specified in Section 2.2(a), its
securities which are Registrable Securities) at any time prior to the
effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have
been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such registration
statement;
(iii) furnish to each seller of Registrable Securities covered
by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as
each seller thereof shall reasonably request, to keep such registration
or qualification in effect for so long as such registration statement
remains in effect, and take any other action which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of this
subdivision (iv) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof to consummate the disposition of
such Registrable Securities;
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(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and underwriters, if any) of:
(A) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the
date of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to
the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten public offerings of securities and, in
the case of the accountants' letter, such other financial matters, and,
in the case of the legal opinion, such other legal matters, as such
seller may reasonably request;
(vii) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any such
seller promptly prepare and furnish to such seller a reasonable number
of copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include 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 not misleading in
the light of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and will furnish to each such seller at least five
business days prior to the filing thereof a copy of any amendment or
supplement to such registration statement or prospectus and shall not
file any thereof to
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which any such seller shall have reasonably objected on the grounds that
such amendment or supplement does not comply in all material respects
with the requirements of the Securities Act or of the rules or
regulations thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
(x) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the Registrable Securities is then listed; and
(xi) enter into such agreements and take such other actions as
the Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in the subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition
of Registrable Securities pursuant to the registration statement relating to
such Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to each such holder and the
underwriters and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of this type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 2.7. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all
of the conditions precedent to the obligations of such underwriters under such
underwriting
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agreement be conditions precedent to the obligations of such holders of
Registrable Securities. Any such holder of Registrable Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
(b) Incidental Underwritten Offerings. If the Company at any
time proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in Section 2.2 and subject to the
provisions of Section 2.2(b), arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities. Any such holder of Registrable Securities shall not be required to
made any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
2.5. Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the holders of
Registrable Securities registered under such registration statement, and their
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent
public accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders' counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.6. Additional Rights of Owners. If any registration
statement prepared under this Agreement refers to any Owner by name or
otherwise as the holder of any securities of the Company, then such Owner shall
have the right to require (x) the insertion therein of language, in form and
substance satisfactory to such Owner, to the effect that the holding by such
Owner of such securities does not necessarily make such Owner a "controlling
person" of the Company within the meaning of the Securities Act and is not to
be construed as a recommendation by such Owner of the investment quality of the
Company's debt or equity securities covered thereby and that such holding does
not imply that such Owner will assist in meeting any future financial
requirements of the Company, or (y) in the event that such reference to such
Owner by name or
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otherwise is not required by the Securities Act or any rules and regulations
promulgated thereunder, the deletion of the reference to such Owner.
2.7. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, in the case of any registration statement filed
pursuant to Section 2.1 or 2.2, indemnify and hold harmless the seller of any
Registrable Securities covered by such registration statement, its directors
and officers, each other Person who participates in the offering or sale of
such securities and each other Person, if any, who controls such seller within
the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such seller or any such director or
officer or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse such seller
and each such director, officer, and controlling person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such seller specifically stating that it is for use in the preparation thereof
and, provided further that the Company shall not be liable to any Person who
participates as an underwriter, in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within
the meaning of the Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such Person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, underwriter or controlling person and shall
survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. The Company may require,
as a condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.3, that the Company shall have received
an undertaking satisfactory to it from the prospective seller
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of such securities, to indemnify and hold harmless (in the same manner and to
the same extent as set forth in subdivision (a) of this Section 2.7) the
Company, each director of the Company, each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.7, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 2.7, except to
the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, the indemnifying party shall be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 2.7 shall be made by periodic payments of the amount thereof
during the course of the
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investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
2.8. Adjustments Affecting Registrable Securities. The Company
will not effect or permit to occur any combination or subdivision of
Registrable Securities which would adversely affect the ability of the holders
of Registrable Securities to include such Registrable Securities in any
registration of its securities contemplated by this Section 2, or the
marketability of such Registrable Securities under any such registration.
3. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Commission: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
Company: As defined in the introductory paragraph of this
Agreement. For purposes of this Agreement, all references to the
Company shall be deemed to include any successor entity or
transferee.
Exchange Act: The Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the
time. Reference to a particular section of the Securities
Exchange Act of 1934 shall include a reference to the comparable
section, if any, of any such similar Federal statute.
Initial Registration Date: The first to occur of (i) June 30,
1997, and (ii) the 180th day after a registration statement shall
have been filed and declared effective under the Securities Act
with respect to the initial public offering of the Company's
securities.
Majority Holders: At any time, the holder or holders of more
than 50% (by number of shares) of all Registrable Securities then
outstanding.
Person: A corporation, an association, a partnership, a
business, an individual, a governmental or political subdivision
thereof or a governmental agency.
Registrable Securities: any Company Common Stock owned by an
Owner and any securities issued or issuable with respect to any
such Company Common Stock by way of distribution or in connection
with any reorganization, recapitalization, merger, consolidation
or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the sale of
such securities shall have become effective under the Securities
Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been
distributed
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to the public pursuant to Rule 144 or Rule 144A (or any successor
provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a
legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act or
any similar state law then in force, or (d) they shall have
ceased to be outstanding.
Registration Expenses: All expenses incident to the Company's
performance of or compliance with Section 2.1, including, without
limitation, all registration, filing and National Association of
Securities Dealers fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such
performance and compliance, the fees and disbursements incurred
by the holders of Registrable Securities to be registered
(including the fees and disbursements of not more than one
special counsel to the holders of such Registrable Securities),
premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Registrable
Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of
securities, but excluding Selling Expenses, if any, provided
that, in any case where Registration Expenses are not to be borne
by the Company, such expenses shall not include salaries of
Company personnel or general overhead expenses of the Company,
auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company or other
expenses for the preparation of financial statements or other
data normally prepared by the Company in the ordinary course of
its business or which the Company would have incurred in any
event.
Requisite Holders: With respect to any registration of
Registrable Securities pursuant to Section 2.1, any holder or
holders of more than 50% (by number of shares) of the Registrable
Securities to be so registered.
Securities Act: The Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission
thereunder, all as of the same shall be in effect at the time.
References to a particular section of the Securities Act of 1933
shall include a reference to the comparable section, if any, of
any such similar Federal Statute.
Selling Expenses: underwriting discounts and commissions and
stock transfer taxes relating to securities registered by the
Company.
4. Rule 144 and Rule 144A: If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration
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statement pursuant to the requirements of the Securities Act, the Company will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder
(or, if the Company is not required to file such reports, will, upon the
request of any holder of Registrable Securities, make publicly available other
information) and will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time or
(b) any similar rule or regulation hereafter adopted by the Commission. Upon
the request of any holder of Registrable Securities, the Company will deliver
to such holder a written statement as to whether it has complied with such
requirements. After any sale of Registrable Securities pursuant to this
Section 4, the Company will, to the extent allowed by law, cause any
restrictive legends to be removed and any transfer restrictions to be rescinded
with respect to such Registrable Securities. In order to permit the holders
of Registrable Securities to sell the same, if they so desire, pursuant to Rule
144A promulgated by the Commission (or any successor to such rule), the Company
will comply with all rules and regulations of the Commission applicable in
connection with use of Rule 144A (or any successor thereto). Prospective
transferees of Registrable Securities that are Qualified Institutional Buyers
(as defined in Rule 144A) which would be purchasing such Registrable Securities
in reliance upon Rule 144A may request from the Company information regarding
the business, operations and assets of the Company. Within five business days
of any such request, the Company shall deliver to any such prospective
transferee copies of annual audited and quarterly unaudited financial
statements of the Company and such other information as may be required to be
supplied by the Company for it to comply with Rule 144A.
5. Amendments and Waivers. This Agreement may be amended and
the Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of the
Majority Holders; provided, however, that no amendment to this Agreement that
would adversely affect the rights of a party hereto may be made without the
prior written consent of such party, with the exception that temporary waivers
and suspensions of the rights of all of the Owners pursuant to customary terms
at the request of the managing underwriter in connection with any underwritten
offering of the Company's securities, may be authorized by consent of the
Majority Holders. Each holder of any Registrable Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this Section
5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the
13
<PAGE> 14
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
7. Notices. All communications provided for hereunder shall
be sent by first-class mail and (a) if addressed to a party other than the
Company, addressed to such party at the address set forth opposite such parties
name on the execution page hereof, or (b) if addressed to the Company, at 500
West Texas, Suite 500, Midland, Texas 79701 or at such other address, or to the
attention of such other officer, as the Company shall have furnished to each
holder of Registrable Securities at the time outstanding; provided, however,
that any such communication to the Company may also, at the option of any of
the parties hereunder, be either delivered to the Company at its address set
forth above or to any officer of the Company.
8. Assignment. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are for
the benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent holder of any Registrable
Securities, subject to the provisions respecting the minimum numbers or
percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein.
9. Termination. This Agreement shall terminate when no
Registrable Securities remain outstanding.
10. Termination of Original Agreement. The parties hereto, as
applicable, who are parties to the Original Agreement, agree that the Original
Agreement is hereby terminated and of no further force or effect.
11. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
12. Specific Performance. The parties hereto recognize and
agree that money damages may be insufficient to compensate the holders of any
Registrable Securities for breaches by the Company of the terms hereof and,
consequently, that the equitable remedy of specific performance of the terms
hereof will be available in the event of any such breach.
13. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of Texas.
14. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the same
instrument.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
COMPANY:
TITAN EXPLORATION, INC.
By: /s/ JACK D. HIGHTOWER
--------------------------------------
Name: Jack D. Hightower
------------------------------------
Title: President
-----------------------------------
OWNERS:
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P.,
General Partner
By: /s/ DAVID R. ALBIN
--------------------------------------
Name: David R. Albin
------------------------------------
Title: Authorized Employee
-----------------------------------
NATURAL GAS PARTNERS II, L.P.
By: G.F.W. Energy II, L.P.,
General Partner
By: GFW II, L.L.C.,
General Partner
By: /s/ KENNETH A. HERSH
--------------------------------------
Name: Kenneth A. Hersh
------------------------------------
Title: Authorized Member
-----------------------------------
15
<PAGE> 16
/s/ JACK D. HIGHTOWER
-----------------------------------------
JACK D. HIGHTOWER
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general
partner
By: /s/ WYNNE SNOOTS, JR.
--------------------------------------
Name: Wynne Snoots, Jr.
------------------------------------
Title: Agent of Attorney in Fact
-----------------------------------
FIRST UNION CORPORATION
By: /s/ SCOTT B. PERPER
--------------------------------------
Name: Scott B. Perper
------------------------------------
Title: Senior Vice President
-----------------------------------
SELMA INTERNATIONAL INVESTMENT LIMITED
By: /s/ DAVID M. WHITEHEAD
--------------------------------------
Name: David M. Whitehead
------------------------------------
Title: President
-----------------------------------
<PAGE> 1
EXHIBIT 10.4
FINANCIAL ADVISORY SERVICES CONTRACT
This Financial Advisory Services Contract, dated as of March 31, 1995
(this "Contract") is between Titan Resources, L.P., a Texas limited partnership
("Company"), and Natural Gas Partners, L.P., a Delaware limited partnership,
and Natural Gas Partners II, L.P., a Delaware limited partnership
(collectively, "NGP"), and sets forth the terms and conditions pursuant to
which the Company will retain NGP to act as its financial advisor.
The Company and NGP agree as follows:
1. Retention of Financial Advisor; Scope of Services.
(a) Subject to the terms and conditions set forth herein, the Company
hereby retains NGP to act as a financial advisor to the Company during the
Contract Period (as defined in paragraph 2 below).
(b) As financial advisor to the Company, NGP will, from time to time,
as requested by the Company, provide consultation, assistance and advice with
respect to the Company's financial operations, including, without limitation,
the following:
(i) assistance in the equity or debt private placement or
public offering process, including drafting of documents, planning and
participation in meetings with investors, and general oversight of
legal, accounting, private placement and underwriting issues;
(ii) assistance in bank loan and credit agreement negotiation,
documentation and compliance;
(iii) assistance in upgrading and implementing a long-term
budgeting and planning process,
(iv) ongoing advice on business acquisitions, including
negotiation strategies and financing alternatives.
(c) The parties hereto acknowledge that (i) NGP is not regularly
engaged in the business of providing financial advisory services and that the
services to be performed by NGP hereunder are provided as an incident to NGP's
activities as an owner of a significant portion of the stock of Titan Resources
I, Inc., the general partner of the Company (the "General Partner"), (ii) the
fees to be paid to NGP hereunder were established at an amount which is
believed to be approximately equal to the amount of indirect costs and expenses
NGP will incur in providing such services, (iii) NGP is not an "investment
advisor", within the meaning of the Investment Advisors Act of 1940, as
amended, or applicable state laws, or a "broker" or "dealer" under the
Securities Exchange Act of 1934, as amended, or applicable state laws, (iv) the
nature of the services to be provided by NGP under this Contract do not include
those of an "investment
<PAGE> 2
advisor" (i.e. providing advice as to the value of securities or the
advisability of investing in, purchasing or selling securities), or those of a
"broker" or "dealer" (i.e. effecting transaction in securities for the account
of the Company or others), and (v) it is specifically intended by the parties
hereto that NGP's activities hereunder not subject NGP to any regulation or
registration under federal or state laws.
(d) The parties hereto acknowledge and agree that NGP will make
available any and all of its employees, agents and other resources, which NGP,
it its sole discretion, determines is necessary for it to perform its services
hereunder. The parties further acknowledge that unless and until NGP provides
notice to the contrary, all decisions with respect to staffing, scheduling and
allocating NGP's resources for purposes of this Contract will be coordinated on
behalf of NGP by its employee Kenneth A. Hersh, and any request by the Company
for the performance of services hereunder shall be directed to Kenneth A.
Hersh.
2. Contract Period and Termination. NGP shall act as the Company's
financial advisor under this Contract, effective as of March 31, 1995 (the
"Effective Date") and continuing until the earlier of (i) the date of
dissolution of the Company, (ii) the first date on which NGP no longer owns at
least 35 percent of the outstanding shares of common stock of the General
Partner; provided that, this Contract may be terminated effective as of the end
of any fiscal quarter of the Company on or after June 30, 1995, if NGP provides
written notice of its election to terminate this Contract to the Company not
less than 30 days before the date on which termination is to be effective (the
period from the effective date of this contract until the date of its
termination is referred to herein as the "Contract Period"). Upon termination,
neither party will have any further obligation under this Contract, except for
(i) the Company's obligation to pay to NGP the fees and reimbursements then due
pursuant to Paragraph 5, which shall continue after such termination until such
amounts are paid in full, and (ii) the Company's or NGP's obligation to provide
the indemnities contained in Paragraph 6, which shall continue in effect for a
period of three years after such termination.
3. Fees and Expenses. NGP shall be entitled to an annual fee for
its services provided during the Contract Period, which fee is due and payable
by the Company quarterly in arrears, on the last day of each fiscal quarter of
the Company, commencing with the quarter ending June 30, 1995. The fee during
the period from the Effective Date until the date the Company commences making
rental payments to the landlord for its administrative office space located at
500 West Texas, Midland, Texas, shall be $37,500 per year, and thereafter shall
be $75,000 per year (in each case pro-rated for any portion of a year).
Notwithstanding the termination of this Contract, pursuant to the terms hereof
or otherwise, the Company shall promptly reimburse NGP for all reasonable
out-of-pocket expenses incurred by NGP and its partners, employees and agents
(including any legal fees incurred by NGP) in connection with NGP's activities
pursuant to this Contract during the Contract Period; provided that, without
the prior approval of the Company, the Company will not be obligated to
reimburse NGP for more than $10,000 of such expense during any calendar year.
-2-
<PAGE> 3
4. Indemnification. In consideration of the services performed and
to be performed by NGP for the Company, and for other good and valuable
consideration, the Company and NGP hereby agree as follows:
(a) The Company shall indemnify and hold harmless NGP its affiliates
and affiliated entities, each of its partners, officers, employees, agents and
each person, if any, who "controls" NGP (within the meaning of the federal
securities laws) (collectively the "Indemnified Parties" and individually, an
"Indemnified Party") from and against any and all actions or claims and any and
all losses, claims, damages, liabilities, costs or expenses (including, without
limitation, reasonable attorneys' fees and any legal or other expenses in
giving testimony or furnishing documents in response to a subpoena or otherwise
or the costs of investigating, preparing or defending any action or claim,
whether or not in connection with any action or litigation in which any
Indemnified Party is a party), joint or several, to which any Indemnified Party
may become subject under the Securities Act of 1933 or any other federal or
state securities law or otherwise as and when incurred, directly or indirectly,
caused by, relating to, based upon or arising out of any matter related to this
Contract, including, without limitation, any act or omission by NGP in
connection with its role as financial advisor and its acceptance of or the
performance or non-performance of its obligations under this Contract.
(b) The indemnity provided for in subparagraph (a) above shall cover
any loss, claim, damage, liability, cost or expense incurred by an Indemnified
Person REGARDLESS OF THE ORDINARY NEGLIGENCE OF SUCH INDEMNIFIED PERSON, but
shall not cover any loss, claim, damage, liability, cost or expense to the
extent it is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) to have resulted from an Indemnified Party's
gross negligence or willful misconduct.
(c) The indemnity provided for in subparagraph (a) shall be in
addition to any liability that the Company may otherwise have to the
Indemnified Parties and shall be subject to the following:
(i) Promptly after receipt by an Indemnified Party under
subparagraph (a) above of notice of the commencement of any action,
proceeding, investigation or other event with respect to which any
Indemnified Party demands indemnification hereunder, such Indemnified
Party shall, if a claim in respect thereof is to be made against the
Company, notify the Company in writing of the commencement thereof,
provided that the failure to so notify the Company shall not relieve it
from any liability that it may have to any Indemnified Party, except to
the extent the Company is prejudiced by such failure.
(ii) Notwithstanding anything expressed or implied herein to the
contrary, the indemnity provided for herein shall cover the amount of
any settlements entered into in connection with any claim for which an
Indemnified Party may be indemnified hereunder, if and only if such
settlement is consented to by the Company.
-3-
<PAGE> 4
(iii) No settlement binding on an Indemnified Party may be made
without the consent of such Indemnified Party (which consent shall not
be unreasonably withheld).
(iv) If the claim for indemnification arises out of a claim for
damages by a person other than an Indemnified Party, the Company, after
giving notice to the Indemnified Party, may undertake to defend or
settle such claim for damages and may employ counsel for such purpose.
The Indemnified Party, at its own expense, shall have the right to
employ separate counsel with respect to such claim and to participate
in, but not control, such settlement or defense; provided that, if the
Company is also a defendant in respect of any such claim and a potential
conflict exists between the interests of the Company and those of an
Indemnified Party or if the Company does not elect to undertake the
settlement or defense of such claim, the Indemnified Parties shall, at
the expense of the Company, have the right to employ not more than one
counsel to represent the Indemnified Parties with respect to such claim
and the Indemnified Parties may control any settlement or defense
applicable to the claims brought against such Indemnified Parties.
(v) Expenses and other costs incurred by an Indemnified Party in
connection with any suit, action or other proceeding relating to this
Contract shall be advanced by the Company to such Indemnified Party
prior to any final determination of whether an Indemnified Party is
entitled to be indemnified for such costs and expenses hereunder, if the
Indemnified Party provides to the Company an undertaking to return any
amounts so received to the extent that it is ultimately determined that
he was not entitled to be indemnified for such costs and expenses
hereunder.
(vi) In order to provide for just and equitable contribution,
if a claim for indemnification is made hereunder but a court of
competent jurisdiction finds in a final judgment (not subject to appeal)
that such indemnification may not be enforced in such case, even though
the express provisions hereof provide for indemnification, then in such
case, the Company on the one hand, and the Indemnified Parties on the
other hand, shall contribute to the losses, claims, damages, liabilities
or costs so that the Indemnified Parties are responsible in the
aggregate for a percentage of the losses, claims, damages, liabilities
or costs equal to a fraction, the numerator of which is the fees (but
not expenses) previously received by NGP pursuant to Paragraph 5 of this
Contract, and the denominator of which is the sum of total aggregate
amount of all consideration received by the Company in respect of
transactions giving rise to such claim for indemnification, or, if no
such transaction exists or has not been completed, the fair market value
of the outstanding units of the Company's partnership interests on the
date hereof, and the Company shall be responsible for the remainder of
such losses, claims, damages, liabilities or costs; provided, however,
that if such allocation is not permitted by applicable law then the
relative fault of the Company, on the one hand, and the Indemnified
Parties, on the other hand, in connection with the statements, acts or
omissions that resulted in such losses, claims, damages, liabilities or
costs and relevant equitable considerations shall also be considered.
No person found liable for a fraudulent misrepresentation shall be
entitled
-4-
<PAGE> 5
to contribution from any person who is not also found liable for such
fraudulent misrepresentation. Notwithstanding the foregoing, the
Indemnified Parties, in the aggregate, shall not be obligated to
contribute any amount hereunder that exceeds the amount of fees (but not
expenses) NGP received previously pursuant to this Contract.
(vii) The Company agrees that the Indemnified Parties shall not
have any liability (whether direct or indirect, in contract, tort or
otherwise) to the Company for or in connection with any matter related
to this Contract, except for liabilities or expenses that are found in a
final judgment by a court of competent jurisdiction (not subject to
further appeal) to have resulted primarily and directly from NGP or such
other Indemnified Party's gross negligence or willful misconduct.
(d) If it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) in a proceeding in which a claim
for indemnification has been made by an Indemnified Party, that the Company has
sustained any loss, claim, damage, liability, cost or expense resulting
directly and exclusively from NGP's gross negligence or willful misconduct in
connection with the performance or non-performance by NGP of its obligations
under this Contract, then NGP shall indemnify and hold harmless the Company for
the amount of any such loss, claim, damage, liability, costs or expense so
determined to have been sustained by the Company.
5. GOVERNING LAW. THE VALIDITY AND INTERPRETATION OF THIS CONTRACT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND TO BE FULLY PERFORMED THEREIN.
6. Successors and Assigns. The benefits of this Contract shall
inure to the parties hereto, their respective successors and assigns, and to
the indemnified parties hereunder and their successors and representatives, and
the obligations and liabilities assumed in this Contract by the parties hereto
shall be binding upon their respective successors and assigns. This Contract
may not be assigned by any party to an unaffiliated party without the express
written consent of the other party hereto.
7. Notices. All communications under this Contract shall be in
writing and shall be delivered personally or sent by personal delivery,
expedited delivery, certified mail, return receipt requested or by telecopy as
follows:
If to NGP:
5605 N. MacArthur Blvd., Suite 210
Irving, TX 75038
Telecopy Number: (214) 751-1833
Attention: Kenneth A. Hersh
-5-
<PAGE> 6
with a copy to:
115 E. Putnam Ave.
Greenwich, CT 06830
Telecopy Number: (203) 629-3334
Attention: David R. Albin
If to the Company:
Titan Resources, L.P.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Jack D. Hightower
Either party may change its address or telecopy number set forth above
by giving the other party notice of such change in accordance with the
provisions of this Paragraph 7. A notice shall be deemed given, if by personal
delivery or expedited delivery service, on the date of such delivery to such
address, if by certified mail, on the date shown on the applicable return
receipt, or if by telecopy, on the date of receipt of the transmission of such
notice at such telecopy number.
8. Nature of Relationship. The parties hereto intend that NGP's
relationship to the Company and the relationship of each employee or agent of
NGP to the Company shall be that of an independent contractor. Nothing
contained in this Contract shall constitute or be construed to be or create a
partnership or joint venture between NGP and the Company or their respective
successors or assigns. Neither NGP nor any partner, employee or agent of NGP
shall ever be considered to be an employee of the Company.
9. Captions. The Paragraph titles herein are for reference purposes
only and do not control or affect the meaning or interpretation of any term or
provision hereof.
10. Amendments. No alteration, amendment, change or addition hereto
shall be binding or effective unless the same is set forth in writing signed by
a duly authorized representative of each party.
11. Partial Invalidity. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provision hereof is invalid or unenforceable, (i) the remaining terms
and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable
term or provision shall be replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision.
-6-
<PAGE> 7
12. Survival. All representations, warranties and agreements
contained herein, or contained in certificates submitted pursuant to this
Contract, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, and shall survive the
execution and delivery hereof.
13. Entire Contract. This Contract and the exhibits hereto embody
the entire agreement and understanding of the parties and supersede any and all
prior agreements, arrangements and understandings relating to matters provided
for herein.
14. Counterparts. This Contract may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall be considered one and the same agreement.
-7-
<PAGE> 8
This Contract is executed as of the date first written above by a duly
authorized representative of each of the Company and NGP.
COMPANY
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.
By: /s/ JACK D. HIGHTOWER
------------------------------------
Name: Jack D. Hightower
-------------------------------
Title: President
------------------------------
NGP
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its
general partner
By: /s/ DAVID R. ALBIN
------------------------------------
Name: David R. Albin
-------------------------------
Title: Authorized Employee
------------------------------
NATURAL GAS PARTNERS II, L.P.
By: G.F.W. Energy II, L.P., its
general partner
By: /s/ KENNETH A. KERSH
------------------------------------
Name: Kenneth A. Hersh
-------------------------------
Title: Authorized Member
------------------------------
-8-
<PAGE> 1
EXHIBIT 10.4.1
FIRST AMENDMENT TO
FINANCIAL ADVISORY SERVICES CONTRACT
This First Amendment to the Financial Advisory Services Contract
between Titan Resources, L.P. ("Company"), a Texas limited partnership, Natural
Gas Partners, L.P., a Delaware limited partnership, and Natural Gas Partners
II, L.P., a Delaware limited partnership (collectively, "NGP"), is effective as
of December 11,1995.
1. AMENDMENT TO PARAGRAPH 2 - Paragraph 2 is amended in its
entirety to read as follows:
"2. Contract Period and Termination. NGP shall act as
the Company's financial advisor under this Contract, effective as of
March 31, 1995 (the "Effective Date") and continuing until the earlier
of (i) the date of dissolution of the Company, (ii) the first date on
which the Company, the General Partner or their successors complete an
offering to the public of equity securities pursuant to a registration
statement on Form S-1 (or comparable form allowed to be used in
connection with an initial public offering of securities) under the
Securities Act of 1933, as amended; (iii) the first date on which NGP
no longer owns at least 35 percent of the outstanding shares of common
stock of the General Partner; provided that, this Contract may be
terminated effective as of the end of any fiscal quarter of the
Company on or after June 30, 1995, if NGP provides written notice of
its election to terminate this Contract to the Company not less than
30 days before the date on which termination is to be effective (the
period from the effective date of this contract until the date of its
termination is referred to herein as the "Contract Period")."
2. AMENDMENT TO PARAGRAPH 3 - Fees and Expenses. Paragraph 3 is
amended to increase the fee payable thereunder by $10,000 per annum.
This First Amendment is executed as of the date first written above by
a duly authorized representative of each of the Company and NGP.
COMPANY
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.
By: /s/ JACK HIGHTOWER
-----------------------------------
Name: Jack Hightower
---------------------------------
Title: President
-------------------------------
<PAGE> 2
NGP
NATURAL GAS PARTNERS, L.P.
By: G.F.W. Energy, L.P., its
general partner
By: /s/ DAVID R. ALBIN
------------------------------------
Name: David R. Albin
---------------------------------
Title: Authorized Employee
--------------------------------
NATURAL GAS PARTNERS II, L.P.
By: G.F.W. Energy II, L.P., its
general partner
By: /s/ KENNETH A. HERSH
------------------------------------
Name: Kenneth A. Hersh
---------------------------------
Title: Authorized Member
--------------------------------
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "AGREEMENT"), made and entered into as
of September 30, 1996, by and among Titan Exploration, Inc., a Delaware
corporation (the "HOLDING COMPANY"), Titan Resources I, Inc., a Texas
corporation (the "COMPANY"), and Jack D. Hightower, an individual residing in
Midland, Texas ("EMPLOYEE"), amends and restates in its entirety that certain
Employment Agreement dated March 31, 1995 (the "ORIGINAL AGREEMENT") made by
and among the Company, Employee and Titan Resources, L.P., a Texas limited
partnership (the "PARTNERSHIP").
W I T N E S S E T H:
WHEREAS, the Company was created and organized to act as the general
partner of the Partnership, and the Original Agreement was executed in
connection therewith;
WHEREAS, the Holding Company has been recently created and organized to
serve as the holding company of the Partnership and the Company in connection
with a proposed transaction in which the Holding Company will acquire all of
the limited partnership interests of the Partnership and all of the outstanding
shares of the common stock, par value $.01 per share, of the Company (such
transactions are referred to herein as the "REORGANIZATION");
WHEREAS, it is a condition to consummation of the Reorganization that
Employee enter into an employment agreement on the terms and conditions
hereinafter set forth; and
WHEREAS, the Company desires to continue, and the Holding Company
desires to obtain, the employment of Employee, and Employee desires to be
employed by the Holding Company and the Company, upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual terms,
covenants and agreements herein contained, and intending to be legally bound
hereby, the Holding Company, the Company and Employee hereby agree that the
Original Agreement shall be amended in its entirety as follows:
1. Employment; Position. Employee shall be employed by the Holding
Company and the Company, as President, Chief Executive Officer, and Chairman of
the Board.
2. Initial Term. During the "Initial Term" (as defined below),
Employee's employment hereunder shall be upon the same terms and conditions as
set forth in Sections 2 through 7 of the Original Agreement, except that
Employee shall no longer be employed by the Partnership and the Holding Company
shall be substituted for the Partnership for the purposes of such provisions.
The provisions of Section 2 through 7 of the Original Agreement are
incorporated herein by reference and during the Initial Term such provisions
shall be binding upon the Employee, Holding Company and the Company as if fully
set forth herein.
<PAGE> 2
For purposes hereof, the "INITIAL TERM" shall be the period from the
date hereof until the date of termination of Employee's employment pursuant to
Section 5 of the Original Agreement, provided that, if the Holding Company
successfully completes an initial public offering of shares of its Common Stock
(the "PUBLIC OFFERING") prior to such date, the Initial Term shall terminate as
of the date of closing of any such Public Offering.
3. Subsequent Term. If the Holding Company closes a Public
Offering while Employee remains employed hereunder, then during the period from
the closing of such Public Offering until the earlier of (i) the second
anniversary of such closing; and (ii) the date of termination of Employee's
employment pursuant to Section 3.3 hereof (such period is the "SUBSEQUENT
TERM"), Employee's employment hereunder shall be upon the terms and conditions
set forth in the following subsections 3.1 - 3.5. Upon the commencement of the
Subsequent Term, the provisions of the Original Agreement incorporated by
reference in Section 2 hereof shall terminate and be of no further force and
effect.
3.1 Duties. Employee shall have such duties, functions,
responsibilities, and authority customarily appertaining to the position of
President, Chief Executive Officer and Chairman of the Board in a corporation;
subject, however, to the directives of the Board of Directors of the Holding
Company and the Company. During the Employment Term, Employee shall devote his
full time, skill, and attention and his best efforts during normal business
hours to the business and affairs of the Holding Company and the Company, and
in furtherance of the business and affairs of the Holding Company, the Company
and their respective subsidiaries, if any, (collectively the "RELATED
PARTIES"); except for usual, ordinary, and customary periods of vacation and
absence due to illness or other disability; provided, however, that Employee
may devote reasonable periods of time in connection with the following
activities, if such activities do not materially interfere with the performance
of Employee's duties and services hereunder and do not consume more than 10% of
Employee's working hours (which for purposes hereof will generally constitute a
40 hour work week):
(i) serving as a director or a member of a committee of
any organization, if serving in such capacity does not involve any
conflict with the business of the Related Parties and such organization
is not in competition in any manner whatsoever with the business of the
Related Parties (it being acknowledged by the parties that Employee's
service as an advisory director of Texas Commerce Bank, Midland, Texas
is permissible hereunder);
(ii) fulfilling speaking engagements;
(iii) engaging in charitable and community activities;
and
(iv) managing his personal investments so long as such
investment activities do not conflict with the provisions in subsection
3.4.
3.2. Compensation and Related Matters.
(a) Base Salary. During the Subsequent Term, Employee shall
be paid a base salary at the rate of $160,000 per annum. This base salary may
be reviewed periodically and
2
<PAGE> 3
increases in such base salary may be granted at the sole discretion of the
Compensation Committee, or other body so authorized by the Board of Directors
of the Holding Company.
(b) Benefits. Employee shall, during the Subsequent Term, be
eligible to participate in such insurance, medical and other employee benefit
plans of the Holding Company or the Company which may be in effect, from time
to time, to the extent such plans are generally available to other executive
officers of the Holding Company or the Company.
(c) Professional Organization Dues. During the Subsequent
Term, the Holding Company or the Company shall pay the initiation fees and
periodic dues for membership in any oil and gas professional organizations in
which Employee is currently a member, or which are otherwise approved by the
Board of Directors of the Holding Company, and the Holding Company or the
Company shall pay all charges and expenses, including reasonable travel
expenses, incurred by Employee in connection with membership in such
organizations.
(d) Vacations. Employee shall be entitled to take such
vacations as he may desire, with pay, provided that such vacations do not
interfere with the performance of his duties and services hereunder.
(e) Expenses. Employee will be reimbursed for reasonable
expenses incurred in the performance of his duties and services hereunder and
in furtherance of the business of the Related Parties upon presentation by
Employee of an itemized account, accompanied by appropriate receipts
satisfactory to the Holding Company or the Company, as the case may be, in
substantiation of such expenses.
3.3 Termination of Employment.
(a) Employee's employment hereunder:
(i) shall automatically terminate upon the occurrence of any of
the following: (A) the mental or physical incapacity or inability of
Employee to perform his duties for a consecutive period of one hundred
twenty (120) days or a non-consecutive period of one hundred eighty
(180) days during any twelve month period; (B) the death of Employee; or
(C) the voluntary resignation or retirement of Employee; and
(ii) may be terminated by the Holding Company or the Company, at
any time, for "CAUSE", which shall mean by reason of any of the
following: (A) Employee's conviction of, or plea of nolo contendere to,
any felony or to any crime or offense causing substantial harm to any of
the Related Parties (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar conduct; (B)
malfeasance in the conduct of Employee's duties, including, but not
limited to, (1) willful and intentional misuse or diversion of any of
the Related Parties' funds, (2) embezzlement, or (3) fraudulent or
willful and material misrepresentations or concealments on any written
reports submitted to any of the Related Parties; (C) material failure by
employee to perform the duties of Employee's employment or material
failure to follow or comply with the reasonable and lawful written
directives of the Board of Directors of the Holding Company or the
Company, provided, however, that Employee
3
<PAGE> 4
shall have been informed, in writing, of such material failure and given
a period of not more than 60 days to remedy same; or (D) a material
breach by Employee of the provisions of this Agreement.
(b) Upon any termination of Employee's employment during the
Subsequent Term pursuant to this Subsection 3.3, all obligations of the Holding
Company and the Company under this Agreement shall terminate; provided,
however, that if Employee's employment hereunder is involuntarily terminated
without "cause", as defined above, then the Company shall continue to pay to
Employee his then-current monthly salary during the six (6) month period
following the date of such involuntary termination (the "INITIAL SEVERANCE
PERIOD"), and such payments shall continue to be made to Employee on a
month-to-month basis thereafter (the "RESIDUAL SEVERANCE PERIOD"), up to a
maximum of six (6) additional months, for so long as Employee continues to
comply with the provisions in subsection 3.4 and 3.5. Employee may, by notice
to the Company, terminate the Residual Severance Period effective as of the
first day of any month after the Initial Severance Period, and on the effective
date of such termination, payments to Employee shall be discontinued and
Employee shall have no further obligation to comply with the non-compete
covenant in subsection 3.4(d).
3.4 Business Opportunities and Intellectual Property; Personal
Investments; Confidentiality; Covenant not to Compete. Employee acknowledges
that in the course of his employment hereunder and performance of services on
behalf of the Related Parties he will become privy to various business
opportunities, economic and trade secrets and relationships of the Related
Parties. Therefore, in consideration of this Agreement and the consummation of
the Reorganization, Employee hereby agrees as provided below in this subsection
3.4:
(a) Business Opportunities and Intellectual Property.
Employee hereby assigns and agrees to assign to the Holding Company and the
Company, its successors, assigns, or designees, all of Employee's right, title,
and interest in and to all "Business Opportunities" and "Intellectual Property"
(as defined below), and further acknowledges and agrees that all Business
Opportunities and Intellectual Property constitute the exclusive property of
the Holding Company and the Company.
For purposes hereof "BUSINESS OPPORTUNITIES" shall mean all business
ideas, prospects, proposals or other opportunities pertaining to the lease,
acquisition, exploration, production, gathering or marketing of hydrocarbons
and related products and the exploration potential of geographical areas on
which hydrocarbon exploration prospects are located, which are developed by
Employee during his employment by the Related Parties, or originated by any
third party and brought to the attention of Employee during his employment by
the Related Parties, together with information relating thereto (including,
without limitation, geological and seismic data and interpretations thereof,
whether in the form of maps, charts, logs, seismographs, calculations,
summaries, memoranda, opinions or other written or charted means).
For purposes hereof "INTELLECTUAL PROPERTY" shall mean all ideas,
inventions, discoveries, processes, designs, methods, substances, articles,
computer programs, and improvements (including, without limitation,
enhancements to, or further interpretation or processing of, information that
was in the possession of Employee prior to the date of this Agreement), whether
or not patentable or copyrightable, which do not fall within the definition of
Business
4
<PAGE> 5
Opportunities, which Employee discovers, conceives, invents, creates, or
develops, alone or with others, while employed by the Related Parties, if such
discovery, conception, invention, creation, or development (A) occurs in the
course of Employee's employment by the Related Parties, or (B) occurs with the
use of any of the Related Parties' time, materials, or facilities, or (C) in
the opinion of the Board of Directors of the Holding Company, relates or
pertains in any way to the Related Parties' purposes, activities, or affairs;
(b) Non-Compete Obligations During Subsequent Term. Employee
agrees that during the Subsequent Term:
(i) Employee will not, other than through the Holding Company and
the Company, engage or participate in any manner, whether directly or
indirectly through any family member or as an employee, employer,
consultant, agent, principal, partner, more than one percent
shareholder, officer, director, licensor, lender, lessor or in any other
individual or representative capacity, in any business or activity which
is engaged in leasing, acquiring, exploring, producing, gathering or
marketing hydrocarbons and related products; and
(ii) all investments made by Employee (whether in his own name or
in the name of any family members or made by Employee's controlled
affiliates), which relate to the lease, acquisition, exploration,
production, gathering or marketing of hydrocarbons and related products
shall be made solely through the Holding Company and the Company; and
Employee will not (directly or indirectly through any family members),
and will not permit any of his controlled affiliates to: (A) invest or
otherwise participate alongside the Related Parties in any Business
Opportunities, or (B) invest or otherwise participate in any business or
activity relating to a Business Opportunity, regardless of whether any
of the Related Parties ultimately participates in such business or
activity;
provided that, this subsection 3.4(b) shall not apply to (x) the personal oil
and gas investments owned by Employee, his family members and his controlled
affiliates as of the date of the Original Agreement, which were identified to
the Partnership within 30 days of the date of the Original Agreement (the
"EXISTING PERSONAL INVESTMENTS"); and (y) future expenditures made by Employee,
his family members and his controlled affiliates which are required to
maintain, but not increase, their respective current ownership interests in the
Existing Personal Investments, excluding however, any expenditure to
participate in the acquisition, exploration or development of any acreage which
is not currently included in the Existing Personal Investments as of the date
hereof, unless such opportunity is first offered to, and subsequently declined
by, the Related Parties.
(c) Confidentiality Obligations. Employee hereby acknowledges
that all trade secrets and confidential or proprietary information of the
Related Parties (collectively referred to herein as "CONFIDENTIAL INFORMATION")
constitutes valuable, special and unique assets of the Related Parties'
business, and that access to and knowledge of such Confidential Information is
essential to the performance of Employee's duties hereunder. Employee agrees
that during the Subsequent Term and during the one year period following the
date of termination of Employee's employment hereunder (the "TERMINATION
DATE"), Employee will hold the Confidential Information in strict confidence
and will not publish, disseminate or otherwise disclose, directly
5
<PAGE> 6
or indirectly, to any person other than the Related Parties and their
respective officers, directors and employees, any Confidential Information or
use any Confidential Information for Employee's own personal benefit or for the
benefit of anyone other than the Related Parties.
For purposes of this subsection 3.4(c), it is agreed that Confidential
Information includes, without limitation, any information heretofore or
hereafter acquired, developed or used by any of the Related Parties relating to
Business Opportunities or Intellectual Property or other geological,
geophysical, economic, financial or management aspects of the business,
operations, properties or prospects of the Related Parties whether oral or in
written form in a "Related Parties' Business Records" (as defined in subsection
3.5 below), but shall exclude any information which (A) has become part of
common knowledge or understanding in the oil and gas industry or otherwise in
the public domain (other than from disclosure by Employee in violation of this
Agreement), or (B) was rightfully in the possession of Employee, as shown by
Employee's records, prior to the date of the Original Agreement; provided,
however, that Employee shall provide to the Holding Company copies of all
information described in clause (B); further provided, however, that this
subsection 3.4(c) shall not be applicable to the extent Employee is required to
testify in a judicial or regulatory proceeding pursuant to the order of a judge
or administrative law judge after Employee requests that such Confidential
Information be preserved.
(d) Post Employment Non-Compete Covenant. Employee agrees as
follows:
(i) Employee will not engage or participate in any manner,
whether directly or indirectly through any family member or as an
employee, employer, consultant, agent, principal, partner, more than one
percent shareholder, officer, director, licensor, lender, lessor or in
any other individual or representative capacity:
(A) during the six month period following the Termination
Date, in any business or activity which is engaged in leasing,
acquiring, exploring, producing, gathering or marketing
hydrocarbons and related products within the continental United
States;
(B) during the Residual Severance Period, in any business
or activity which is in direct competition with the business of
the Related Parties as to leasing, acquiring, exploring,
producing, gathering or marketing hydrocarbons and related
products within the boundaries of, or within a two mile radius of
the boundaries of, any mineral property interest of any of the
Related Parties (including, without limitation, a mineral lease,
overriding royalty interest, production payment, net profits
interest, mineral fee interest, or option or right to acquire any
of the foregoing, or an area of mutual interest as designated
pursuant to contractual agreements between any third party and
the Holding Company, the Company or the Partnership) or any other
property on which the Related Parties has an option, right,
license, or authority to conduct or direct exploratory
activities, such as three dimensional seismic acquisition or
other seismic, geophysical and geochemical activities (but not
including any preliminary geological mapping), as of the
Termination Date or as of the end of the Initial Severance
Period; provided that, this subsection (d) shall not preclude
Employee from:
6
<PAGE> 7
(x) making investments in securities of oil and gas
companies which are registered on a national stock
exchange, if the aggregate amount owned by Employee and
all family members and affiliates does not exceed 5% of
such company's outstanding securities; or
(y) maintaining his Existing Personal Investments,
if such personal investments do not involve any business
activity that relates to the lease, acquisition,
exploration, production, gathering or marketing of
hydrocarbons and related products other than as permitted
by subsection 3.4(b); or
(ii) Employee will not during the one year period following the
Termination Date, solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding ninety (90)
days was an employee) of any of the Related Parties or any other person
who is under contract with or rendering services to any of the Related
Parties, to (i) terminate his or her employment by, or contractual
relationship with, such person, (ii) refrain from extending or renewing
the same (upon the same or new terms), (iii) refrain from rendering
services to or for such person, (iv) become employed by or to enter into
contractual relations with any Persons other than such person, or (v)
enter into a relationship with a competitor of any of the Related
Parties.
(e) The invalidity or non-enforceability of this subsection
3.4 in any respect shall not affect the validity or enforceability of this
subsection 3.4 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this subsection 3.4 shall be
held invalid or unenforceable by a court of competent jurisdiction by reason of
the geographic or business scope or the duration thereof, such invalidity or
unenforceability shall attach only to the scope or duration of such provision
and shall not affect or render invalid or unenforceable any other provision of
this Agreement, and, to the fullest extent permitted by law, this Agreement
shall be construed as if the geographic or business scope or the duration of
such provision had been more narrowly drafted so as not to be invalid or
unenforceable.
(f) Employee acknowledges that the Holding Company's and the
Company's remedy at law for any breach of the provisions of this subsection 3.4
is and will be insufficient and inadequate and that the Holding Company and the
Company shall be entitled to equitable relief, including by way of temporary
and permanent injunction, in addition to any remedies the Holding Company and
the Company may have at law. The Holding Company and the Company acknowledge
that if the Holding Company or the Company gives notice of its intention to
terminate Employee's employment pursuant to subsection 3.3(a)(ii)(C) and there
exists no justification for termination of Employee thereunder, that Employee's
remedy at law for any such improper termination is and will be insufficient and
inadequate and that Employee shall be entitled to equitable relief, including
by way of temporary and permanent injunction, in addition to any remedies
Employee may have at law.
(g) The provisions of this subsection 3.4 shall survive
termination of this Agreement.
7
<PAGE> 8
(h) The representations and covenants contained in this
subsection 3.4 on the part of Employee will be construed as ancillary to and
independent of any other provision of this Agreement, and the existence of any
claim or cause of action of Employee against the Holding Company or any of the
other Related Parties or any officer, director, or shareholder of the Holding
Company or any of the other Related Parties, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Holding Company or the Company of the covenants of Employee contained in
this subsection 3.4. In addition, the provisions of this subsection 3.4 shall
continue to be binding upon Employee in accordance with their terms,
notwithstanding the termination of Employee's employment hereunder for any
reason.
(i) The parties to this Agreement agree that the limitations
contained in this subsection 3.4 with respect to time, geographical area, and
scope of activity are reasonable. However, if any court shall determine that
the time, geographical area, or scope of activity of any restriction contained
in this subsection 3.4 is unenforceable, it is the intention of the parties
that such restrictive covenant set forth herein shall not thereby be terminated
but shall be deemed amended to the extent required to render it valid and
enforceable.
3.5 Business Records.
(a) Employee agrees to promptly deliver to the Holding
Company, upon termination of his employment hereunder, or at any other time
when the Holding Company so requests, all documents relating to the business of
the Related Parties, including, without limitation: all geological and
geophysical reports and related data such as maps, charts, logs, seismographs,
seismic records and other reports and related data, calculations, summaries,
memoranda and opinions relating to the foregoing, production records, electric
logs, core data, pressure data, lease files, well files and records, land
files, abstracts, title opinions, title or curative matters, contract files,
notes, records, drawings, manuals, correspondence, financial and accounting
information, customer lists, statistical data and compilations, patents,
copyrights, trademarks, trade names, inventions, formulae, methods, processes,
agreements, contracts, manuals or any other documents relating to the business
of the Related Parties, (collectively, the "RELATED PARTIES' BUSINESS
RECORDS"), and all copies thereof and therefrom.
(b) Employee confirms that all of the Related Parties'
Business Records (and all copies thereof and therefrom) which are required to
be delivered to the Holding Company pursuant to this Section constitute the
exclusive property of the Holding Company and the other Related Parties.
(c) The obligation of confidentiality set forth in subsection
3.4 shall continue notwithstanding Employee's delivery of any such documents to
the Holding Company.
(d) Notwithstanding the foregoing provisions of this
subsection 3.4 or any other provision of this Agreement, Employee shall be
entitled to retain any (i) written materials received by Employee in the
capacity as a shareholder of the Holding Company, and (ii) written materials
which, as shown by Employee's records, were in Employee's possession on or
prior to the date of employment by the Related Parties, subject to the Holding
Company's right to receive a copy of all such materials.
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<PAGE> 9
(e) The provisions of this subsection 3.5 shall continue in
effect notwithstanding termination of Employee's employment hereunder for any
reason.
4. Divisibility of Agreement. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
5. Notices. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage pre-paid by certified or registered mail,
return receipt requested, as follows:
(a) If to Employee:
500 West Texas, Suite 500
Midland, Texas 79701
(b) If to the Holding Company or the Company:
500 West Texas, Suite 500
Midland, Texas 79701
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
6. Complete Agreement. This Agreement, together with the terms of
the Original Agreement incorporated by reference in Section 2 hereof, contains
the entire understanding of the parties with respect to the employment of
Employee and supersedes all prior arrangements or understandings with respect
thereto and all oral or written employment agreements or arrangements between
the Holding Company, the Company (and any of their subsidiaries) and Employee.
This Agreement may not be altered or amended except by a writing, duly executed
by the party against whom such alteration or amendment is sought to be
enforced.
7. Assignment. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity
with which the Holding Company or the Company shall merge or consolidate or to
which the Holding Company or the Company shall lease or sell all or
substantially all of its assets and may be assigned by the Holding Company or
the Company to any affiliate of the Holding Company or the Company or to any
corporation or entity with which such affiliate shall merge or consolidate or
which shall lease or acquire all or substantially all of the assets of such
affiliate.
8. Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
9
<PAGE> 10
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
TITAN EXPLORATION, INC.
By: /s/ JACK HIGHTOWER
------------------------------------
Title: President
---------------------------------
TITAN RESOURCES I, INC.
By: /s/ JACK HIGHTOWER
------------------------------------
Title: President
---------------------------------
EMPLOYEE:
/s/ JACK D. HIGHTOWER
---------------------------------------
Jack D. Hightower
10
<PAGE> 1
EXHIBIT 10.7
TITAN RESOURCES, L.P.
OPTION PLAN
RECITALS
A. Effective as of March 31, 1995 ("the Effective Date"), the Board
of Directors of Titan Resources I, Inc., a Texas corporation ("General
Partner"), which is the general partner of Titan Resources, L.P., a Texas
limited partnership (the "Partnership"), hereby adopts this Option Plan (the
"Plan") for certain officers and employees of the General Partner and the
Partnership (collectively, "Employees" and individually, a "Employee").
B. It is the purpose of this Plan to promote the interests of the
Partnership and its partners by attracting, retaining and stimulating the
performance of selected Employees and giving such Employees the opportunity to
acquire a proprietary interest in the Partnership and an increased personal
interest in its continued success and progress, by granting to such persons
options to acquire additional units of limited partnership interests in the
Partnership, subject to the terms and conditions described below.
ARTICLE I
GENERAL
1.1 Definitions. Terms used in this Plan and not otherwise defined
shall have the respective meanings assigned to such terms in the Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement") dated even
date herewith; and the following terms shall have the following meanings:
"A Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit A hereto (collectively,
the "A Options").
"B Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit B hereto (collectively,
the "B Options").
"C Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit C hereto (collectively,
the "C Options").
"D Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit D hereto (collectively,
the "D Options").
"Board" means the Board of Directors of the General Partner.
"Code" means the Internal Revenue Code of 1986, as amended.
"employee" means an individual whose wages are subject to the
withholding of federal income tax under Section 3401 of the Code.
<PAGE> 2
"Holder" means any Employee to whom an Option has been granted
under this Plan.
"Option" any A Option, B Option, C Option or D Option granted to
a Employee hereunder.
"Options" collectively, all A Options, B Options, C Options and D
Options granted to Employees hereunder.
"officer" shall mean an individual elected or appointed by the
Board or chosen in such other manner as may be prescribed in the Bylaws
of the General Partner or in the Partnership Agreement to serve as such.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by the President of the General Partner
("President"). The President shall have full authority, discretion or power to
select the Employees who will receive Options and, subject to the aggregate
limitations set forth herein, to set the number of Units to be covered by each
Option granted to a Employee and the decisions of the President relating to
such matters shall be final and binding upon the Partnership and the Employees;
provided however, that with respect to any Options to be granted to President
after the initial grant of options pursuant to Section 3.3, the Board of
Directors shall approve such grant. The President shall have no authority,
discretion or power to set the exercise price or the period within which the
Options so granted may be exercised, or to alter any other terms or conditions
specified herein.
Subject to the foregoing limitations, the President shall have authority
and power to adopt such rules and regulations and to take such action as he
shall consider necessary or advisable for the administration of the Plan, and
to construe, interpret and administer the Plan. The President shall incur no
liability by reason of any action or determination made in good faith with
respect to the Plan or any option agreement entered into pursuant to the Plan.
ARTICLE III
GRANT OF OPTIONS
3.1 Option Agreements. Each Option granted under the Plan to a
Employee shall be evidenced by a written option agreement, which agreement
shall be entered into by the Partnership and the Employee to whom the Option is
granted. The agreements for each A Option, B Option, C Option or D Option
shall be in substantially the forms set forth in Exhibit A, B, C or D hereto,
respectively, with appropriate insertions of the name of the optionee and the
number of Units for which such option may be exercised.
<PAGE> 3
3.2 Maximum Number of Units Subject to Options.
(a) The total number of Units which may be acquired upon exercise of
all A Options granted pursuant to the Plan shall not exceed 3,624,706 Units.
(b) The total number of Units which may be acquired upon exercise of
all B Options granted pursuant to the Plan shall not exceed 582,282 Units.
(c) The total number of Units which may be acquired upon exercise of
all C Options granted pursuant to the Plan shall not exceed 611,037 Units.
(d) The total number of Units which may be acquired upon exercise of
all D Options granted pursuant to the Plan shall not exceed 641,975 Units.
3.3 Initial Grant of Options. A Options, B Options, C Options and D
Options shall be initially granted as of the Effective Date to the persons and
in the amounts set forth on Schedule 1 hereto.
3.4 Subsequent Grant of Options. After the initial grant of options
pursuant to Section 3.3, the President may at any time grant any of the
remaining portion of the A Options (309,391), B Options (49,701), C Options
(52,156) and D Options (15,529) authorized under this Plan to any person then
serving as a Employee of the Partnership or the General Partner on the date of
such grant, subject to the limitations described in Section 3.2.
ARTICLE IV
GENERAL PROVISIONS
4.1 Termination of Plan. The Plan shall terminate whenever the Board
adopts a resolution to that effect. If not sooner terminated under the
preceding sentence, the Plan shall wholly cease and expire at the close of
business on March 31, 2001. After termination of the Plan, no Options shall be
granted under this Plan, but the Partnership shall continue to recognize
Options previously granted to the extent such Options shall not have expired.
4.2 Amendment of Plan. The Board may from time to time amend,
modify, suspend or terminate the Plan. Nevertheless, no such amendment,
modification, suspension or termination shall impair any Options theretofore
granted under the Plan or deprive any Holder of any Units which he might have
acquired through or as a result of the Plan.
4.3 Treatment of Proceeds. Proceeds from the sale of Units pursuant
to Options granted under the Plan shall constitute general funds of the
Partnership.
4.4 Effectiveness. This Plan shall become effective as of the
Effective Date.
4.5 Paragraph Headings. The paragraph headings included herein are
only for convenience, and they shall have no effect on the interpretation of
the Plan.
<PAGE> 4
SCHEDULE 1
INITIAL OPTIONS GRANTED
<TABLE>
<CAPTION>
Number of Units
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower A Option 839,706
B Option 134,893
C Option 141,554
D Option 148,721
Jack D. Hightower A Option 839,706
Separate Property B Option 134,892
C Option 141,554
D Option 148,721
George G. Staley A Option 973,529
B Option 156,390
C Option 164,113
D Option 172,423
Thomas H. Moore A Option 210,071
B Option 33,746
C Option 35,413
D Option 37,206
Dan P. Colwell A Option 195,954
B Option 31,478
C Option 33,033
D Option 34,706
Rodney C. Woodard A Option 195,954
B Option 31,478
C Option 33,033
D Option 34,706
John L. Benfatti A Option 60,395
B Option 9,702
C Option 10,181
D Option 49,963
</TABLE>
<PAGE> 5
ATTACHMENT I
(Form of Promissory Note
to be attached to each Option Agreement)
PROMISSORY NOTE
$_______________ _____________,____
FOR VALUE RECEIVED, on [15 months from date of issue], _________________
("Maker") promises to pay to the order of TITAN RESOURCES, L.P., a Texas
limited partnership ("Payee"), at 500 West Texas, Suite 500, Midland, Texas
79701, or at such other address as directed by the holder hereof, in lawful
money of the United States of America, the sum of ______________________ AND
___/100 DOLLARS ($____________), together with interest thereon until maturity
at a rate per annum equal to the Prime Rate (as hereinafter defined) from time
to time in effect plus two percent (2%); provided, however, that in no event
shall interest on this note ever be charged or paid at a rate greater than the
maximum nonusurious rate permitted by applicable federal or Texas law from time
to time in effect, whichever shall permit the higher lawful rate (the "Highest
Lawful Rate"). If at any time or times the interest rate provided for
elsewhere herein (the "Stated Rate") would exceed the Highest Lawful Rate but
for the limitation set forth above, the rate of interest to accrue on the
unpaid principal balance of this note during all such times shall be limited to
the Highest Lawful Rate, but any subsequent reduction in the Stated Rate due to
reductions in the Prime Rate shall not become effective to reduce the interest
rate payable below the Highest Lawful Rate until the total amount of interest
accrued on the unpaid balance of this note equals the total amount of interest
which would have accrued if the Stated Rate had at all times been in effect.
At all such times, if any, as Chapter One ("Chapter One") of the Texas Credit
Code shall establish the Highest Lawful Rate, the Highest Lawful Rate shall be
the "indicated rate ceiling" (as defined in Chapter One) from time to time in
effect.
The term "Prime Rate" as used herein shall mean that variable rate of
interest per annum established by Texas Commerce Bank National Association from
time to time as its "prime rate." Without notice to Maker or any other person,
the Prime Rate shall automatically fluctuate upward and downward as and in the
amount by which such rate shall fluctuate.
If, for any reason whatever, the interest paid or received on this note
shall exceed the Highest Lawful Rate, the owner or holder of this note shall
refund to the payor or, at the option of such owner or holder, credit against
the principal of this note such portion of said interest as shall be necessary
to cause the interest actually paid and retained on this note to equal the
Highest Lawful Rate. All sums paid or agreed to be paid to the owner or holder
hereof for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of this note.
All past due principal and interest on this note shall bear interest at
a rate per annum equal to the Highest Lawful Rate.
<PAGE> 6
Maker may at any time prepay the full amount or any part of this note
without the payment of any premium or fee. All such prepayments shall be
applied first to accrued interest, the balance to principal.
The payment of this note is secured by a security interest in
___________________ (_______) Units (as hereinafter defined) created and
granted in a security agreement (the "Security Agreement") of even date
herewith, by Maker in favor of Payee. The term "Units" as used herein shall
have the same meaning assigned to such term in the agreement of limited
partnership creating and organizing Payee.
Time is of the essence of this note. Upon any default in the payment of
any principal or interest when due hereunder, or any breach or default in any
of the terms, conditions, represen-tations or warranties contained in the
Security Agreement, or the insolvency of Maker, or the institution of any
proceedings or arrangements in bankruptcy by or against Maker, the holder of
this note may, at its option, declare the entirety of the indebtedness
evidenced hereby immediately due and payable and exercise any other available
remedies, and failure to exercise any remedy shall not constitute a waiver at
any other time.
In addition to all principal and accrued interest on this note, Maker
agrees to pay (a) all reasonable costs and expenses incurred by all owners and
holders of this note in collecting this note through probate,
reorganization, bankruptcy or any other proceeding and (b) reasonable
attorneys' fees when and if this note is placed in the hands of an attorney for
collection after default.
Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest,
notice of dishonor, notice of intent to accelerate and notice of acceleration),
demand, presentment for payment, protest, diligence in collecting or bringing
suit and the filing of suit for the purpose of fixing liability and consent
that the time of payment hereof may be extended and re-extended from time to
time without notice to them or any of them, and each agrees that his, her or
its liability on or with respect to this note shall not be affected, diminished
or impaired by any of the following:
(a) any release of any security at any time existing for this note;
(b) any substitution for any security at any time existing for this
note; or
(c) any failure to perfect (or to maintain perfection of) any lien on
or security interest in any such security;
in each case in whole or in part, with or without notice, before or after
maturity.
THIS NOTE IS BEING SIGNED AND DELIVERED IN THE STATE OF TEXAS AND IS TO
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
-2-
<PAGE> 7
EXECUTED as of the day and year first written above.
-----------------------------
<PAGE> 1
EXHIBIT 10.7.1
OPTION AGREEMENT
(A Option)
This Option Agreement ("Agreement"), made and entered into as of March
31, 1995, is by and between Titan Resources, L.P., a Texas limited partnership
(the "Partnership"), and [See Schedule I attached hereto] (the "Optionee").
WITNESSETH:
WHEREAS, in connection with the initial capitalization of the
Partnership, an Option Plan ("Plan") was adopted effective as of March 31, 1995
("Plan Date") for certain officers and management level employees of the
Partnership or the general partner of the Partnership ("General Partner");
WHEREAS, the Optionee is an officer and/or management level employee of
the Partnership or the General Partner eligible to participate in the Plan and
the President of the General Partner, as administrator of the Plan, has
determined that the Partnership should recognize the potential contributions
that the Optionee may make to the success of the Partnership by granting him an
option to purchase interests in the Partnership (the "Units") pursuant to the
Plan and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the Partnership and Optionee
hereby agree as follows:
1. Certain Definitions. Terms used in this Agreement and not otherwise
defined shall have the respective meanings assigned to such terms in the Plan;
and the following terms shall have the following meanings:
"Expiration Date" means 6:00 P.M., Midland, Texas time, on
March 31, 2001.
"Initial Buy-In Price" means the initial aggregate cash
contributions made by the Limited Partners to the Partnership pursuant
to and as required by the first sentence of Article III, Section 3.1(b),
of the Partnership Agreement.
"Initial Buy-In Price per Unit" means the amount determined by
dividing (i) Initial Buy-In Price, by (ii) the total number of Units
outstanding on the date on which the Initial Buy-In Price was received
by the Partnership.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Partnership hereby irrevocably grants to the Optionee the right
and option (the "Option") to purchase [see Schedule I attached hereto] Units
of the Partnership, subject to adjustment in accordance with the provisions of
Section 7 of this Agreement.
<PAGE> 2
3. Option Price. The price to be paid by Optionee to the
Partnership for each Unit purchased pursuant to the exercise of this Option
("Option Price") shall be that amount determined by multiplying: (i) the
Initial Buy-In Price per Unit, times (ii) (1.10)n, where "n" is the number of
anniversaries of the Plan Date which have occurred as of the date of purchase
of such Unit (with a partial year being expressed as a decimal determined by
dividing the number of days which have passed since the most recent anniversary
by 365); provided, however, that the Option Price shall be subject to
adjustment in accordance with the provisions of Section 7 of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option shall vest as to one- third of the total Units which may
be purchased hereunder on March 31, 1996, shall vest with respect to an
additional one-third of the total Units which may be purchased hereunder on
March 31, 1997 and shall be fully vested on March 31, 1998. From and after
each date of vesting, Optionee may exercise this Option, subject to the terms
and conditions set forth herein, to purchase all or any portion of the Units
for which Optionee's rights have vested.
(b) To the extent Optionee does not purchase all or any part of the
Units at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Units not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the General Partner or the
Partnership is terminated on account of fraud or dishonesty or other acts which
the Board has determined are materially detrimental to the interests of the
Partnership, the Option shall automatically terminate as of the date of such
termination.
(d) If Optionee's employment by the General Partner or the
Partnership is terminated voluntarily by Optionee or by action of the General
Partner or the Partnership for reasons other than as specified in subsection
(c), this Option may be exercised, but only (i) within three months after such
termination (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Units, if any, that could be
purchased upon exercise of this Option at the date of termination of Optionee's
employment. For purposes of this subsection (d), if this Option shall not have
fully vested as of the date of termination of Optionee's employment, then a
ratable portion of the number of Units which would have become purchasable upon
the next vesting date shall be deemed to have vested as of the date of such
termination (determined by multiplying the number of Units that vest on the
next vesting date by a fraction with a numerator equal to the number of full
months which have then elapsed since the last vesting date and a denominator of
12, and rounding to the closest whole number).
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Units that were subject to
purchase upon exercise of this Option at the time of such death or disability.
<PAGE> 3
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option to
purchase any Units for which Optionee's rights have not yet vested in
accordance with Section 4.
(b) No Fractional Units. The Option may be exercised only with
respect to full Units.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Units shall be issued nor certificates representing such Units
(if any) delivered pursuant to any exercise of the Option, if any requisite
approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options or the issuance and sale of Units
shall not have been obtained or if such exercise or issuance would violate any
applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e) or who has been approved by the General Partner pursuant to
Section 9.
6. Exercise of Option. Subject to the other terms and provisions of
this Agreement, the Option shall be exercisable by written notice timely given
to the Partnership by the Optionee, which notice (a) shall state the number of
Units that the Optionee then desires to purchase, and (b) shall be accompanied
by payment in full of the Option Price for each of such Units, which such
payment shall be made (i) in cash, (ii) by delivery of Optionee's secured
promissory note in the form attached hereto as Attachment I, or (iii) a
combination of (i) or (ii). The Partnership shall be entitled to require the
Optionee to deliver to the Partnership such documents as the Partnership in its
discretion shall deem necessary to confirm that (i) such exercise and the
Partnership's issuance and sale of such Units are in compliance with the
requirements of any applicable laws (including, but not limited to, the
Securities Act of 1933 and the Texas Securities Act) and (ii) the Optionee
shall be bound by and comply with all of the terms and provisions of the
Partnership Agreement.
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power of the Partnership to make or authorize any adjustment,
recapitalization, reorganization or other change in the Partnership's capital
structure or its business (including, without limitation, any reorganization of
the Partnership into a corporation or other business entity), any merger or
consolidation of the Partnership, any issuance of additional Partnership
Securities with priority over Units or otherwise affecting Units or the rights
thereof, the dissolution or liquidation of the Partnership or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other partnership act or proceeding.
(b) If (i) the Partnership merges, consolidates or reconstitutes with
or into any other entity (including, without limitation, any reorganization of
the Partnership into a corporation or other business entity), (ii) the
Partnership sells, leases or exchanges or agrees to sell, lease or exchange all
or substantially all of its assets to any other person or entity, or (iii) the
Partnership is to be dissolved and liquidated (each such event is referred to
herein as a "Fundamental
<PAGE> 4
Change"), the Partnership shall make or cause to be made lawful and adequate
provision whereby, upon the due exercise of the Option after the effective date
of such Fundamental Change, the Optionee shall be entitled to purchase under
this Option, in lieu of the number of Units as to which this Option shall then
be exercisable, the number and class of Units or other securities or property
to which the Optionee would have been entitled pursuant to the terms of the
Fundamental Change if, immediately prior to any such Fundamental Change,
Optionee had been the holder of record of the number of Units as to which this
Option is then exercisable.
(c) If the Partnership subdivides its outstanding Units into a
greater number of Units, the Option Price in effect immediately prior to such
subdivision shall be proportionately reduced, and the number of Units then
subject to the Option shall be proportionately increased. Conversely, if the
outstanding number of Units of the Partnership are combined into a smaller
number of Units, the Option Price in effect immediately prior to such
combination shall be proportionately increased, and the number of Units then
subject to the Option shall be proportionately reduced.
8. Termination of Option. The Option shall terminate upon the first
to occur of the (i) the Expiration Date, or (ii) the date on which Optionee
purchases, or in writing surrenders his right to purchase, all Units or other
securities then subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except (i) by will or by the laws of
descent and distribution, or (ii) with the prior written consent of the General
Partner (authorized by a vote or consent of its Board). Any attempted transfer
of the Option in violation of this provision shall be void and of no effect
whatsoever.
10. Rights as a Limited Partner. Optionee shall have no rights as a
Limited Partner of the Partnership with respect to any Units covered by the
Option until the exercise of the Option.
11. Additional Documents. The Partnership and the Optionee will,
upon request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Units pursuant to this Agreement.
12. Representations, Warranties and Covenants of Optionee.
(a) The Optionee acknowledges that neither the Option nor the Units
covered thereby have been registered under the Securities Act of 1933 (the
"1933 Act") or the Texas Securities Act (the "Texas Act") on the grounds that
the issuance of the Option is, and the sale of any Units pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Units
upon exercise of the Option, the Partnership has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and in
any other documents which he may hereafter deliver to the Partnership.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Partnership as follows:
<PAGE> 5
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the
Partnership Agreement, the 1933 Act, the Texas Act and all rules and
regulations promulgated under each of such Acts, and will not at any
time make any sale, transfer, pledge or other disposition or encumbrance
of any of such securities in violation of the Partnership Agreement or
in the absence of an effective registration statement for such
securities under the Act, the Texas Act and any other applicable state
securities laws or an applicable exemption from the registration
requirements of the Act, the Texas Act any other applicable state
securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Units or other securities purchased under this Option may bear such legend or
legends as the Partnership deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Partnership may refuse to register
the transfer of the Units or other securities purchased under this Option on
the transfer records of the Partnership if such proposed transfer would in the
opinion of counsel satisfactory to the Partnership constitute a violation of
any applicable securities laws, (iii) that the Partnership may give related
instructions to its transfer agent, if any, to stop registration of the
transfer of the Units or other securities purchased under this Option, and (iv)
that the Units or other securities acquired upon exercise of this Option shall
be subject, in all respects, to the Limited Partnership Agreement.
(c) Optionee acknowledges that the value of the Option over its life
will be speculative and uncertain, that there is no market for the Option or
the Units or other securities that may be acquired upon exercise of the Option
and it is unlikely that any market will develop, and consequently, the Optionee
may ultimately realize no value from the Option.
13. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
14. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
15. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
<PAGE> 6
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
16. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
17. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
19. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its general partner
500 West Texas By
Suite 500 -------------------------------------------------
Midland, Texas 79701
[THE OPTIONEE]
[See Schedule I attached hereto]
- --------------------------- ---------------------------------------------------
- ---------------------------
[Address]
<PAGE> 7
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Units
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower A Option 839,706
Jack D. Hightower A Option 839,706
Separate Property
George G. Staley A Option 973,529
Thomas H. Moore A Option 210,071
Dan P. Colwell A Option 195,954
Rodney C. Woodard A Option 195,954
John L. Benfatti A Option 60,395
</TABLE>
<PAGE> 1
EXHIBIT 10.7.2
OPTION AGREEMENT
(B Option)
This Option Agreement ("Agreement"), made and entered into as of March
31, 1995, is by and between Titan Resources, L.P., a Texas limited partnership
(the "Partnership"), and [See Schedule I attached hereto] (the "Optionee").
WITNESSETH:
WHEREAS, in connection with the initial capitalization of the
Partnership an Option Plan ("Plan") was adopted effective as of March 31, 1995
("Plan Date") for certain officers and management level employees of the
Partnership or the general partner of the Partnership ("General Partner");
WHEREAS, the Optionee is an officer and/or management level employee of
the Partnership or the General Partner eligible to participate in the Plan and
the President of the General Partner, as administrator of the Plan, has
determined that the Partnership should recognize the potential contributions
that the Optionee may make to the success of the Partnership by granting him an
option to purchase interests in the Partnership (the "Units") pursuant to the
Plan and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the Partnership and Optionee
hereby agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the respective meanings assigned to such terms in
the Plan; and the following terms shall have the following meanings:
"Initial Buy-In Price" means the initial aggregate cash
contributions made by the Limited Partners to the Partnership pursuant
to and as required by the first sentence of Article III, Section 3.1(b),
of the Partnership Agreement.
"Initial Buy-In Price per Unit" means the amount determined by
dividing (i) Initial Buy-In Price, by (ii) the total number of Units
outstanding on the date on which the Initial Buy-In Price was received
by the Partnership.
"Liquidating Transaction" means the sale of all partnership
interests in the Partnership or the sale of substantially all of its
assets to an unrelated third party in an arms length transaction with
the purchase price payable in cash.
"Realized Equity Value" means, on any date, the cumulative total
of all cash and the fair market value, as determined by the Board, of
all other properties or securities which as of such date (i) has been
distributed to the Partners, and (ii) has not yet been distributed to
the Partners but has been duly authorized, by action of the Board, to be
<PAGE> 2
distributed to the Partners (excluding in the case of each of clause (i)
and (ii) any distributions made or authorized to be made solely for the
purposes of permitting Partners to pay their individual income tax
liabilities resulting from their allocable share of Partnership income).
In addition, at the sole discretion of the Board, Realized Equity Value
may also include an additional amount consisting of proceeds from a
Liquidating Transaction not yet distributed or authorized for
distribution to the Partners or an amount which the Board determines
would be available for distribution to the Partners if a Liquidating
Transaction were assumed to occur as of such date (regardless of
likelihood of the occurrence of any such Liquidating Transaction).
"Realized Equity Value Date" means a date on which the Board
shall have made a determination of the Realized Equity Value.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Partnership hereby irrevocably grants to the Optionee the right
and option (the "Option") to purchase [See Schedule I attached hereto] Units of
the Partnership, subject to adjustment in accordance with the provisions of
Section 7 of this Agreement.
3. Option Price. The price to be paid by Optionee to the
Partnership for each Unit purchased pursuant to the exercise of this Option
("Option Price") shall be that amount determined by multiplying: (i) the
Initial Buy-In Price per Unit, times (ii) (1.10)n, where "n" is the number of
anniversaries of the Plan Date which have occurred as of the date of purchase
of such Unit (with a partial year being expressed as a decimal determined by
dividing the number of days which have passed since the most recent anniversary
by 365); provided, however, that the Option Price shall be subject to
adjustment in accordance with the provisions of Section 7 of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option shall vest on the first Realized Equity Value Date on
which the Realized Equity Value equals or exceeds the Initial Buy-In Price
multiplied by three. From and after such date of vesting, if any, Optionee may
exercise this Option, subject to the terms and conditions set forth herein.
(b) To the extent Optionee does not purchase all or any part of the
Units at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Units not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the General Partner or the
Partnership is terminated (i) for "cause" pursuant to the terms of an
employment agreement between Optionee and the General Partner or the
Partnership which defines termination for "cause" or (ii) if Optionee is not a
party to an agreement described in clause (i), on account of fraud or
dishonesty or other acts which the Board has determined are materially
detrimental to the interests of the Partnership, the Option shall automatically
terminate as of the date of such termination.
(d) If Optionee's employment by the General Partner or the
Partnership is terminated voluntarily by Optionee or by action of the General
Partner or the Partnership for reasons other than as specified in subsection
(c), this Option may be exercised, but only (i) within three
<PAGE> 3
months after such termination (if otherwise prior to the date of expiration of
this Option), and not thereafter, and (ii) to purchase the number of Units, if
any, that could be purchased upon exercise of this Option at the date of
termination of Optionee's employment.
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Units that were subject to
purchase upon exercise of this Option at the time of such death or disability.
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option
prior to the date that it vests in accordance with Section 4.
(b) No Fractional Units. The Option may be exercised only with
respect to full Units.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Units shall be issued nor certificates representing such Units
(if any) delivered pursuant to any exercise of the Option, if any requisite
approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options or the issuance and sale of Units
shall not have been obtained or if such exercise or issuance would violate any
applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e) or who has been approved by the General Partner pursuant to
Section 9.
6. Exercise of Option. Subject to the other terms and provisions of
this Agreement, the Option shall be exercisable by written notice timely given
to the Partnership by the Optionee, which notice (a) shall state the number of
Units that the Optionee then desires to purchase, and (b) shall be accompanied
by payment in full of the Option Price for each of such Units, which such
payment shall be made (i) in cash, (ii) by delivery of Optionee's secured
promissory note in the form attached hereto as Attachment I, or (iii) a
combination of (i) or (ii). The Partnership shall be entitled to require the
Optionee to deliver to the Partnership such documents as the Partnership in its
discretion shall deem necessary to confirm that (i) such exercise and the
Partnership's issuance and sale of such Units are in compliance with the
requirements of any applicable laws (including, but not limited to, the
Securities Act of 1933 and the Texas Securities Act) and (ii) the Optionee
shall be bound by and comply with all of the terms and provisions of the
Partnership Agreement.
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power of the Partnership to make or authorize any adjustment,
recapitalization, reorganization or other change in the Partnership's capital
structure or its business (including, without limitation, any
<PAGE> 4
reorganization of the Partnership into a corporation or other business entity),
any merger or consolidation of the Partnership, any issuance of additional
Partnership Securities with priority over Units or otherwise affecting Units or
the rights thereof, the dissolution or liquidation of the Partnership or any
sale, lease, exchange or other disposition of all or any part of its assets or
business or any other partnership act or proceeding.
(b) If (i) the Partnership merges, consolidates or reconstitutes with
or into any other entity (including, without limitation, any reorganization of
the Partnership into a corporation or other business entity), (ii) the
Partnership sells, leases or exchanges or agrees to sell, lease or exchange all
or substantially all of its assets to any other person or entity, or (iii) the
Partnership is to be dissolved and liquidated (each such event is referred to
herein as a "Fundamental Change"), the Partnership shall make or cause to be
made lawful and adequate provision whereby, upon the due exercise of the Option
after the effective date of such Fundamental Change, the Optionee shall be
entitled to purchase under this Option, in lieu of the number of Units as to
which this Option shall then be exercisable, the number and class of Units or
other securities or property to which the Optionee would have been entitled
pursuant to the terms of the Fundamental Change if, immediately prior to any
such Fundamental Change, Optionee had been the holder of record of the number
of Units as to which this Option is then exercisable.
(c) If the Partnership, without changing its aggregate capital,
subdivides its outstanding Units into a greater number of Units, the Option
Price in effect immediately prior to such subdivision shall be proportionately
reduced, and the number of Units then subject to the Option shall be
proportionately increased. Conversely, if the outstanding number of Units of
the Partnership are combined into a smaller number of Units, the Option Price
in effect immediately prior to such combination shall be proportionately
increased, and the number of Units then subject to the Option shall be
proportionately reduced.
8. Termination of Option. The Option shall terminate upon the first
to occur of the (i) the Expiration Date, or (ii) the date on which Optionee
purchases, or in writing surrenders his right to purchase, all Units or other
securities then subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except (i) by will or by the laws of
descent and distribution, or (ii) with the prior written consent of the General
Partner (authorized by a vote or consent of its Board). Any attempted transfer
of the Option in violation of this provision shall be void and of no effect
whatsoever.
10. Rights as a Limited Partner. Optionee shall have no rights as a
Limited Partner of the Partnership with respect to any Units covered by the
Option until the exercise of the Option.
11. Additional Documents. The Partnership and the Optionee will,
upon request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Units pursuant to this Agreement.
12. Representations, Warranties and Covenants of Optionee.
<PAGE> 5
(a) The Optionee acknowledges that neither the Option nor the Units
covered thereby have been registered under the Securities Act of 1933 (the
"1933 Act") or the Texas Securities Act (the "Texas Act") on the grounds that
the issuance of the Option is, and the sale of any Units pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Units
upon exercise of the Option, the Partnership has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and in
any other documents which he may hereafter deliver to the Partnership.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Partnership as follows:
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the
Partnership Agreement, the 1933 Act, the Texas Act and all rules and
regulations promulgated under each of such Acts, and will not at any
time make any sale, transfer, pledge or other disposition or encumbrance
of any of such securities in violation of the Partnership Agreement or
in the absence of an effective registration statement for such
securities under the Act, the Texas Act and any other applicable state
securities laws or an applicable exemption from the registration
requirements of the Act, the Texas Act any other applicable state
securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Units or other securities purchased under this Option may bear such legend or
legends as the Partnership deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Partnership may refuse to register
the transfer of the Units or other securities purchased under this Option on
the transfer records of the Partnership if such proposed transfer would in the
opinion of counsel satisfactory to the Partnership constitute a violation of
any applicable securities laws, (iii) that the Partnership may give related
instructions to its transfer agent, if any, to stop registration of the
transfer of the Units or other securities purchased under this Option, and (iv)
that the Units or other securities acquired upon exercise of this Option shall
be subject, in all respects, to the Limited Partnership Agreement.
(c) Optionee acknowledges and agrees that the Board shall the sole
and absolute discretion to make a determination of the Realized Equity Value,
and that such determination will govern whether this Option will vest or not.
Option further agrees that the Board's determination of the Realized Equity
Value shall be binding and conclusive upon Optionee without any right to any
judicial or other review of the basis for such determination by the Board.
Optionee acknowledges that the value of the Option over its life will be
speculative and uncertain, that there is no market for the Option or the Units
or other securities that may be acquired upon exercise of the Option and it is
unlikely that any market will develop, and consequently, the Optionee may
ultimately realize no value from the Option.
<PAGE> 6
13. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
14. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
15. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
16. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
17. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
19. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its general
partner
500 West Texas By:
Suite 500 --------------------------------------
Midland, Texas 79701
[THE OPTIONEE]
[See Schedule I attached hereto]
- ------------------------------ ------------------------------------------
- ------------------------------
[Address]
<PAGE> 8
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Units
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower B Option 134,893
Jack D. Hightower B Option 134,892
George G. Staley B Option 156,390
Thomas H. Moore B Option 33,746
Dan P. Colwell B Option 31,478
Rodney C. Woodard B Option 31,478
John L. Benfatti B Option 9,702
</TABLE>
<PAGE> 1
EXHIBIT 10.7.3
OPTION AGREEMENT
(C Option)
This Option Agreement ("Agreement"), made and entered into as of March
31, 1995, is by and between Titan Resources, L.P., a Texas limited partnership
(the "Partnership"), and [see Schedule I attached hereto] (the "Optionee").
WITNESSETH:
WHEREAS, in connection with the initial capitalization of the
Partnership an Option Plan ("Plan") was adopted effective as of March 31, 1995
("Plan Date") for certain officers and management level employees of the
Partnership or the general partner of the Partnership ("General Partner");
WHEREAS, the Optionee is an officer and/or management level employee of
the Partnership or the General Partner eligible to participate in the Plan and
the President of the General Partner, as administrator of the Plan, has
determined that the Partnership should recognize the potential contributions
that the Optionee may make to the success of the Partnership by granting him an
option to purchase interests in the Partnership (the "Units") pursuant to the
Plan and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the Partnership and Optionee
hereby agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the respective meanings assigned to such terms in
the Plan; and the following terms shall have the following meanings:
"Initial Buy-In Price" means the initial aggregate cash
contributions made by the Limited Partners to the Partnership pursuant
to and as required by the first sentence of Article III, Section 3.1(b),
of the Partnership Agreement.
"Initial Buy-In Price per Unit" means the amount determined by
dividing (i) Initial Buy-In Price, by (ii) the total number of Units
outstanding on the date on which the Initial Buy-In Price was received
by the Partnership.
"Liquidating Transaction" means the sale of all partnership
interests in the Partnership or the sale of substantially all of its
assets to an unrelated third party in an arms length transaction with
the purchase price payable in cash.
"Realized Equity Value" means, on any date, the cumulative total
of all cash and the fair market value, as determined by the Board, of
all other properties or securities which as of such date (i) has been
distributed to the Partners, and (ii) has not yet been distributed to
the Partners but has been duly authorized, by action of the Board, to be
<PAGE> 2
distributed to the Partners (excluding in the case of each of clause (i)
and (ii) any distributions made or authorized to be made solely for the
purposes of permitting Partners to pay their individual income tax
liabilities resulting from their allocable share of Partnership income).
In addition, at the sole discretion of the Board, Realized Equity Value
may also include an additional amount consisting of proceeds from a
Liquidating Transaction not yet distributed or authorized for
distribution to the Partners or an amount which the Board determines
would be available for distribution to the Partners if a Liquidating
Transaction were assumed to occur as of such date (regardless of
likelihood of the occurrence of any such Liquidating Transaction).
"Realized Equity Value Date" means a date on which the Board
shall have made a determination of the Realized Equity Value.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Partnership hereby irrevocably grants to the Optionee the right
and option (the "Option") to purchase [see Schedule I attached hereto] Units
of the Partnership, subject to adjustment in accordance with the provisions of
Section 7 of this Agreement.
3. Option Price. The price to be paid by Optionee to the
Partnership for each Unit purchased pursuant to the exercise of this Option
("Option Price") shall be that amount determined by multiplying: (i) the
Initial Buy-In Price per Unit, times (ii) (1.10)n, where "n" is the number of
anniversaries of the Plan Date which have occurred as of the date of purchase
of such Unit (with a partial year being expressed as a decimal determined by
dividing the number of days which have passed since the most recent anniversary
by 365); provided, however, that the Option Price shall be subject to
adjustment in accordance with the provisions of Section 7 of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option shall vest on the first Realized Equity Value Date on
which the Realized Equity Value equals or exceeds the Initial Buy-In Price
multiplied by four. From and after such date of vesting, if any, Optionee may
exercise this Option, subject to the terms and conditions set forth herein.
(b) To the extent Optionee does not purchase all or any part of the
Units at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Units not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the General Partner or the
Partnership is terminated (i) for "cause" pursuant to the terms of an
employment agreement between Optionee and the General Partner or the
Partnership which defines termination for "cause" or (ii) if Optionee is not a
party to an agreement described in clause (i), on account of fraud or
dishonesty or other acts which the Board has determined are materially
detrimental to the interests of the Partnership, the Option shall automatically
terminate as of the date of such termination.
(d) If Optionee's employment by the General Partner or the
Partnership is terminated voluntarily by Optionee or by action of the General
Partner or the Partnership for reasons other than as specified in subsection
(c), this Option may be exercised, but only (i) within three
<PAGE> 3
months after such termination (if otherwise prior to the date of expiration of
this Option), and not thereafter, and (ii) to purchase the number of Units, if
any, that could be purchased upon exercise of this Option at the date of
termination of Optionee's employment.
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Units that were subject to
purchase upon exercise of this Option at the time of such death or disability.
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option
prior to the date that it vests in accordance with Section 4.
(b) No Fractional Units. The Option may be exercised only with
respect to full Units.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Units shall be issued nor certificates representing such Units
(if any) delivered pursuant to any exercise of the Option, if any requisite
approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options or the issuance and sale of Units
shall not have been obtained or if such exercise or issuance would violate any
applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e) or who has been approved by the General Partner pursuant to
Section 9.
6. Exercise of Option. Subject to the other terms and provisions of
this Agreement, the Option shall be exercisable by written notice timely given
to the Partnership by the Optionee, which notice (a) shall state the number of
Units that the Optionee then desires to purchase, and (b) shall be accompanied
by payment in full of the Option Price for each of such Units, which such
payment shall be made (i) in cash, (ii) by delivery of Optionee's secured
promissory note in the form attached hereto as Attachment I, or (iii) a
combination of (i) or (ii). The Partnership shall be entitled to require the
Optionee to deliver to the Partnership such documents as the Partnership in its
discretion shall deem necessary to confirm that (i) such exercise and the
Partnership's issuance and sale of such Units are in compliance with the
requirements of any applicable laws (including, but not limited to, the
Securities Act of 1933 and the Texas Securities Act) and (ii) the Optionee
shall be bound by and comply with all of the terms and provisions of the
Partnership Agreement.
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power of the Partnership to make or authorize any adjustment,
recapitalization, reorganization or other change in the Partnership's capital
structure or its business (including, without limitation, any
<PAGE> 4
reorganization of the Partnership into a corporation or other business entity),
any merger or consolidation of the Partnership, any issuance of additional
Partnership Securities with priority over Units or otherwise affecting Units or
the rights thereof, the dissolution or liquidation of the Partnership or any
sale, lease, exchange or other disposition of all or any part of its assets or
business or any other partnership act or proceeding.
(b) If (i) the Partnership merges, consolidates or reconstitutes with
or into any other entity (including, without limitation, any reorganization of
the Partnership into a corporation or other business entity), (ii) the
Partnership sells, leases or exchanges or agrees to sell, lease or exchange all
or substantially all of its assets to any other person or entity, or (iii) the
Partnership is to be dissolved and liquidated (each such event is referred to
herein as a "Fundamental Change"), the Partnership shall make or cause to be
made lawful and adequate provision whereby, upon the due exercise of the Option
after the effective date of such Fundamental Change, the Optionee shall be
entitled to purchase under this Option, in lieu of the number of Units as to
which this Option shall then be exercisable, the number and class of Units or
other securities or property to which the Optionee would have been entitled
pursuant to the terms of the Fundamental Change if, immediately prior to any
such Fundamental Change, Optionee had been the holder of record of the number
of Units as to which this Option is then exercisable.
(c) If the Partnership, without changing its aggregate capital,
subdivides its outstanding Units into a greater number of Units, the Option
Price in effect immediately prior to such subdivision shall be proportionately
reduced, and the number of Units then subject to the Option shall be
proportionately increased. Conversely, if the outstanding number of Units of
the Partnership are combined into a smaller number of Units, the Option Price
in effect immediately prior to such combination shall be proportionately
increased, and the number of Units then subject to the Option shall be
proportionately reduced.
8. Termination of Option. The Option shall terminate upon the first
to occur of the (i) the Expiration Date, or (ii) the date on which Optionee
purchases, or in writing surrenders his right to purchase, all Units or other
securities then subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except (i) by will or by the laws of
descent and distribution, or (ii) with the prior written consent of the General
Partner (authorized by a vote or consent of its Board). Any attempted transfer
of the Option in violation of this provision shall be void and of no effect
whatsoever.
10. Rights as a Limited Partner. Optionee shall have no rights as a
Limited Partner of the Partnership with respect to any Units covered by the
Option until the exercise of the Option.
11. Additional Documents. The Partnership and the Optionee will,
upon request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Units pursuant to this Agreement.
12. Representations, Warranties and Covenants of Optionee.
<PAGE> 5
(a) The Optionee acknowledges that neither the Option nor the Units
covered thereby have been registered under the Securities Act of 1933 (the
"1933 Act") or the Texas Securities Act (the "Texas Act") on the grounds that
the issuance of the Option is, and the sale of any Units pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Units
upon exercise of the Option, the Partnership has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and in
any other documents which he may hereafter deliver to the Partnership.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Partnership as follows:
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the
Partnership Agreement, the 1933 Act, the Texas Act and all rules and
regulations promulgated under each of such Acts, and will not at any
time make any sale, transfer, pledge or other disposition or encumbrance
of any of such securities in violation of the Partnership Agreement or
in the absence of an effective registration statement for such
securities under the Act, the Texas Act and any other applicable state
securities laws or an applicable exemption from the registration
requirements of the Act, the Texas Act any other applicable state
securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Units or other securities purchased under this Option may bear such legend or
legends as the Partnership deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Partnership may refuse to register
the transfer of the Units or other securities purchased under this Option on
the transfer records of the Partnership if such proposed transfer would in the
opinion of counsel satisfactory to the Partnership constitute a violation of
any applicable securities laws, (iii) that the Partnership may give related
instructions to its transfer agent, if any, to stop registration of the
transfer of the Units or other securities purchased under this Option, and (iv)
that the Units or other securities acquired upon exercise of this Option shall
be subject, in all respects, to the Limited Partnership Agreement.
(c) Optionee acknowledges and agrees that the Board shall the sole
and absolute discretion to make a determination of the Realized Equity Value,
and that such determination will govern whether this Option will vest or not.
Option further agrees that the Board's determination of the Realized Equity
Value shall be binding and conclusive upon Optionee without any right to any
judicial or other review of the basis for such determination by the Board.
Optionee acknowledges that the value of the Option over its life will be
speculative and uncertain, that there is no market for the Option or the Units
or other securities that may be acquired upon exercise of the Option and it is
unlikely that any market will develop, and consequently, the Optionee may
ultimately realize no value from the Option.
<PAGE> 6
13. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
14. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
15. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
16. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
17. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
19. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its general partner
500 West Texas By:
Suite 500 ------------------------------------------------
<PAGE> 7
Midland, Texas 79701
[THE OPTIONEE]
[see Schedule I attached hereto]
- ---------------------------- ------------------------------------------------
- ----------------------------
[Address]
<PAGE> 8
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Units
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower C Option 141,554
Jack D. Hightower C Option 141,554
Separate Property
George G. Staley C Option 164,113
Thomas H. Moore C Option 35,413
Dan P. Colwell C Option 33,033
Rodney C. Woodard C Option 33,033
John L. Benfatti C Option 10,181
</TABLE>
<PAGE> 1
EXHIBIIT 10.7.4
OPTION AGREEMENT
(D Option)
This Option Agreement ("Agreement"), made and entered into as of March
31, 1995, is by and between Titan Resources, L.P., a Texas limited partnership
(the "Partnership"), and [see Schedule I attached hereto] (the "Optionee").
WITNESSETH:
WHEREAS, in connection with the initial capitalization of the
Partnership an Option Plan ("Plan") was adopted effective as of March 31, 1995
("Plan Date") for certain officers and management level employees of the
Partnership or the general partner of the Partnership ("General Partner");
WHEREAS, the Optionee is an officer and/or management level employee of
the Partnership or the General Partner eligible to participate in the Plan and
the President of the General Partner, as administrator of the Plan, has
determined that the Partnership should recognize the potential contributions
that the Optionee may make to the success of the Partnership by granting him an
option to purchase interests in the Partnership (the "Units") pursuant to the
Plan and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the Partnership and Optionee
hereby agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the respective meanings assigned to such terms in
the Plan; and the following terms shall have the following meanings:
"Initial Buy-In Price" means the initial aggregate cash
contributions made by the Limited Partners to the Partnership pursuant
to and as required by the first sentence of Article III, Section 3.1(b),
of the Partnership Agreement.
"Initial Buy-In Price per Unit" means the amount determined by
dividing (i) Initial Buy-In Price, by (ii) the total number of Units
outstanding on the date on which the Initial Buy-In Price was received
by the Partnership.
"Liquidating Transaction" means the sale of all partnership
interests in the Partnership or the sale of substantially all of its
assets to an unrelated third party in an arms length transaction with
the purchase price payable in cash.
"Realized Equity Value" means, on any date, the cumulative total
of all cash and the fair market value, as determined by the Board, of
all other properties or securities which as of such date (i) has been
distributed to the Partners, and (ii) has not yet been
<PAGE> 2
distributed to the Partners but has been duly authorized, by action of
the Board, to be distributed to the Partners (excluding in the case of
each of clause (i) and (ii) any distributions made or authorized to be
made solely for the purposes of permitting Partners to pay their
individual income tax liabilities resulting from their allocable share
of Partnership income). In addition, at the sole discretion of the
Board, Realized Equity Value may also include an additional amount
consisting of proceeds from a Liquidating Transaction not yet
distributed or authorized for distribution to the Partners or an amount
which the Board determines would be available for distribution to the
Partners if a Liquidating Transaction were assumed to occur as of such
date (regardless of likelihood of the occurrence of any such Liquidating
Transaction).
"Realized Equity Value Date" means a date on which the Board
shall have made a determination of the Realized Equity Value.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Partnership hereby irrevocably grants to the Optionee the right
and option (the "Option") to purchase ________ Units of the Partnership,
subject to adjustment in accordance with the provisions of Section 7 of this
Agreement.
3. Option Price. The price to be paid by Optionee to the
Partnership for each Unit purchased pursuant to the exercise of this Option
("Option Price") shall be that amount determined by multiplying: (i) the
Initial Buy-In Price per Unit, times (ii) (1.10)n, where "n" is the number of
anniversaries of the Plan Date which have occurred as of the date of purchase
of such Unit (with a partial year being expressed as a decimal determined by
dividing the number of days which have passed since the most recent anniversary
by 365); provided, however, that the Option Price shall be subject to
adjustment in accordance with the provisions of Section 7 of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option shall vest on the first Realized Equity Value Date on
which the Realized Equity Value equals or exceeds the Initial Buy-In Price
multiplied by five. From and after such date of vesting, if any, Optionee may
exercise this Option, subject to the terms and conditions set forth herein.
(b) To the extent Optionee does not purchase all or any part of the
Units at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Units not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the General Partner or the
Partnership is terminated (i) for "cause" pursuant to the terms of an
employment agreement between Optionee and the General Partner or the
Partnership which defines termination for "cause" or (ii) if Optionee is not a
party to an agreement described in clause (i), on account of fraud or
dishonesty or other acts which the Board has determined are materially
detrimental to the interests of the Partnership, the Option shall automatically
terminate as of the date of such termination.
<PAGE> 3
(d) If Optionee's employment by the General Partner or the
Partnership is terminated voluntarily by Optionee or by action of the General
Partner or the Partnership for reasons other than as specified in subsection
(c), this Option may be exercised, but only (i) within three months after such
termination (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Units, if any, that could be
purchased upon exercise of this Option at the date of termination of Optionee's
employment.
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Units that were subject to
purchase upon exercise of this Option at the time of such death or disability.
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option
prior to the date that it vests in accordance with Section 4.
(b) No Fractional Units. The Option may be exercised only with
respect to full Units.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Units shall be issued nor certificates representing such Units
(if any) delivered pursuant to any exercise of the Option, if any requisite
approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options or the issuance and sale of Units
shall not have been obtained or if such exercise or issuance would violate any
applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e) or who has been approved by the General Partner pursuant to
Section 9.
6. Exercise of Option. Subject to the other terms and provisions of
this Agreement, the Option shall be exercisable by written notice timely given
to the Partnership by the Optionee, which notice (a) shall state the number of
Units that the Optionee then desires to purchase, and (b) shall be accompanied
by payment in full of the Option Price for each of such Units, which such
payment shall be made (i) in cash, (ii) by delivery of Optionee's secured
promissory note in the form attached hereto as Attachment I, or (iii) a
combination of (i) or (ii). The Partnership shall be entitled to require the
Optionee to deliver to the Partnership such documents as the Partnership in its
discretion shall deem necessary to confirm that (i) such exercise and the
Partnership's issuance and sale of such Units are in compliance with the
requirements of any applicable laws (including, but not limited to, the
Securities Act of 1933 and the Texas Securities Act) and (ii) the Optionee
shall be bound by and comply with all of the terms and provisions of the
Partnership Agreement.
-3-
<PAGE> 4
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power of the Partnership to make or authorize any adjustment,
recapitalization, reorganization or other change in the Partnership's capital
structure or its business (including, without limitation, any reorganization of
the Partnership into a corporation or other business entity), any merger or
consolidation of the Partnership, any issuance of additional Partnership
Securities with priority over Units or otherwise affecting Units or the rights
thereof, the dissolution or liquidation of the Partnership or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other partnership act or proceeding.
(b) If (i) the Partnership merges, consolidates or reconstitutes with
or into any other entity (including, without limitation, any reorganization of
the Partnership into a corporation or other business entity), (ii) the
Partnership sells, leases or exchanges or agrees to sell, lease or exchange all
or substantially all of its assets to any other person or entity, or (iii) the
Partnership is to be dissolved and liquidated (each such event is referred to
herein as a "Fundamental Change"), the Partnership shall make or cause to be
made lawful and adequate provision whereby, upon the due exercise of the Option
after the effective date of such Fundamental Change, the Optionee shall be
entitled to purchase under this Option, in lieu of the number of Units as to
which this Option shall then be exercisable, the number and class of Units or
other securities or property to which the Optionee would have been entitled
pursuant to the terms of the Fundamental Change if, immediately prior to any
such Fundamental Change, Optionee had been the holder of record of the number
of Units as to which this Option is then exercisable.
(c) If the Partnership, without changing its aggregate capital,
subdivides its outstanding Units into a greater number of Units, the Option
Price in effect immediately prior to such subdivision shall be proportionately
reduced, and the number of Units then subject to the Option shall be
proportionately increased. Conversely, if the outstanding number of Units of
the Partnership are combined into a smaller number of Units, the Option Price
in effect immediately prior to such combination shall be proportionately
increased, and the number of Units then subject to the Option shall be
proportionately reduced.
8. Termination of Option. The Option shall terminate upon the first
to occur of the (i) the Expiration Date, or (ii) the date on which Optionee
purchases, or in writing surrenders his right to purchase, all Units or other
securities then subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except (i) by will or by the laws of
descent and distribution, or (ii) with the prior written consent of the General
Partner (authorized by a vote or consent of its Board). Any attempted transfer
of the Option in violation of this provision shall be void and of no effect
whatsoever.
10. Rights as a Limited Partner. Optionee shall have no rights as a
Limited Partner of the Partnership with respect to any Units covered by the
Option until the exercise of the Option.
-4-
<PAGE> 5
11. Additional Documents. The Partnership and the Optionee will,
upon request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Units pursuant to this Agreement.
12. Representations, Warranties and Covenants of Optionee.
(a) The Optionee acknowledges that neither the Option nor the Units
covered thereby have been registered under the Securities Act of 1933 (the
"1933 Act") or the Texas Securities Act (the "Texas Act") on the grounds that
the issuance of the Option is, and the sale of any Units pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Units
upon exercise of the Option, the Partnership has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and in
any other documents which he may hereafter deliver to the Partnership.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Partnership as follows:
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the
Partnership Agreement, the 1933 Act, the Texas Act and all rules and
regulations promulgated under each of such Acts, and will not at any
time make any sale, transfer, pledge or other disposition or encumbrance
of any of such securities in violation of the Partnership Agreement or
in the absence of an effective registration statement for such
securities under the Act, the Texas Act and any other applicable state
securities laws or an applicable exemption from the registration
requirements of the Act, the Texas Act any other applicable state
securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Units or other securities purchased under this Option may bear such legend or
legends as the Partnership deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Partnership may refuse to register
the transfer of the Units or other securities purchased under this Option on
the transfer records of the Partnership if such proposed transfer would in the
opinion of counsel satisfactory to the Partnership constitute a violation of
any applicable securities laws, (iii) that the Partnership may give related
instructions to its transfer agent, if any, to stop registration of the
transfer of the Units or other securities purchased under this Option, and (iv)
that the Units or other securities acquired upon exercise of this Option shall
be subject, in all respects, to the Limited Partnership Agreement.
(c) Optionee acknowledges and agrees that the Board shall the sole
and absolute discretion to make a determination of the Realized Equity Value,
and that such determination
-5-
<PAGE> 6
will govern whether this Option will vest or not. Option further agrees that
the Board's determination of the Realized Equity Value shall be binding and
conclusive upon Optionee without any right to any judicial or other review of
the basis for such determination by the Board. Optionee acknowledges that the
value of the Option over its life will be speculative and uncertain, that there
is no market for the Option or the Units or other securities that may be
acquired upon exercise of the Option and it is unlikely that any market will
develop, and consequently, the Optionee may ultimately realize no value from
the Option.
13. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
14. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
15. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
16. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
17. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
19. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its
general partner
500 West Texas By:
Suite 500 ------------------------------
Midland, Texas 79701
[THE OPTIONEE]
[see Schedule I attached hereto]
- ----------------------------------- -------------------------------------
- -----------------------------------
[Address]
-7-
<PAGE> 8
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Units
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower D Option 148,721
Jack D. Hightower D Option 148,721
Separate Property
George G. Staley D Option 172,423
Thomas H. Moore D Option 37,206
Dan P. Colwell D Option 34,706
Rodney C. Woodard D Option 34,706
John L. Benfatti D Option 49,963
</TABLE>
<PAGE> 1
EXHIBIT 10.8
TITAN EXPLORATION, INC.
OPTION PLAN
RECITALS
A. Titan Exploration, Inc. ("COMPANY") is a party to that certain
Exchange Agreement and Plan of Reorganization (the "EXCHANGE AGREEMENT") dated
as of September 30, 1996 (the "EFFECTIVE DATE"), pursuant to which it will
acquire all of the limited partnership interests of Titan Resources, L.P.
("PARTNERSHIP") and all of the outstanding shares of the common stock, par
value $.01 per share, of Titan Resources I, Inc. ("GENERAL PARTNER"), the
general partner of the Partnership (such transactions are referred to herein as
the "REORGANIZATION").
B. Effective as of March 31, 1995, the Partnership adopted an Option
Plan for certain officers and employees of the General Partner and the
Partnership (the "PARTNERSHIP PLAN") and from time to time thereafter all of
the options ("PARTNERSHIP OPTIONS") available thereunder were granted to such
officers and employees ("EXISTING OPTION HOLDERS"), entitling such holders to
acquire units of limited partnership interests in the Partnership, subject to
the terms and conditions described in the Partnership Plan.
C. Pursuant to Section 7 of each Partnership Option, as a condition
to the Reorganization, the Partnership must make or cause to be made lawful and
adequate provision so that on and after the Effective Date, each of the
Existing Option Holders shall be entitled to purchase, in lieu of the number of
units of limited partnership interests in the Partnership ("UNITS") subject to
purchase under the Partnership Options, an equivalent number of shares of
Common Stock, par value $.01, of the Company (the "SHARES"), to be determined
by reference to the number of Shares to be issued in the Reorganization for
each Unit surrendered for exchange (such number of Shares is referred to herein
as the "EQUIVALENT NUMBER OF OPTION SHARES");
D. In accordance with the terms of the Exchange Agreement and the
requirements of the Partnership Options:
(i) the Existing Option Holders must surrender the Partnership Options
to the Company and the Existing Option Holders shall have no further rights
under the Partnership Plan and Partnership Options as of the Effective Date,
and
(ii) the Board of Directors of the Company hereby: (A) adopts this
Option Plan (the "PLAN"), to become effective as of the Effective Date, for
those officers and employees of the Company and/or its consolidated
subsidiaries who are Existing Option Holders (collectively, "EMPLOYEES" and
individually, a "EMPLOYEE"), and (B) authorizes the issuance of Options
hereunder to each such Employee, to be effective as of the Effective Date,
entitling such Employee to receive, in substitution for his/her Partnership
Options, an option to acquire an Equivalent Number of Option Shares subject to
terms and conditions substantially the same as those applicable to the
Partnership Options, which terms and conditions are described below.
<PAGE> 2
ARTICLE I
GENERAL
1.1 Definitions. Capitalized terms which are defined in the recitals
shall have the meanings set forth therein and the following terms shall have
the following meanings:
"A Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit A hereto (collectively,
the "A Options").
"B Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit B hereto (collectively,
the "B Options").
"C Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit C hereto (collectively,
the "C Options").
"D Option" any option issued or authorized to be issued
hereunder in substantially the form of Exhibit D hereto (collectively,
the "D Options").
"Board" means the Board of Directors of Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"employee" means an individual whose wages are subject to the
withholding of federal income tax under Section 3401 of the Code.
"Holder" means any Employee to whom an Option has been granted
under this Plan.
"Market Price" means with respect to any Share on any date while
the Shares are Publicly Traded, the average of the last reported sale
prices for the Shares for the 20 consecutive Trading Days (as defined
below) beginning 30 Trading Days before the day in question. The last
reported sale price for each day shall be (i) if the Shares are listed
or admitted for trading on any national securities exchange, the last
sale price, or the closing bid price if no sale occurred, of the Shares
on the principal securities exchange on which the Shares are listed or
admitted to trading, (ii) the last reported sale price of the Shares on
the Nasdaq Stock Market's National Market, or any similar system of
automated dissemination of quotations of securities prices then in
common use, if so quoted, or (iii) if not quoted as described in clause
(ii) above, the mean between the high bid and low asked quotations for
the Shares as reported by the National Quotation Bureau, Inc. if at
least two securities dealers have inserted both bid and asked quotations
for the Shares on at least 10 of such 20 consecutive Trading Days. If
the Shares are quoted on a national securities or central market system,
in lieu of a market or quotation system described above, the last
reported sale price shall be determined in the manner set forth in
clause (iii) of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner set forth in
clause (ii) of the preceding sentence if actual transactions are
reported. If none of the conditions set forth above is met, the last
reported sale price of the Shares on any day or the average of such last
reported sale prices for any period shall be the fair market value of
the Shares as
<PAGE> 3
determined by a member firm of the New York Stock Exchange, Inc.
selected by the Company. The term "Trading Days", as used herein, means
(i) if the Shares are listed or admitted for trading on any national
securities exchange, days on which such national securities exchange is
open for business, or (ii) if the Shares are quoted on the Nasdaq Stock
Market's National Market, or any similar system of automated
dissemination of quotations of securities prices, days on which trades
may be made on such system.
"Option" any A Option, B Option, C Option or D Option granted to
a Employee hereunder.
"Options" collectively, all A Options, B Options, C Options and D
Options granted to Employees hereunder.
"officer" means an individual elected or appointed by the Board
or chosen in such other manner as may be prescribed in the
organizational documents for the Companies to serve as such.
"Publicly Traded" means with respect to the Shares, that the
Shares are listed or admitted for trading on any national securities
exchange or that the Shares are quoted on the Nasdaq Stock Market's
National Market, or any similar system of automated dissemination of
quotations of securities prices.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by, and the decisions concerning the Plan
shall be made solely by, the Board; provided that, the Board may appoint a
committee of two or more directors of the Company who qualify as "outside
directors" pursuant to the requirements of Section 162(m) of the Code and the
Treasury Regulations thereunder (an "OPTION COMMITTEE") to act as the
administrator of the Plan and to make any grants of options pursuant to Section
3.4 hereof. Any member of an Option Committee shall serve at the pleasure of
the Board and the Board shall have the sole continuing authority to appoint
members of any Option Committee. Neither the Board nor any Option Committee
shall have any authority, discretion or power to alter any of the terms or
conditions specified herein.
Subject to the foregoing limitations, the Board or Option Committee
shall have authority and power to adopt such rules and regulations and to take
such action as it shall consider necessary or advisable for the administration
of the Plan, and to construe, interpret and administer the Plan. The members
of the Board and Option Committee shall not incur any liability by reason of
any action or determination made in good faith with respect to the Plan or any
option agreement entered into pursuant to the Plan.
<PAGE> 4
ARTICLE III
GRANT OF OPTIONS
3.1 Option Agreements. Each Option granted under the Plan to a
Employee shall be evidenced by a written option agreement, which agreement
shall be entered into by Company and the Employee to whom the Option is
granted. The agreements for each A Option, B Option, C Option or D Option
shall be in substantially the forms set forth in Exhibit A, B, C or D hereto,
respectively, with appropriate insertions of the name of the optionee and the
number of Shares for which such option may be exercised.
3.2 Exchange Ratio; Maximum Number of Shares Subject to Options.
(a) Pursuant to the Exchange Agreement, each unit of limited
partnership interest in the Partnership was exchanged for .66508242 Shares (the
"Exchange Ratio").
(b) Based upon the Exchange Ratio, the aggregate Equivalent Number of
Option Shares (rounded to the nearest whole share) available under the Plan is
as follows:
(i) the total number of Shares which may be acquired upon
exercise of all A Options granted pursuant to the Plan shall not exceed
2,410,728 Shares;
(ii) The total number of Shares which may be acquired upon
exercise of all B Options granted pursuant to the Plan shall not exceed
387,265 Shares;
(iii) The total number of Shares which may be acquired upon
exercise of all C Options granted pursuant to the Plan shall not exceed
406,390 Shares; and
(iv) The total number of Shares which may be acquired upon
exercise of all D Options granted pursuant to the Plan shall not exceed
426,967 Shares.
3.3 Initial Grant of Options. As of the Effective Date, each holder
of Partnership Options is granted A Options, B Options, C Options and D Options
to purchase an Equivalent Number of Option Shares based upon the Exchange
Ratio, as set forth in Schedule 1 hereto.
3.4 Subsequent Grant of Options. After the initial grant of options
pursuant to Section 3.3, if any Holder's Options are terminated under the
circumstances described in the Options, the Board or the Option Committee may
at any time grant to another Employee any Options forfeited as a result of such
termination.
ARTICLE IV
GENERAL PROVISIONS
4.1 Termination of Plan. The Plan shall terminate whenever the Board
adopts a resolution to that effect. If not sooner terminated under the
preceding sentence, the Plan shall wholly cease and expire at the close of
business on March 31, 2001. After termination of the Plan, no Options shall be
granted under this Plan, but Company shall continue to recognize Options
previously granted to the extent such Options shall not have expired.
<PAGE> 5
4.2 Amendment of Plan. No amendment, modification, suspension or
termination hereof shall impair any Options theretofore granted under the Plan
or deprive any Holder of any Shares which he might have acquired through or as
a result of the Plan.
4.3 Treatment of Proceeds. Proceeds from the sale of Shares pursuant
to Options granted under the Plan shall constitute general funds of Company.
4.4 Effectiveness. This Plan shall become effective as of the
Effective Date.
4.5 Paragraph Headings. The paragraph headings included herein are
only for convenience, and they shall have no effect on the interpretation of
the Plan.
<PAGE> 6
SCHEDULE 1
INITIAL OPTIONS GRANTED
<TABLE>
<CAPTION>
Number of Shares
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower A Option 583,314
B Option 94,674
C Option 99,348
D Option 100,461
Jack D. Hightower A Option 583,314
Separate Property B Option 94,674
C Option 99,348
D Option 100,461
George G. Staley A Option 686,118
B Option 111,725
C Option 117,243
D Option 117,085
Thomas H. Moore A Option 147,995
B Option 24,097
C Option 25,287
D Option 25,262
Dan P. Colwell A Option 144,125
B Option 23,691
C Option 24,860
D Option 23,943
Rodney C. Woodard A Option 146,886
B Option 24,241
C Option 25,439
D Option 24,115
John L. Benfatti A Option 48,448
B Option 8,105
C Option 8,506
D Option 33,746
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
Susan D. Rowland A Option 48,448
B Option 1,653
C Option 1,734
D Option 517
Linda Nicholson A Option 2,760
B Option 551
C Option 578
D Option 172
Carol R. Farmer A Option 2,760
B Option 551
C Option 578
D Option 172
Thomas Tomerlin A Option 5,520
B Option 1,102
C Option 1,157
D Option 345
Carol S. Thompson A Option 1,380
B Option 275
C Option 289
D Option 86
Carolyn M. Dean A Option 1,380
B Option 275
C Option 289
D Option 86
Lisa M. Huggins A Option 1,380
B Option 275
C Option 289
D Option 86
Lawrence H. Wagner A Option 2,760
B Option 551
C Option 578
D Option 172
Karen I. LeBus A Option 1,380
B Option 275
C Option 289
D Option 86
Therese A. Cone A Option 1,380
B Option 275
C Option 289
D Option 86
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Ronald L. Lechwar A Option 1,380
B Option 275
C Option 289
D Option 86
</TABLE>
<PAGE> 9
ATTACHMENT I
(Form of Promissory Note
to be attached to each Option Agreement)
PROMISSORY NOTE
$_______________ _____________,____
FOR VALUE RECEIVED, on 15 months from date of issue, _________________
("Maker") promises to pay to the order of TITAN EXPLORATION, INC., a Delaware
corporation ("Payee"), at 500 West Texas, Suite 500, Midland, Texas 79701, or
at such other address as directed by the holder hereof, in lawful money of the
United States of America, the sum of ______________________ AND ___/100 DOLLARS
($____________), together with interest thereon until maturity at a rate per
annum equal to the Prime Rate (as hereinafter defined) from time to time in
effect plus two percent (2%); provided, however, that in no event shall
interest on this note ever be charged or paid at a rate greater than the
maximum nonusurious rate permitted by applicable federal or Texas law from time
to time in effect, whichever shall permit the higher lawful rate (the "Highest
Lawful Rate"). If at any time or times the interest rate provided for
elsewhere herein (the "Stated Rate") would exceed the Highest Lawful Rate but
for the limitation set forth above, the rate of interest to accrue on the
unpaid principal balance of this note during all such times shall be limited to
the Highest Lawful Rate, but any subsequent reduction in the Stated Rate due to
reductions in the Prime Rate shall not become effective to reduce the interest
rate payable below the Highest Lawful Rate until the total amount of interest
accrued on the unpaid balance of this note equals the total amount of interest
which would have accrued if the Stated Rate had at all times been in effect.
At all such times, if any, as Chapter One ("Chapter One") of the Texas Credit
Code shall establish the Highest Lawful Rate, the Highest Lawful Rate shall be
the "indicated rate ceiling" (as defined in Chapter One) from time to time in
effect.
The term "Prime Rate" as used herein shall mean that variable rate of
interest per annum established by Texas Commerce Bank National Association from
time to time as its "prime rate." Without notice to Maker or any other person,
the Prime Rate shall automatically fluctuate upward and downward as and in the
amount by which such rate shall fluctuate.
If, for any reason whatever, the interest paid or received on this note
shall exceed the Highest Lawful Rate, the owner or holder of this note shall
refund to the payor or, at the option of such owner or holder, credit against
the principal of this note such portion of said interest as shall be necessary
to cause the interest actually paid and retained on this note to equal the
Highest Lawful Rate. All sums paid or agreed to be paid to the owner or holder
hereof for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of this note.
All past due principal and interest on this note shall bear interest at
a rate per annum equal to the Highest Lawful Rate.
Maker may at any time prepay the full amount or any part of this note
without the payment of any premium or fee. All such prepayments shall be
applied first to accrued interest, the balance to principal.
The payment of this note is secured by a security interest in
___________________ (_______) Shares (as hereinafter defined) created and
granted in a security agreement (the "Security Agreement") of even date
herewith, by Maker in favor of Payee. The term "Shares" as used herein shall
have the same meaning assigned to such term in the agreement of limited
partnership creating and organizing Payee.
<PAGE> 10
Time is of the essence of this note. Upon any default in the payment of
any principal or interest when due hereunder, or any breach or default in any
of the terms, conditions, representations or warranties contained in the
Security Agreement, or the insolvency of Maker, or the institution of any
proceedings or arrangements in bankruptcy by or against Maker, the holder of
this note may, at its option, declare the entirety of the indebtedness
evidenced hereby immediately due and payable and exercise any other available
remedies, and failure to exercise any remedy shall not constitute a waiver at
any other time.
In addition to all principal and accrued interest on this note, Maker
agrees to pay (a) all reasonable costs and expenses incurred by all owners and
holders of this note in collecting this note through probate,
reorganization, bankruptcy or any other proceeding and (b) reasonable
attorneys' fees when and if this note is placed in the hands of an attorney for
collection after default.
Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of protest,
notice of dishonor, notice of intent to accelerate and notice of acceleration),
demand, presentment for payment, protest, diligence in collecting or bringing
suit and the filing of suit for the purpose of fixing liability and consent
that the time of payment hereof may be extended and re-extended from time to
time without notice to them or any of them, and each agrees that his, her or
its liability on or with respect to this note shall not be affected, diminished
or impaired by any of the following:
(a) any release of any security at any time existing for this note;
(b) any substitution for any security at any time existing for this
note; or
(c) any failure to perfect (or to maintain perfection of) any lien on
or security interest in any such security;
in each case in whole or in part, with or without notice, before or after
maturity.
THIS NOTE IS BEING SIGNED AND DELIVERED IN THE STATE OF TEXAS AND IS TO
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
EXECUTED as of the day and year first written above.
----------------------------
<PAGE> 11
17. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
18. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
20. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN EXPLORATION, INC.
500 West Texas By
Suite 500 -----------------------------------
Midland, Texas 79701
[THE OPTIONEE]
[see Schedule I attached hereto]
- ----------------------------------- -------------------------------------
- -----------------------------------
[Address]
<PAGE> 1
EXHIBIT 10.8.1
OPTION AGREEMENT
(A Option)
This Option Agreement ("AGREEMENT"), made and entered into as of
September 30, 1996, is by and between Titan Exploration, Inc., a Delaware
corporation (the "COMPANY"), and [see Schedule I attached hereto] (the
"OPTIONEE").
WITNESSETH:
WHEREAS, in connection with the "Reorganization" (as defined in the
Plan), an Option Plan ("PLAN") was adopted by the Company, effective as of
September 30, 1996 ("PLAN DATE"), for certain officers and management level
employees of Company and its consolidated subsidiaries, in replacement of the
Option Plan previously adopted for such persons by Titan Resources, L.P.
("PARTNERSHIP") as of March 31, 1995;
WHEREAS, the Optionee is eligible to participate in the Plan and the
Company has authorized the grant to Optionee of an option to acquire shares of
Common Stock, par value $.01, of the Company ("SHARES") pursuant to the Plan
and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, Company and Optionee hereby
agree as follows:
1. Certain Definitions. Terms used in this Agreement and not otherwise
defined shall have the respective meanings assigned to such terms in the Plan;
and the following terms shall have the following meanings:
"Companies" means the Company and any of its wholly-owned
subsidiaries.
"Expiration Date" means 6:00 P.M., Midland, Texas time, on March
31, 2001.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Company hereby irrevocably grants to the Optionee the right and
option (the "OPTION") to purchase [see Schedule I attached hereto] Shares,
subject to adjustment in accordance with the provisions of Section 7 of this
Agreement.
3. Option Price. The price to be paid by Optionee to the Company
for each Share purchased pursuant to the exercise of this Option ("OPTION
PRICE") shall be $2.08 per Share; provided, however, that the Option Price
shall be subject to adjustment in accordance with the provisions of Section 7
of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option is vested as to one- third of the total Shares which may
be purchased hereunder (rounded to the
<PAGE> 2
nearest whole share), shall vest with respect to an additional one-third of the
total Shares which may be purchased hereunder (rounded to the nearest whole
share) on March 31, 1997 and shall be fully vested on March 31, 1998. From and
after each date of vesting, Optionee may exercise this Option, subject to the
terms and conditions set forth herein, to purchase all or any portion of the
Shares for which Optionee's rights have vested.
(b) To the extent Optionee does not purchase all or any part of the
Shares at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Shares not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the Companies is terminated on
account of fraud or dishonesty or other acts which the Board has determined are
materially detrimental to the interests of the Company, the Option shall
automatically terminate as of the date of such termination.
(d) If Optionee's employment by the Companies is terminated
voluntarily by Optionee or by action of the Companies for reasons other than as
specified in subsection (c), this Option may be exercised, but only (i) within
three months after such termination (if otherwise prior to the date of
expiration of this Option), and not thereafter, and (ii) to purchase the number
of Shares, if any, that could be purchased upon exercise of this Option at the
date of termination of Optionee's employment. For purposes of this subsection
(d), if this Option shall not have fully vested as of the date of termination
of Optionee's employment, then a ratable portion of the number of Shares which
would have become purchasable upon the next vesting date shall be deemed to
have vested as of the date of such termination (determined by multiplying the
number of Shares that vest on the next vesting date by a fraction with a
numerator equal to the number of full months which have then elapsed since the
last vesting date and a denominator of 12, and rounding to the closest whole
number).
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Shares that were subject to
purchase upon exercise of this Option at the time of such death or disability.
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option to
purchase any Shares for which Optionee's rights have not yet vested in
accordance with Section 4.
(b) No Fractional Shares. The Option may be exercised only with
respect to full Shares.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Shares shall be issued nor certificates representing such
Shares (if any) delivered pursuant to any exercise of the Option, if any
requisite approval or consent of any governmental authority
<PAGE> 3
of any kind having jurisdiction over the exercise of options or the issuance
and sale of Shares shall not have been obtained or if such exercise or issuance
would violate any applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e).
6. Exercise of Option.
(a) Subject to the other terms and provisions of this Agreement, the
Option shall be exercisable by written notice timely given to the Company by
the Optionee (the "EXERCISE NOTICE"), which notice (i) shall state the number
of Shares that the Optionee then desires to purchase, and (ii) shall be
accompanied by payment in full of the Option Price for each of such Shares.
(b) Payment of the Option Price shall be made by the following
methods, or any combination thereof:
(i) by cash;
(ii) by delivery of Optionee's secured promissory note in the
form attached hereto as Attachment I; or
(iii) if the Shares are Publicly Traded at the time of exercise,
by surrender of Shares owned by the Optionee (the "PAYMENT SHARES"), the
aggregate Market Price of which shall be credited against the Option
Price; provided, however, that in lieu of actually tendering the Payment
Shares, the Optionee may make a constructive exchange of such Payment
Shares ("CONSTRUCTIVE EXCHANGE") pursuant to the procedures set forth in
subsection (c) of this Section.
(c) Optionee shall notify the Company in writing of any election to
pay all or a portion of the Option Price using a Constructive Exchange (which
notice may be included in the Exercise Notice). Such notice shall specify the
number of Payment Shares to be used in the Constructive Exchange and shall
include (i) a notarized statement attesting to the number of Payment Shares, if
any, that are held by a registered securities broker for the Optionee in
"street name", and (ii) the certificate numbers for all Shares, if any,
registered in the name of Optionee. Upon receipt of such notice and the
required information referred to in the immediately preceding sentence, the
Company shall confirm ownership of the Payment Shares by reference to Company
records. Upon such confirmation, the Company shall treat the Payment Shares as
being constructively exchanged, and accordingly, the Company shall issue to the
Optionee a net number of Shares equal to (i) the number of Shares subject to
the option exercise for which the Constructive Exchange is being exercised,
less (ii) the number of Payment Shares. The Optionee may elect to exercise
using a Constructive Exchange any number of times in succession, subject to
compliance with the procedures set forth herein.
(d) Unless the Company and Optionee shall make mutually acceptable
alternative arrangements, at the time of exercise of the Option, Optionee shall
pay to the Company any federal, state and local taxes required by law to be
paid or withheld in connection with such
<PAGE> 4
exercise, which payment shall be made in cash or by delivery of Optionee's
secured promissory note in the form attached hereto as Attachment I.
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power 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
issuance of additional Company Securities with priority over Shares or
otherwise affecting Shares or the rights thereof, 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 partnership act or
proceeding.
(b) If (i) the Company merges, consolidates or reconstitutes with or
into any other entity (in a situation in which the Company is not the surviving
entity), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any other person or
entity, or (iii) the Company is to be dissolved and liquidated (each such event
is referred to herein as a "FUNDAMENTAL CHANGE"), the Company shall, at its
sole discretion, either (A) declare any portion of the Option which has not
then vested to be vested, so that the Optionee shall have an opportunity to
exercise the Option prior to the consummation of the Fundamental Change, or (B)
make or cause to be made lawful and adequate provision whereby, upon the due
exercise of the Option after the effective date of such Fundamental Change, the
Optionee shall be entitled to purchase under this Option, in lieu of the number
of Shares as to which this Option shall be exercisable, the number and class of
Shares or other securities or property to which the Optionee would have been
entitled pursuant to the terms of the Fundamental Change if, immediately prior
to any such Fundamental Change, Optionee had been the holder of record of the
number of Shares as to which this Option is exercisable.
(c) If the Company subdivides its outstanding Shares into a greater
number of Shares, the Option Price in effect immediately prior to such
subdivision shall be proportionately reduced, and the number of Shares then
subject to the Option shall be proportionately increased. Conversely, if the
outstanding number of Shares of the Company are combined into a smaller number
of Shares, the Option Price in effect immediately prior to such combination
shall be proportionately increased, and the number of Shares then subject to
the Option shall be proportionately reduced.
8. Termination of Option. Unless terminated earlier pursuant to
Section 4 hereof, this Option shall terminate upon the first to occur of the
(i) the Expiration Date, or (ii) the date on which Optionee purchases, or in
writing surrenders his right to purchase, all Shares or other securities then
subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except by will or by the laws of descent
and distribution. Any attempted transfer of the Option in violation of this
provision shall be void and of no effect whatsoever.
<PAGE> 5
10. Certain Rights Incident to Divorce. If an interest in the Option
is required by law to be transferred to a spouse of Optionee pursuant to an
order of a court in a divorce proceeding (notwithstanding the provisions of
Section 9 hereof), Optionee shall nevertheless retain all rights with respect
to the exercise of the Option and any interest of such spouse shall be subject
to such rights of Optionee. In addition, if it is determined that Optionee
will be required to pay any taxes attributable to the interest of the spouse in
the Option, any tax liability of Optionee which is attributable to such
spouse's interest shall be taken into account, and shall reduce such spouse's
interest in this Option.
11. Rights as a Shareholder. Optionee shall have no rights as a
shareholder of the Company with respect to any Shares covered by the Option
until the exercise of the Option.
12. Additional Documents. The Company and the Optionee will, upon
request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Shares pursuant to this Agreement.
13. Representations, Warranties and Covenants of Optionee.
(a) The Optionee acknowledges that neither the Option nor the Shares
covered thereby have been registered under the Securities Act of 1933 (the
"1933 ACT") or the Texas Securities Act (the "TEXAS ACT") on the grounds that
the issuance of the Option is, and the sale of any Shares pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Shares
upon exercise of the Option, the Company has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and in
any other documents which he may hereafter deliver to the Company.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Company as follows:
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the 1933
Act, the Texas Act and all rules and regulations promulgated under each
of such acts, and will not at any time make any sale, transfer, pledge
or other disposition or encumbrance of any of such securities in the
absence of an effective registration statement for such securities under
the 1933 Act, the Texas Act and any other applicable state securities
laws or an applicable exemption from the registration requirements of
the 1933 Act, the Texas Act any other applicable state securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Shares or other securities purchased under this Option may bear such legend or
legends as the Company deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company
<PAGE> 6
may refuse to register the transfer of the Shares or other securities purchased
under this Option on the transfer records of the Company unless the Company is
provided with an opinion of counsel in form and substance satisfactory to the
Company confirming that such proposed transfer would not constitute a violation
of any applicable securities laws, and (iii) that the Company may give related
instructions to its transfer agent, if any, to stop registration of the
transfer of the Shares or other securities purchased under this Option.
(c) Optionee acknowledges that the value of the Option over its life
will be speculative and uncertain and consequently, the Optionee may ultimately
realize no value from the Option.
14. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
15. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
16. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
17. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
18. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
20. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN EXPLORATION, INC.
500 West Texas By
Suite 500 ----------------------------------
Midland, Texas 79701
[THE OPTIONEE]
[see Schedule I attached hereto]
- ----------------------------------- ------------------------------------
- -----------------------------------
[Address]
<PAGE> 8
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Shares
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower A Option 583,314
Jack D. Hightower A Option 583,314
Separate Property
George G. Staley A Option 686,118
Thomas H. Moore A Option 147,995
Dan P. Colwell A Option 144,125
Rodney C. Woodard A Option 146,886
John L. Benfatti A Option 48,448
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
Susan D. Rowland A Option 48,448
Linda Nicholson A Option 2,760
Carol R. Farmer A Option 2,760
Thomas Tomerlin A Option 5,520
Carol S. Thompson A Option 1,380
Carolyn M. Dean A Option 1,380
Lisa M. Huggins A Option 1,380
Lawrence H. Wagner A Option 2,760
Karen I. LeBus A Option 1,380
Therese A. Cone A Option 1,380
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Ronald L. Lechwar A Option 1,380
</TABLE>
<PAGE> 1
EXHIBIT 10.8.2
OPTION AGREEMENT
(B Option)
This Option Agreement ("AGREEMENT"), made and entered into as of
September 30, 1996, is by and between Titan Exploration, Inc., a Delaware
corporation (the "COMPANY"), and [see Schedule I attached hereto] (the
"OPTIONEE").
WITNESSETH:
WHEREAS, in connection with the "Reorganization" (as defined in the
Plan), an Option Plan ("PLAN") was adopted by the Company, effective as of
September 30, 1996 ("PLAN DATE"), for certain officers and management level
employees of Company and its consolidated subsidiaries, in replacement of the
Option Plan previously adopted for such persons by Titan Resources, L.P.
("PARTNERSHIP") as of March 31, 1995;
WHEREAS, the Optionee is eligible to participate in the Plan and the
Company has authorized the grant to Optionee of an option to acquire shares of
Common Stock, par value $.01, of the Company ("SHARES") pursuant to the Plan
and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, Company and Optionee hereby
agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the respective meanings assigned to such terms in
the Plan; and the following terms shall have the following meanings:
"Companies" means the Company and any of its wholly-owned
subsidiaries.
"Expiration Date" means 6:00 P.M., Midland, Texas time, on March
31, 2001.
"Initial Partnership Buy-In Price" means the initial aggregate
cash contributions made to the Partnership by its limited partners
pursuant to and as required by the first sentence of Article III,
Section 3.1(b) of the Partnership's Agreement of Limited Partnership.
"Liquidating Transaction" means the sale of all partnership
interests in the Partnership, the sale of all of the Shares in the
Company or the sale of substantially all of the assets of the Company or
the Partnership to an unrelated third party in an arms length
transaction with the purchase price payable in cash.
"Realized Equity Value" means, on any date, the cumulative total
of all cash and the fair market value, as determined by the Board, of
all other properties or securities which (i) had been distributed by the
Partnership to its Partners before the Effective Date (excluding any
distributions made or authorized to be made solely for the purposes of
<PAGE> 2
permitting Partners to pay their individual income tax liabilities
resulting from their allocable share of Partnership income), (ii) has
been distributed by the Company to holders of the Shares initially
issued on the Effective Date (the "INITIAL SHARES"), and (ii) has not
yet been distributed to holders of such Initial Shares, but has been
duly authorized, by action of the Board, to be distributed to holders of
the Initial Shares. In addition, at the sole discretion of the Board,
Realized Equity Value may also include an additional amount consisting
of proceeds from a Liquidating Transaction not yet distributed or
authorized for distribution to holders of the Initial Shares or an
amount which the Board determines would be available for distribution to
holders of the Initial Shares if a Liquidating Transaction were assumed
to occur as of such date (regardless of the likelihood of the occurrence
of any such Liquidating Transaction).
"Realized Equity Value Date" means a date on which the Board
shall have made a determination of the Realized Equity Value.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Company hereby irrevocably grants to the Optionee the right and
option (the "OPTION") to purchase [see Schedule I attached hereto] Shares,
subject to adjustment in accordance with the provisions of Section 7 of this
Agreement.
3. Option Price. The price to be paid by Optionee to the Company
for each Share purchased pursuant to the exercise of this Option ("OPTION
PRICE") shall be $2.08 per share; provided, however, that the Option Price
shall be subject to adjustment in accordance with the provisions of Section 7
of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option shall vest on the first Realized Equity Value Date on
which the Realized Equity Value equals or exceeds the Initial Partnership Buy-
In Price multiplied by three. From and after such date of vesting, if any,
Optionee may exercise this Option, subject to the terms and conditions set
forth herein.
(b) To the extent Optionee does not purchase all or any part of the
Shares at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Shares not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the Companies is terminated (i) for
"cause" pursuant to the terms of an employment agreement between Optionee and
any of the Companies which defines termination for "cause" or (ii) if Optionee
is not a party to an agreement described in clause (i), on account of fraud or
dishonesty or other acts which the Board has determined are materially
detrimental to the interests of the Companies, the Option shall automatically
terminate as of the date of such termination.
(d) If Optionee's employment by the Companies is terminated
voluntarily by Optionee or by action of the Companies for reasons other than as
specified in subsection (c), this Option may be exercised, but only (i) within
three months after such termination (if otherwise prior to
<PAGE> 3
the date of expiration of this Option), and not thereafter, and (ii) to
purchase the number of Shares, if any, that could be purchased upon exercise of
this Option at the date of termination of Optionee's employment.
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Shares that were subject to
purchase upon exercise of this Option at the time of such death or disability.
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option to
purchase any Shares for which Optionee's rights have not yet vested in
accordance with Section 4.
(b) No Fractional Shares. The Option may be exercised only with
respect to full Shares.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Shares shall be issued nor certificates representing such
Shares (if any) delivered pursuant to any exercise of the Option, if any
requisite approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options or the issuance and sale of Shares
shall not have been obtained or if such exercise or issuance would violate any
applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e).
6. Exercise of Option.
(a) Subject to the other terms and provisions of this Agreement, the
Option shall be exercisable by written notice timely given to the Company by
the Optionee (the "EXERCISE NOTICE"), which notice (i) shall state the number
of Shares that the Optionee then desires to purchase, and (ii) shall be
accompanied by payment in full of the Option Price for each of such Shares.
(b) Payment of the Option Price shall be made by the following
methods, or any combination thereof:
(i) by cash;
(ii) by delivery of Optionee's secured promissory note in the
form attached hereto as Attachment I; or
(iii) if the Shares are Publicly Traded at the time of exercise,
by surrender of Shares owned by the Optionee (the "PAYMENT SHARES"), the
aggregate Market Price of
<PAGE> 4
which shall be credited against the Option Price; provided, however,
that in lieu of actually tendering the Payment Shares, the Optionee may
make a constructive exchange of such Payment Shares ("CONSTRUCTIVE
EXCHANGE") pursuant to the procedures set forth in subsection (c) of
this Section.
(c) Optionee shall notify the Company in writing of any election to
pay all or a portion of the Option Price using a Constructive Exchange (which
notice may be included in the Exercise Notice). Such notice shall specify the
number of Payment Shares to be used in the Constructive Exchange and shall
include (i) a notarized statement attesting to the number of Payment Shares, if
any, that are held by a registered securities broker for the Optionee in
"street name", and (ii) the certificate numbers for all Shares, if any,
registered in the name of Optionee. Upon receipt of such notice and the
required information referred to in the immediately preceding sentence, the
Company shall confirm ownership of the Payment Shares by reference to Company
records. Upon such confirmation, the Company shall treat the Payment Shares as
being constructively exchanged, and accordingly, the Company shall issue to the
Optionee a net number of Shares equal to (i) the number of Shares subject to
the option exercise for which the Constructive Exchange is being exercised,
less (ii) the number of Payment Shares. The Optionee may elect to exercise
using a Constructive Exchange any number of times in succession, subject to
compliance with the procedures set forth herein.
(d) Unless the Company and Optionee shall make mutually acceptable
alternative arrangements, at the time of exercise of the Option, Optionee shall
pay to the Company any federal, state and local taxes required by law to be
paid or withheld in connection with such exercise, which payment shall be made
in cash or by delivery of Optionee's secured promissory note in the form
attached hereto as Attachment I.
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power 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
issuance of additional Company Securities with priority over Shares or
otherwise affecting Shares or the rights thereof, 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 partnership act or
proceeding.
(b) If (i) the Company merges, consolidates or reconstitutes with or
into any other entity (in a situation in which the Company is not the surviving
entity), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any other person or
entity, or (iii) the Company is to be dissolved and liquidated (each such event
is referred to herein as a "FUNDAMENTAL CHANGE"), the Company shall, at its
sole discretion, either (A) declare any portion of the Option which has not
then vested to be vested, so that the Optionee shall have an opportunity to
exercise the Option prior to the consummation of the Fundamental Change, or (B)
make or cause to be made lawful and adequate provision whereby, upon the due
exercise of the Option after the effective date of such Fundamental Change, the
Optionee shall be entitled to purchase under this Option, in lieu of the number
of Shares as to which this Option shall be exercisable, the number and class of
Shares or other securities or property to which the Optionee would have been
entitled pursuant to the terms of the
<PAGE> 5
Fundamental Change if, immediately prior to any such Fundamental Change,
Optionee had been the holder of record of the number of Shares as to which this
Option is exercisable.
(c) If the Company subdivides its outstanding Shares into a greater
number of Shares, the Option Price in effect immediately prior to such
subdivision shall be proportionately reduced, and the number of Shares then
subject to the Option shall be proportionately increased. Conversely, if the
outstanding number of Shares of the Company are combined into a smaller number
of Shares, the Option Price in effect immediately prior to such combination
shall be proportionately increased, and the number of Shares then subject to
the Option shall be proportionately reduced.
8. Termination of Option. Unless terminated earlier pursuant to
Section 4 hereof, this Option shall terminate upon the first to occur of the
(i) the Expiration Date, or (ii) the date on which Optionee purchases, or in
writing surrenders his right to purchase, all Shares or other securities then
subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except by will or by the laws of descent
and distribution. Any attempted transfer of the Option in violation of this
provision shall be void and of no effect whatsoever.
10. Certain Rights Incident to Divorce. If an interest in the Option
is required by law to be transferred to a spouse of Optionee pursuant to an
order of a court in a divorce proceeding (notwithstanding the provisions of
Section 9 hereof), Optionee shall nevertheless retain all rights with respect
to the exercise of the Option and any interest of such spouse shall be subject
to such rights of Optionee. In addition, if it is determined that Optionee
will be required to pay any taxes attributable to the interest of the spouse in
the Option, any tax liability of Optionee which is attributable to such
spouse's interest shall be taken into account, and shall reduce such spouse's
interest in this Option.
11. Rights as a Shareholder. Optionee shall have no rights as a
shareholder of the Company with respect to any Shares covered by the Option
until the exercise of the Option.
12. Additional Documents. The Company and the Optionee will, upon
request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Shares pursuant to this Agreement.
13. Representations, Warranties and Covenants of Optionee.
(a) The Optionee acknowledges that neither the Option nor the Shares
covered thereby have been registered under the Securities Act of 1933 (the
"1933 ACT") or the Texas Securities Act (the "TEXAS ACT") on the grounds that
the issuance of the Option is, and the sale of any Shares pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Shares
upon exercise of the Option, the Company has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and
<PAGE> 6
in any other documents which he may hereafter deliver to the Company.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Company as follows:
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the 1933
Act, the Texas Act and all rules and regulations promulgated under each
of such acts, and will not at any time make any sale, transfer, pledge
or other disposition or encumbrance of any of such securities in the
absence of an effective registration statement for such securities under
the 1933 Act, the Texas Act and any other applicable state securities
laws or an applicable exemption from the registration requirements of
the 1933 Act, the Texas Act any other applicable state securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Shares or other securities purchased under this Option may bear such legend or
legends as the Company deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the Shares or other securities purchased under this Option on the
transfer records of the Company unless the Company is provided with an opinion
of counsel in form and substance satisfactory to the Company confirming that
such proposed transfer would not constitute a violation of any applicable
securities laws, and (iii) that the Company may give related instructions to
its transfer agent, if any, to stop registration of the transfer of the Shares
or other securities purchased under this Option.
(c) Optionee acknowledges that the value of the Option over its life
will be speculative and uncertain and consequently, the Optionee may ultimately
realize no value from the Option.
14. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
15. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
16. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and
<PAGE> 7
effect; provided, however, that if any such provision may be made enforceable
by limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
17. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
18. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
20. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN EXPLORATION, INC.
500 West Texas By
Suite 500 -----------------------------------
Midland, Texas 79701
[THE OPTIONEE]
[see Schedule I attached hereto]
- ----------------------------------- -------------------------------------
- -----------------------------------
[Address]
<PAGE> 8
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Shares
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower B Option 94,674
Jack D. Hightower B Option 94,674
Separate Property
George G. Staley B Option 111,725
Thomas H. Moore B Option 24,097
Dan P. Colwell B Option 23,691
Rodney C. Woodard B Option 24,241
John L. Benfatti B Option 8,105
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
Susan D. Rowland B Option 1,653
Linda Nicholson B Option 551
Carol R. Farmer B Option 551
Thomas Tomerlin B Option 1,102
Carol S. Thompson B Option 275
Carolyn M. Dean B Option 275
Lisa M. Huggins B Option 275
Lawrence H. Wagner B Option 551
Karen I. LeBus B Option 275
Therese A. Cone B Option 275
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Ronald L. Lechwar B Option 275
</TABLE>
<PAGE> 1
EXHIBIT 10.8.3
OPTION AGREEMENT
(C Option)
This Option Agreement ("AGREEMENT"), made and entered into as of
September 30, 1996, is by and between Titan Exploration, Inc., a Delaware
corporation (the "COMPANY"), and [see Schedule I attached hereto] (the
"OPTIONEE").
WITNESSETH:
WHEREAS, in connection with the "Reorganization" (as defined in the
Plan), an Option Plan ("PLAN") was adopted by the Company, effective as of
September 30, 1996 ("PLAN DATE"), for certain officers and management level
employees of Company and its consolidated subsidiaries, in replacement of the
Option Plan previously adopted for such persons by Titan Resources, L.P.
("PARTNERSHIP") as of March 31, 1995;
WHEREAS, the Optionee is eligible to participate in the Plan and the
Company has authorized the grant to Optionee of an option to acquire shares of
Common Stock, par value $.01, of the Company ("SHARES") pursuant to the Plan
and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, Company and Optionee hereby
agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the respective meanings assigned to such terms in
the Plan; and the following terms shall have the following meanings:
"Companies" means the Company and any of its wholly-owned
subsidiaries.
"Expiration Date" means 6:00 P.M., Midland, Texas time, on March
31, 2001.
"Initial Partnership Buy-In Price" means the initial aggregate
cash contributions made to the Partnership by its limited partners
pursuant to and as required by the first sentence of Article III,
Section 3.1(b) of the Partnership's Agreement of Limited Partnership.
"Liquidating Transaction" means the sale of all partnership
interests in the Partnership, the sale of all of the Shares in the
Company or the sale of substantially all of the assets of the Company or
the Partnership to an unrelated third party in an arms length
transaction with the purchase price payable in cash.
"Realized Equity Value" means, on any date, the cumulative total
of all cash and the fair market value, as determined by the Board, of
all other properties or securities which (i) had been distributed by the
Partnership to its Partners before the Effective Date (excluding any
distributions made or authorized to be made solely for the purposes of
<PAGE> 2
permitting Partners to pay their individual income tax liabilities
resulting from their allocable share of Partnership income), (ii) has
been distributed by the Company to holders of the Shares initially
issued on the Effective Date (the "INITIAL SHARES"), and (ii) has not
yet been distributed to holders of such Initial Shares, but has been
duly authorized, by action of the Board, to be distributed to holders of
the Initial Shares. In addition, at the sole discretion of the Board,
Realized Equity Value may also include an additional amount consisting
of proceeds from a Liquidating Transaction not yet distributed or
authorized for distribution to holders of the Initial Shares or an
amount which the Board determines would be available for distribution to
holders of the Initial Shares if a Liquidating Transaction were assumed
to occur as of such date (regardless of the likelihood of the occurrence
of any such Liquidating Transaction).
"Realized Equity Value Date" means a date on which the Board
shall have made a determination of the Realized Equity Value.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Company hereby irrevocably grants to the Optionee the right and
option (the "OPTION") to purchase [see Schedule I attached hereto] Shares,
subject to adjustment in accordance with the provisions of Section 7 of this
Agreement.
3. Option Price. The price to be paid by Optionee to the Company
for each Share purchased pursuant to the exercise of this Option ("OPTION
PRICE") shall be $2.08 per share; provided, however, that the Option Price
shall be subject to adjustment in accordance with the provisions of Section 7
of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option shall vest on the first Realized Equity Value Date on
which the Realized Equity Value equals or exceeds the Initial Partnership Buy-
In Price multiplied by four. From and after such date of vesting, if any,
Optionee may exercise this Option, subject to the terms and conditions set
forth herein.
(b) To the extent Optionee does not purchase all or any part of the
Shares at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Shares not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the Companies is terminated (i) for
"cause" pursuant to the terms of an employment agreement between Optionee and
any of the Companies which defines termination for "cause" or (ii) if Optionee
is not a party to an agreement described in clause (i), on account of fraud or
dishonesty or other acts which the Board has determined are materially
detrimental to the interests of the Companies, the Option shall automatically
terminate as of the date of such termination.
(d) If Optionee's employment by the Companies is terminated
voluntarily by Optionee or by action of the Companies for reasons other than as
specified in subsection (c), this Option may be exercised, but only (i) within
three months after such termination (if otherwise prior to the date of
expiration of this Option), and not thereafter, and (ii) to purchase the number
of
<PAGE> 3
Shares, if any, that could be purchased upon exercise of this Option at the
date of termination of Optionee's employment.
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Shares that were subject to
purchase upon exercise of this Option at the time of such death or disability.
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option to
purchase any Shares for which Optionee's rights have not yet vested in
accordance with Section 4.
(b) No Fractional Shares. The Option may be exercised only with
respect to full Shares.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Shares shall be issued nor certificates representing such
Shares (if any) delivered pursuant to any exercise of the Option, if any
requisite approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options or the issuance and sale of Shares
shall not have been obtained or if such exercise or issuance would violate any
applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e).
6. Exercise of Option.
(a) Subject to the other terms and provisions of this Agreement, the
Option shall be exercisable by written notice timely given to the Company by
the Optionee (the "EXERCISE NOTICE"), which notice (i) shall state the number
of Shares that the Optionee then desires to purchase, and (ii) shall be
accompanied by payment in full of the Option Price for each of such Shares.
(b) Payment of the Option Price shall be made by the following
methods, or any combination thereof:
(i) by cash;
(ii) by delivery of Optionee's secured promissory note in the
form attached hereto as Attachment I; or
(iii) if the Shares are Publicly Traded at the time of exercise,
by surrender of Shares owned by the Optionee (the "PAYMENT SHARES"), the
aggregate Market Price of which shall be credited against the Option
Price; provided, however, that in lieu of actually tendering the Payment
Shares, the Optionee may make a constructive exchange
<PAGE> 4
of such Payment Shares ("CONSTRUCTIVE EXCHANGE") pursuant to the
procedures set forth in subsection (c) of this Section.
(c) Optionee shall notify the Company in writing of any election to
pay all or a portion of the Option Price using a Constructive Exchange (which
notice may be included in the Exercise Notice). Such notice shall specify the
number of Payment Shares to be used in the Constructive Exchange and shall
include (i) a notarized statement attesting to the number of Payment Shares, if
any, that are held by a registered securities broker for the Optionee in
"street name", and (ii) the certificate numbers for all Shares, if any,
registered in the name of Optionee. Upon receipt of such notice and the
required information referred to in the immediately preceding sentence, the
Company shall confirm ownership of the Payment Shares by reference to Company
records. Upon such confirmation, the Company shall treat the Payment Shares as
being constructively exchanged, and accordingly, the Company shall issue to the
Optionee a net number of Shares equal to (i) the number of Shares subject to
the option exercise for which the Constructive Exchange is being exercised,
less (ii) the number of Payment Shares. The Optionee may elect to exercise
using a Constructive Exchange any number of times in succession, subject to
compliance with the procedures set forth herein.
(d) Unless the Company and Optionee shall make mutually acceptable
alternative arrangements, at the time of exercise of the Option, Optionee shall
pay to the Company any federal, state and local taxes required by law to be
paid or withheld in connection with such exercise, which payment shall be made
in cash or by delivery of Optionee's secured promissory note in the form
attached hereto as Attachment I.
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power 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
issuance of additional Company Securities with priority over Shares or
otherwise affecting Shares or the rights thereof, 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 partnership act or
proceeding.
(b) If (i) the Company merges, consolidates or reconstitutes with or
into any other entity (in a situation in which the Company is not the surviving
entity), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any other person or
entity, or (iii) the Company is to be dissolved and liquidated (each such event
is referred to herein as a "FUNDAMENTAL CHANGE"), the Company shall, at its
sole discretion, either (A) declare any portion of the Option which has not
then vested to be vested, so that the Optionee shall have an opportunity to
exercise the Option prior to the consummation of the Fundamental Change, or (B)
make or cause to be made lawful and adequate provision whereby, upon the due
exercise of the Option after the effective date of such Fundamental Change, the
Optionee shall be entitled to purchase under this Option, in lieu of the number
of Shares as to which this Option shall be exercisable, the number and class of
Shares or other securities or property to which the Optionee would have been
entitled pursuant to the terms of the Fundamental Change if, immediately prior
to any such Fundamental Change, Optionee had been the holder of record of the
number of Shares as to which this Option is exercisable.
<PAGE> 5
(c) If the Company subdivides its outstanding Shares into a greater
number of Shares, the Option Price in effect immediately prior to such
subdivision shall be proportionately reduced, and the number of Shares then
subject to the Option shall be proportionately increased. Conversely, if the
outstanding number of Shares of the Company are combined into a smaller number
of Shares, the Option Price in effect immediately prior to such combination
shall be proportionately increased, and the number of Shares then subject to
the Option shall be proportionately reduced.
8. Termination of Option. Unless terminated earlier pursuant to
Section 4 hereof, this Option shall terminate upon the first to occur of the
(i) the Expiration Date, or (ii) the date on which Optionee purchases, or in
writing surrenders his right to purchase, all Shares or other securities then
subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except by will or by the laws of descent
and distribution. Any attempted transfer of the Option in violation of this
provision shall be void and of no effect whatsoever.
10. Certain Rights Incident to Divorce. If an interest in the Option
is required by law to be transferred to a spouse of Optionee pursuant to an
order of a court in a divorce proceeding (notwithstanding the provisions of
Section 9 hereof), Optionee shall nevertheless retain all rights with respect
to the exercise of the Option and any interest of such spouse shall be subject
to such rights of Optionee. In addition, if it is determined that Optionee
will be required to pay any taxes attributable to the interest of the spouse in
the Option, any tax liability of Optionee which is attributable to such
spouse's interest shall be taken into account, and shall reduce such spouse's
interest in this Option.
11. Rights as a Shareholder. Optionee shall have no rights as a
shareholder of the Company with respect to any Shares covered by the Option
until the exercise of the Option.
12. Additional Documents. The Company and the Optionee will, upon
request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Shares pursuant to this Agreement.
13. Representations, Warranties and Covenants of Optionee.
(a) The Optionee acknowledges that neither the Option nor the Shares
covered thereby have been registered under the Securities Act of 1933 (the
"1933 ACT") or the Texas Securities Act (the "TEXAS ACT") on the grounds that
the issuance of the Option is, and the sale of any Shares pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Shares
upon exercise of the Option, the Company has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and in
any other documents which he may hereafter deliver to the Company.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Company as follows:
<PAGE> 6
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the 1933
Act, the Texas Act and all rules and regulations promulgated under each
of such acts, and will not at any time make any sale, transfer, pledge
or other disposition or encumbrance of any of such securities in the
absence of an effective registration statement for such securities under
the 1933 Act, the Texas Act and any other applicable state securities
laws or an applicable exemption from the registration requirements of
the 1933 Act, the Texas Act any other applicable state securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Shares or other securities purchased under this Option may bear such legend or
legends as the Company deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the Shares or other securities purchased under this Option on the
transfer records of the Company unless the Company is provided with an opinion
of counsel in form and substance satisfactory to the Company confirming that
such proposed transfer would not constitute a violation of any applicable
securities laws, and (iii) that the Company may give related instructions to
its transfer agent, if any, to stop registration of the transfer of the Shares
or other securities purchased under this Option.
(c) Optionee acknowledges that the value of the Option over its life
will be speculative and uncertain and consequently, the Optionee may ultimately
realize no value from the Option.
14. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
15. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
16. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
<PAGE> 7
17. Gender. Words used in this Agreement which refer to Optionee and
denote the male gender shall also be deemed to include the female gender or the
neuter gender when appropriate.
18. Headings. The headings of the various sections and subsections
of this Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE TEXAS PRINCIPLES OF CONFLICTS OF LAW).
20. Counterparts. This Agreement may be signed in counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TITAN EXPLORATION, INC.
500 West Texas By
Suite 500 -----------------------------------
Midland, Texas 79701
[THE OPTIONEE]
[see Schedule I attached hereto]
- ----------------------------------- -------------------------------------
- -----------------------------------
[Address]
<PAGE> 8
SCHEDULE 1
INITIAL OPTIONS GRANTED
<TABLE>
<CAPTION>
Number of Shares
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower C Option 99,348
Jack D. Hightower C Option 99,348
Separate Property
George G. Staley C Option 117,243
Thomas H. Moore C Option 25,287
Dan P. Colwell C Option 24,860
Rodney C. Woodard C Option 25,439
John L. Benfatti C Option 8,506
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
Susan D. Rowland C Option 1,734
Linda Nicholson C Option 578
Carol R. Farmer C Option 578
Thomas Tomerlin C Option 1,157
Carol S. Thompson C Option 289
Carolyn M. Dean C Option 289
Lisa M. Huggins C Option 289
Lawrence H. Wagner C Option 578
Karen I. LeBus C Option 289
Therese A. Cone C Option 289
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Ronald L. Lechwar C Option 289
</TABLE>
<PAGE> 1
EXHIBIT 10.8.4
OPTION AGREEMENT
(D Option)
This Option Agreement ("AGREEMENT"), made and entered into as of
September 30, 1996, is by and between Titan Exploration, Inc., a Delaware
corporation (the "COMPANY"), and [see Schedule I attached hereto] (the
"OPTIONEE").
WITNESSETH:
WHEREAS, in connection with the "Reorganization" (as defined in the
Plan), an Option Plan ("PLAN") was adopted by the Company, effective as of
September 30, 1996 ("PLAN DATE"), for certain officers and management level
employees of Company and its consolidated subsidiaries, in replacement of the
Option Plan previously adopted for such persons by Titan Resources, L.P.
("PARTNERSHIP") as of March 31, 1995;
WHEREAS, the Optionee is eligible to participate in the Plan and the
Company has authorized the grant to Optionee of an option to acquire shares of
Common Stock, par value $.01, of the Company ("SHARES") pursuant to the Plan
and upon the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, Company and Optionee hereby
agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the respective meanings assigned to such terms in
the Plan; and the following terms shall have the following meanings:
"Companies" means the Company and any of its wholly-owned
subsidiaries.
"Expiration Date" means 6:00 P.M., Midland, Texas time, on March
31, 2001.
"Initial Partnership Buy-In Price" means the initial aggregate
cash contributions made to the Partnership by its limited partners
pursuant to and as required by the first sentence of Article III,
Section 3.1(b) of the Partnership's Agreement of Limited Partnership.
"Liquidating Transaction" means the sale of all partnership
interests in the Partnership, the sale of all of the Shares in the
Company or the sale of substantially all of the assets of the Company or
the Partnership to an unrelated third party in an arms length
transaction with the purchase price payable in cash.
"Realized Equity Value" means, on any date, the cumulative total
of all cash and the fair market value, as determined by the Board, of
all other properties or securities which (i) had been distributed by the
Partnership to its Partners before the Effective Date (excluding any
distributions made or authorized to be made solely for the purposes of
<PAGE> 2
permitting Partners to pay their individual income tax liabilities
resulting from their allocable share of Partnership income), (ii) has
been distributed by the Company to holders of the Shares initially
issued on the Effective Date (the "INITIAL SHARES"), and (ii) has not
yet been distributed to holders of such Initial Shares, but has been
duly authorized, by action of the Board, to be distributed to holders of
the Initial Shares. In addition, at the sole discretion of the Board,
Realized Equity Value may also include an additional amount consisting
of proceeds from a Liquidating Transaction not yet distributed or
authorized for distribution to holders of the Initial Shares or an
amount which the Board determines would be available for distribution to
holders of the Initial Shares if a Liquidating Transaction were assumed
to occur as of such date (regardless of the likelihood of the occurrence
of any such Liquidating Transaction).
"Realized Equity Value Date" means a date on which the Board
shall have made a determination of the Realized Equity Value.
2. Grant of Option. Subject to the terms and conditions hereinafter
set forth, the Company hereby irrevocably grants to the Optionee the right and
option (the "Option") to purchase [see Schedule I attached hereto] Shares,
subject to adjustment in accordance with the provisions of Section 7 of this
Agreement.
3. Option Price. The price to be paid by Optionee to the Company
for each Share purchased pursuant to the exercise of this Option ("OPTION
PRICE") shall be $2.08 per share; provided, however, that the Option Price
shall be subject to adjustment in accordance with the provisions of Section 7
of this Agreement.
4. Vesting of Right to Exercise Option.
(a) Except as otherwise provided in this Agreement, the right to
exercise this Option shall vest on the first Realized Equity Value Date on
which the Realized Equity Value equals or exceeds the Initial Partnership Buy-
In Price multiplied by five. From and after such date of vesting, if any,
Optionee may exercise this Option, subject to the terms and conditions set
forth herein.
(b) To the extent Optionee does not purchase all or any part of the
Shares at the times this Option becomes exercisable, the Optionee has the right
cumulatively thereafter to purchase any Shares not so purchased and such right
shall continue until this Option terminates or expires.
(c) If Optionee's employment by the Companies is terminated (i) for
"cause" pursuant to the terms of an employment agreement between Optionee and
any of the Companies which defines termination for "cause" or (ii) if Optionee
is not a party to an agreement described in clause (i), on account of fraud or
dishonesty or other acts which the Board has determined are materially
detrimental to the interests of the Companies, the Option shall automatically
terminate as of the date of such termination.
(d) If Optionee's employment by the Companies is terminated
voluntarily by Optionee or by action of the Companies for reasons other than as
specified in subsection (c), this Option may be exercised, but only (i) within
three months after such termination (if otherwise prior to the date of
expiration of this Option), and not thereafter, and (ii) to purchase the number
of
<PAGE> 3
Shares, if any, that could be purchased upon exercise of this Option at the
date of termination of Optionee's employment.
(e) In the event of Optionee's death or disability, this Option shall
remain outstanding and may be exercised by the person who acquires this Option
by will or the laws of descent and distribution, or by Optionee, as the case
may be, but only (i) within the one year period following the date of death or
disability (if otherwise prior to the date of expiration of this Option), and
not thereafter, and (ii) to purchase the number of Shares that were subject to
purchase upon exercise of this Option at the time of such death or disability.
5. Restrictions on Exercise. The right to exercise the Option shall
be subject to the following restrictions:
(a) Vesting. Optionee shall have no right to exercise this Option to
purchase any Shares for which Optionee's rights have not yet vested in
accordance with Section 4.
(b) No Fractional Shares. The Option may be exercised only with
respect to full Shares.
(c) Compliance with Law. The Option may not be exercised in whole or
in part, and no Shares shall be issued nor certificates representing such
Shares (if any) delivered pursuant to any exercise of the Option, if any
requisite approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options or the issuance and sale of Shares
shall not have been obtained or if such exercise or issuance would violate any
applicable law.
(d) Exercise by Optionee. The Option shall only be exercisable by
the Optionee and by any transferee who has received such Option pursuant to
Section 4(e).
6. Exercise of Option.
(a) Subject to the other terms and provisions of this Agreement, the
Option shall be exercisable by written notice timely given to the Company by
the Optionee (the "EXERCISE NOTICE"), which notice (i) shall state the number
of Shares that the Optionee then desires to purchase, and (ii) shall be
accompanied by payment in full of the Option Price for each of such Shares.
(b) Payment of the Option Price shall be made by the following
methods, or any combination thereof:
(i) by cash;
(ii) by delivery of Optionee's secured promissory note in the
form attached hereto as Attachment I; or
(iii) if the Shares are Publicly Traded at the time of exercise,
by surrender of Shares owned by the Optionee (the "PAYMENT SHARES"), the
aggregate Market Price of which shall be credited against the Option
Price; provided, however, that in lieu of actually tendering the Payment
Shares, the Optionee may make a constructive exchange
<PAGE> 4
of such Payment Shares ("CONSTRUCTIVE EXCHANGE") pursuant to the
procedures set forth in subsection (c) of this Section.
(c) Optionee shall notify the Company in writing of any election to
pay all or a portion of the Option Price using a Constructive Exchange (which
notice may be included in the Exercise Notice). Such notice shall specify the
number of Payment Shares to be used in the Constructive Exchange and shall
include (i) a notarized statement attesting to the number of Payment Shares, if
any, that are held by a registered securities broker for the Optionee in
"street name", and (ii) the certificate numbers for all Shares, if any,
registered in the name of Optionee. Upon receipt of such notice and the
required information referred to in the immediately preceding sentence, the
Company shall confirm ownership of the Payment Shares by reference to Company
records. Upon such confirmation, the Company shall treat the Payment Shares as
being constructively exchanged, and accordingly, the Company shall issue to the
Optionee a net number of Shares equal to (i) the number of Shares subject to
the option exercise for which the Constructive Exchange is being exercised,
less (ii) the number of Payment Shares. The Optionee may elect to exercise
using a Constructive Exchange any number of times in succession, subject to
compliance with the procedures set forth herein.
(d) Unless the Company and Optionee shall make mutually acceptable
alternative arrangements, at the time of exercise of the Option, Optionee shall
pay to the Company any federal, state and local taxes required by law to be
paid or withheld in connection with such exercise, which payment shall be made
in cash or by delivery of Optionee's secured promissory note in the form
attached hereto as Attachment I.
7. Recapitalization or Reorganization; Adjustments.
(a) The existence of this Option shall not affect in any way the
right or power 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
issuance of additional Company Securities with priority over Shares or
otherwise affecting Shares or the rights thereof, 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 partnership act or
proceeding.
(b) If (i) the Company merges, consolidates or reconstitutes with or
into any other entity (in a situation in which the Company is not the surviving
entity), (ii) the Company sells, leases or exchanges or agrees to sell, lease
or exchange all or substantially all of its assets to any other person or
entity, or (iii) the Company is to be dissolved and liquidated (each such event
is referred to herein as a "FUNDAMENTAL CHANGE"), the Company shall, at its
sole discretion, either (A) declare any portion of the Option which has not
then vested to be vested, so that the Optionee shall have an opportunity to
exercise the Option prior to the consummation of the Fundamental Change, or (B)
make or cause to be made lawful and adequate provision whereby, upon the due
exercise of the Option after the effective date of such Fundamental Change, the
Optionee shall be entitled to purchase under this Option, in lieu of the number
of Shares as to which this Option shall be exercisable, the number and class of
Shares or other securities or property to which the Optionee would have been
entitled pursuant to the terms of the Fundamental Change if, immediately prior
to any such Fundamental Change, Optionee had been the holder of record of the
number of Shares as to which this Option is exercisable.
<PAGE> 5
(c) If the Company subdivides its outstanding Shares into a greater
number of Shares, the Option Price in effect immediately prior to such
subdivision shall be proportionately reduced, and the number of Shares then
subject to the Option shall be proportionately increased. Conversely, if the
outstanding number of Shares of the Company are combined into a smaller number
of Shares, the Option Price in effect immediately prior to such combination
shall be proportionately increased, and the number of Shares then subject to
the Option shall be proportionately reduced.
8. Termination of Option. Unless terminated earlier pursuant to
Section 4 hereof, this Option shall terminate upon the first to occur of the
(i) the Expiration Date, or (ii) the date on which Optionee purchases, or in
writing surrenders his right to purchase, all Shares or other securities then
subject to the Option.
9. Restriction on Transfer of Option. The Option may not be sold,
assigned, hypothecated or transferred, except by will or by the laws of descent
and distribution. Any attempted transfer of the Option in violation of this
provision shall be void and of no effect whatsoever.
10. Certain Rights Incident to Divorce. If an interest in the Option
is required by law to be transferred to a spouse of Optionee pursuant to an
order of a court in a divorce proceeding (notwithstanding the provisions of
Section 9 hereof), Optionee shall nevertheless retain all rights with respect
to the exercise of the Option and any interest of such spouse shall be subject
to such rights of Optionee. In addition, if it is determined that Optionee
will be required to pay any taxes attributable to the interest of the spouse in
the Option, any tax liability of Optionee which is attributable to such
spouse's interest shall be taken into account, and shall reduce such spouse's
interest in this Option.
11. Rights as a Shareholder. Optionee shall have no rights as a
shareholder of the Company with respect to any Shares covered by the Option
until the exercise of the Option.
12. Additional Documents. The Company and the Optionee will, upon
request of the other party, promptly execute and deliver all additional
documents, and take all such further action, reasonably deemed by such party to
be necessary, appropriate or desirable to complete and evidence the sale,
assignment and transfer of the Shares pursuant to this Agreement.
13. Representations, Warranties and Covenants of Optionee.
(a) The Optionee acknowledges that neither the Option nor the Shares
covered thereby have been registered under the Securities Act of 1933 (the
"1933 ACT") or the Texas Securities Act (the "TEXAS ACT") on the grounds that
the issuance of the Option is, and the sale of any Shares pursuant to the
exercise of the Option will be, exempt from registration under one or more
provisions of each of such acts. The Optionee further understands that in
determining the availability and applicability of such exemptions and in
executing and delivering this Agreement and issuing and delivering any Shares
upon exercise of the Option, the Company has relied and will rely upon the
representations, warranties and covenants made by the Optionee herein and in
any other documents which he may hereafter deliver to the Company.
Accordingly, the Optionee represents and warrants to and covenants and agrees
with the Company as follows:
<PAGE> 6
(i) the Optionee is acquiring and will hold the Option, and
will acquire and hold all securities which he acquires upon exercise of
the Option, for his own account for investment and not with a view to
any sale or distribution of all or any part thereof; and
(ii) the Optionee will hold all securities acquired by him upon
exercise of the Option, as well as any and all other securities issued
in respect thereof, subject to all applicable provisions of the 1933
Act, the Texas Act and all rules and regulations promulgated under each
of such acts, and will not at any time make any sale, transfer, pledge
or other disposition or encumbrance of any of such securities in the
absence of an effective registration statement for such securities under
the 1933 Act, the Texas Act and any other applicable state securities
laws or an applicable exemption from the registration requirements of
the 1933 Act, the Texas Act any other applicable state securities laws.
(b) The Optionee agrees (i) that the certificates representing the
Shares or other securities purchased under this Option may bear such legend or
legends as the Company deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the Shares or other securities purchased under this Option on the
transfer records of the Company unless the Company is provided with an opinion
of counsel in form and substance satisfactory to the Company confirming that
such proposed transfer would not constitute a violation of any applicable
securities laws, and (iii) that the Company may give related instructions to
its transfer agent, if any, to stop registration of the transfer of the Shares
or other securities purchased under this Option.
(c) Optionee acknowledges that the value of the Option over its life
will be speculative and uncertain and consequently, the Optionee may ultimately
realize no value from the Option.
14. Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given on the earlier of
the date of receipt by the party to whom the notice is given or five (5) days
after being mailed by certified or registered United States mail, postage
prepaid, addressed to the appropriate party at the address shown beside such
party's signature below or at such other address as such party shall have
theretofore designated by written notice given to the other party.
15. Entirety and Modification. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements, whether written or oral, between
such parties relating to such subject matter. No modification, alteration,
amendment or supplement to this Agreement shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought to be
enforced.
16. Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible, and such provision
shall be deemed inoperative to the extent it is unenforceable, nd in all other
respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by applicable law.
<PAGE> 7
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Shares
Name Option Type Subject to Option
- ---- ----------- -----------------
<S> <C> <C>
Jack D. Hightower D Option 100,461
Jack D. Hightower D Option 100,461
Separate Property
George G. Staley D Option 117,085
Thomas H. Moore D Option 25,262
Dan P. Colwell D Option 23,943
Rodney C. Woodard D Option 24,115
John L. Benfatti D Option 33,746
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Susan D. Rowland D Option 517
Linda Nicholson D Option 172
Carol R. Farmer D Option 172
Thomas Tomerlin D Option 345
Carol S. Thompson D Option 86
Carolyn M. Dean D Option 86
Lisa M. Huggins D Option 86
Lawrence H. Wagner D Option 172
Karen I. LeBus D Option 86
Therese A. Cone D Option 86
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
Ronald L. Lechwar D Option 86
</TABLE>
<PAGE> 1
EXHIBIT 10.10
================================================================================
STOCK AND UNIT PURCHASE AGREEMENT
by and among
JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP
and
TITAN RESOURCES I, INC.
AND
TITAN RESOURCES, L.P.
December 11, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Concurrent Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Representations and Warranties of Titan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Authorization and Validity of Agreement and Related Documents . . . . . . . . . . . . . . . . . . . . 9
4.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 No Amendments to Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Status of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.9 Permits and Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.11 Environmental Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.12 Production Balances and Penalties; Other Production Sales Matters . . . . . . . . . . . . . . . . . 13
4.13 Well Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.14 Current Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.15 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.16 Production Burdens, Taxes, Expenses and Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.17 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.18 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.19 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.20 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.22 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.23 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.24 Reserve Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.25 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. Representations and Warranties of JEDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.4 Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.5 Acknowledgment of Risks; Availability of Information;
Independent Engineering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Amendment of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 ERISA Status of JEDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Claim Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Entire Agreement; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.7 Binding Effect and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.9 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 Singular and Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
<PAGE> 4
SCHEDULES
Schedule 1.1 Oil and Gas Properties
Schedule 4.2 Capitalization
Schedule 4.4 Consents and Approvals; No Violations
Schedule 4.6 Properties of the General Partner
Schedule 4.7 Contracts
Schedule 4.11.1 Environmental Laws and Regulations
Schedule 4.11.2 Environmental Assessment Reports
Schedule 4.12 Production Balances and Penalties; Other Production
Sales Matters
Schedule 4.14 Current Commitments
Schedule 4.19 Other Liabilities
EXHIBITS
--------
Exhibit A Amendment No. 1 to Agreement of Limited Partnership
Exhibit B First Amendment to Bylaws
Exhibit C Amended and Restated Voting and Shareholders Agreement
Exhibit D Amendment No. 1 to Registration Rights Agreement
Exhibit E Designation Agreement
Exhibit F Agreement Re: Conversion Event
Exhibit G Advisory Services Contract
Exhibit H Officer's Certificate of Titan Resources I, Inc.
Exhibit I Opinion of Thompson & Knight
iii
<PAGE> 5
STOCK AND UNIT PURCHASE AGREEMENT
This Stock and Unit Purchase Agreement (the "Agreement"), dated as of
December 11, 1995, is made and entered into by and among Joint Energy
Development Investments Limited Partnership, a Delaware limited partnership
("JEDI"), Titan Resources, L.P., a Texas limited partnership (the
"Partnership"), and Titan Resources I, Inc., a Texas corporation and the sole
general partner of the Partnership (the "General Partner"). The Partnership
and the General Partner are referred to herein together as "Titan."
W I T N E S S E T H:
WHEREAS, JEDI desires to purchase shares of common stock, par value $0.01
per share (the "Common Stock"), of the General Partner and limited partnership
units of the Partnership (the "Units") on the terms and subject to the
conditions set forth herein;
NOW THEREFORE, for and in consideration of the mutual covenants contained
herein and for such other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. As used in this Agreement, the following
terms have the meanings set forth below:
"Affiliate": as to any Person, any other Person that directly or
indirectly controls or manages, is controlled or managed by or is under common
control or management with the party. As used in the preceding sentence,
control includes control of the management and policies of another Person,
whether through the ownership of voting securities, partnership interests, by
contract or otherwise; and without limiting the foregoing, it shall be deemed
that the ownership of more than 50% of the voting securities, partnership
interests or percentage interest of another Person shall be deemed to meet such
control test.
"Agreement": as defined in the introduction hereto.
"Acquisition": the Partnership's acquisition of certain West Texas and New
Mexico oil and gas properties being sold by Anadarko Petroleum Corp. and
contemporaneously therewith the Partnership's entering into the Credit
Agreement.
"Anadarko Agreement": the Purchase and Sale Agreement between Titan and
Anadarko Petroleum Corp. pertaining to the Acquisition, as in effect on the
date hereof.
<PAGE> 6
"Casualty Loss": any destruction by fire, blowout, storm or other casualty
or any taking, or pending or threatened taking, in condemnation or
expropriation or under the right of eminent domain of any properties or portion
thereof.
"Code": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"Common Stock": as defined in the preamble hereto.
"Contract": any enforceable contract, agreement or instrument, including,
without limitation, supply contracts, customer agreements, any mortgages,
leases of personal property, deeds of trust, notes or guarantees, pledges,
liens, or conditional sales agreements to which the Person referred to is a
party or by which any of its assets may be bound, but excluding Leases and
Employee Benefit Plans.
"Credit Agreement": that certain Credit Agreement entered into between the
Partnership and Texas Commerce Bank National Association as of December __,
1995, providing for at least $43.5 million in debt financing to the Partnership
($35 million in the event Anadarko elects to sell certain properties to third
parties).
"Defensible Title": such title as (i) will enable the Partnership to
receive from each well listed on Schedule 1.1 the "Net Revenue Interest" for
such wells identified on Schedule 1.1, without reduction, suspension or
termination throughout the productive life of such well, except as expressly
set forth on Schedule 1.1; (ii) will obligate the Partnership to bear no
greater working interest than the "Working Interest" for each of the wells
identified on Schedule 1.1 as being associated with a particular Oil and Gas
Property, without increase throughout the productive life of such well, except
as expressly set forth on Schedule 1.1; and (iii) is free and clear of all
Encumbrances, except for Permitted Encumbrances.
"ECT Securities": ECT Securities Corp., a Delaware corporation.
"Employee Benefit Plans": any employee benefit plans, policies, programs
and arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
General Partner or the Partnership.
"Employment Agreement": the Employment Agreement dated as of March 31,
1995, among Hightower, the General Partner and the Partnership.
2
<PAGE> 7
"Encumbrances": liens, security interests, pledges, proxies, shareholder
agreements, voting agreements or trusts, options, rights of first refusal,
easements, mortgages, deeds of trust, rights-of-way, restrictions,
encroachments, licenses, or any other encumbrances, claims and other
restrictions or limitations on the use or ownership of real or personal
property.
"Environmental Claim": any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such Environmental Law
(cumulatively and for purposes of this definition, "Environmental Claims"),
including without limitation (i) any and all Environmental Claims by
governmental authorities for enforcement, cleanup, removal, remedial or other
actions or damages pursuant to any applicable Environmental Law, and (ii) any
and all Environmental Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief relating to
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law": any federal, state or local statute, law, rule,
regulation, ordinance, code, permit, policy or rule of common law and in each
case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. Section 9601 et seq.; the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Section 5101 et seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et
seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the
Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42
U.S.C. Section 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section
2701 et seq.; and relevant state and local laws.
"Environmental Liabilities": any and all Liabilities arising from, based
upon, associated with or related to (i) any Environmental Claim, (ii) any
Environmental Law or (iii) the presence, handling, management, storage,
transportation, processing, treatment, disposal, release, threatened release,
migration or escape of Hazardous Materials, (including, without limitation, all
costs arising under any theory of recovery, in law or at equity), whether based
on negligence, strict liability, or otherwise, including, without limitation,
remediation, removal, response, restoration, abatement, investigative,
monitoring, personal injury, and property damage costs and all other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations
(including interest paid or accrued, attorneys' fees, and court costs).
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to
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ERISA are to ERISA as in effect at the date of this Agreement and any
subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
"Exchange Act": the Securities Exchange Act of 1934, as amended, or any
successor federal statute and the rules and regulations promulgated thereunder.
"Financial Advisory Services Contract": the Financial Advisory Services
Contract dated as of March 31, 1995, between the Partnership and NGP, as
amended on the date hereof.
"First Union": First Union Capital Corporation.
"First Union Purchase Agreement" that certain Stock and Unit Purchase
Agreement between First Union, the Partnership and the General Partner, a true
and complete copy of which has been supplied to JEDI.
"General Partner": as defined in the introduction hereto.
"Hazardous Materials": any chemicals, materials or substances defined as
or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants,"
"regulated substances" or words of similar import under any applicable
Environmental Law, including but not limited to any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, radon gas and urea formaldehyde foam insulation, transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls.
"Hedge Agreements": as defined in Section 4.7.4.
"Hightower": Jack D. Hightower.
"Intellectual Property": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade
names and logos, registered and unregistered copyrights, computer programs,
data bases, trade secrets, methods, designs, processes, procedures, proprietary
information and any other intangible property used in or associated with the
conduct of Titan's business and the ownership of the assets of Titan, including
all of Titan's rights to any such property which is owned by and licensed from
others.
"Interim Balance Sheet": as defined in Section 4.17.
"JEDI": as defined in the introduction hereto.
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"Liabilities": any and all direct or indirect demands, claims, notices of
violation, filings, investigations, administrative proceedings, causes of
action, suits, other legal proceedings, payments, charges, judgments,
assessments, liabilities, damages, deficiencies, penalties, fines, obligations,
responsibilities, costs and expenses paid or incurred, or diminutions in value
of any kind or character (whether or not asserted prior to the date hereof, and
whether known or unknown, fixed or unfixed, conditional or unconditional, based
on negligence, strict liability or otherwise, choate or inchoate, liquidated or
unliquidated, accrued, absolute, contingent or otherwise), including, without
limitation, (i) penalties and interest on any amount payable to a third party
as a result of the foregoing, (ii) any legal or other expenses reasonably
incurred in connection with investigating or defending any claim, demand or
legal proceeding, whether or not resulting in any liability, and (iii) all
amounts paid in settlement of claims, demands, or legal proceedings.
"Limited Partnership Agreement": the Agreement of Limited Partnership of
the Partnership dated as of March 31, 1995, as amended on the date hereof.
"Material Adverse Effect": any event or occurrence which could reasonably
be expected to result in a liability to Titan of more than $1,000,000 or would
substantially interfere with the ability of Titan to conduct its business.
"Material Contract": any Contract which requires special authorization by
the General Partners Board of Directors pursuant to Article Four of the General
Partner's bylaws.
"NGP": Natural Gas Partners, L.P., a Delaware limited partnership, and
Natural Gas Partners II, L.P., a Delaware limited partnership.
"Non-Compete Agreements": those certain Confidentiality and Non-Compete
Agreements, each dated March 31, 1995, by and between the Partnership, the
General Partner and one of the following individuals: Messrs. Benfatti,
Colwell, Moore, Staley and Woodard..
"Oil and Gas Property": all rights, titles, interests and estates in and
to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, licenses, concessions, farmout
rights, royalty, overriding royalty or other non-working or carried interests,
operating rights, net profit and production payment interests, any reserved or
residual interest of whatever nature and any other mineral rights of every
nature and any rights that arise by operation of law or otherwise.
"Option Plan": the Option Plan of the Partnership effective as of March
31, 1995.
"Options": any options issued or to be issued under the Option Plan.
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"Partnership": as defined in the introduction hereto.
"Permitted Encumbrances": (i) lessors' royalties, overriding royalties,
division orders, reversionary interests, and similar burdens that do not
operate to reduce the net revenue interest of the Partnership in any of the
Oil and Gas Properties to less than the amount set forth therefor on Schedule
1.1, (ii) the Contracts insofar as they do not operate to increase the working
interest of the Partnership set forth on Schedule 1.1 for any of the Oil and
Gas Properties or decrease the net revenue interest of the Partnership set
forth on Schedule 1.1 for any of the Oil and Gas Properties; (iii) liens for
taxes, assessments or other governmental charges or levies not yet due; (iv)
operators', vendors', repairmen's, mechanics', workmen's, materialmen's,or
other like liens arising by operation of law in the ordinary course of business
or incident to the exploration, development, operation and maintenance of Oil
and Gas Properties in respect of obligations which are not yet due and payable
or are being contested in good faith, for which reserves or other provisions,
if appropriate, have been made and reflected in the Interim Balance Sheet; (v)
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations, and minor defects, irregularities and deficiencies in title
which individually or in the aggregate will not have a Material Adverse Effect;
and (vi) any Encumbrances securing the indebtedness incurred pursuant to the
terms of the Credit Agreement.
"Permits": any license, permit, franchise, consent, approval,
certification or authority granted by any Person.
"Person": any individual, partnership, joint venture, corporation, trust,
unincorporated organization, government or other department or agency thereof
or any other legally recognized entity.
"Purchase Price": as defined in Section 2 hereof.
"Registration Rights Agreement": the Registration Rights Agreement,
dated as of March 31, 1995, among Hightower and NGP, as amended on the date
hereof.
"Related Documents": the documents and instruments delivered concurrently
with this Agreement to the extent the referenced party is a party thereto,
including, without limitation, the documents and instruments set forth in
Section 3 hereof.
"Securities": as defined in Section 2 hereof.
"Shareholders Agreement": the Voting and Shareholders Agreement dated as
of March 31, 1995 among the General Partner, Hightower and NGP, as amended on
the date hereof.
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"Substances": all severed crude oil, natural gas, casinghead gas, drip
gasoline, natural gasoline, petroleum, natural gas liquids, condensate,
products, liquids and other hydrocarbons and other minerals or materials of
every kind and description produced from the Oil and Gas Properties.
"Tax": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, ad valorem, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
"Titan": as defined in the introduction hereto.
"Units": as defined in the preamble hereto.
Other terms may be defined elsewhere in the text of this Agreement. The words
"hereof," "herein" and "hereunder," and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not any particular
provision of this Agreement. The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa. The terms defined
in the neuter or masculine gender shall include the feminine, neuter and
masculine genders, unless the context clearly indicates otherwise. Reference
to the "best knowledge" of a Person or words of similar import shall mean the
actual or constructive best knowledge of such Person after reasonable due
diligence by such Person as to the facts and circumstances addressed.
2. Purchase and Sale of Securities. On the date hereof JEDI shall
purchase and the Partnership and the General Partner, as applicable, shall sell
(i) 5,135 shares of Common Stock and 5,083,650 Units (together the
"Securities") for an aggregate purchase price of $10 million (the "Purchase
Price"), allocated as follows: $9.9 million to the Units and $100,000 to the
Common Stock.
3. Concurrent Actions. Concurrently with the execution of this
Agreement, the following actions have taken place:
3.1 JEDI has delivered $10 million by wire transfer to the
General Partner, of which $9.9 million shall be for the purchase of the Units
and $100,000 shall be for the purchase of the Common Stock, and
contemporaneously therewith the General Partner shall deliver to JEDI
certificates representing the 5,135 shares of Common Stock;
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3.2 The Partnership, the General Partner and the requisite
number of partners of the Partnership have entered into an amendment of the
Limited Partnership Agreement, including an amendment to Schedule 1 thereof to
evidence JEDI's purchase of the Units issued in accordance herewith in the form
attached as Exhibit A;
3.3 JEDI has executed a signature page to the Limited
Partnership Agreement and any other adoption agreements to other documents to
which it is intended to be a party in connection with this Agreement;
3.4 JEDI has received evidence of adoption of amendments to
the Bylaws of the General Partner by the Board of Directors and, if applicable,
the shareholders of the General Partner in the form attached as Exhibit B;
3.5 JEDI, Hightower, NGP (and First Union, if applicable)
have entered into an amendment and restatement of the Voting and Shareholders
Agreement in the form attached as Exhibit C;
3.6 JEDI, Hightower, NGP (and First Union, if applicable)
have entered into an amendment to the Registration Rights Agreement in the form
attached as Exhibit D;
3.7 The General Partner has delivered to JEDI evidence of the
consent of (i) the limited partners of the Partnership in accordance with the
terms of the Limited Partnership Agreement to the waiver of the preemptive
rights of the limited partners under Section 3.2 of the Limited Partnership
Agreement and (ii) the shareholders of the General Partner in accordance with
the terms of the Articles of Incorporation to the waiver of the preemptive
rights of the shareholders under Article 11 of the Articles of Incorporation;
3.8 The Partnership, the General Partner and JEDI have
entered into a Designation Agreement in the form attached as Exhibit E;
3.9 The General Partner, Hightower, NGP, JEDI and First Union
have entered into an Agreement Re: Conversion Event in the form attached as
Exhibit F;
3.10 The Partnership and ECT Securities have entered into a
Advisory Services Contract in the form attached as Exhibit G;
3.11 The General Partner has delivered to JEDI a certificate
of its president and secretary in the form attached as Exhibit H; and
3.12 Thompson & Knight, counsel to Titan, has delivered to
JEDI its legal opinion in the form attached as Exhibit I.
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4. Representations and Warranties of Titan. The General Partner and
the Partnership hereby represent and warrant, jointly and severally, to JEDI
as follows, as of the date hereof, but it is expressly agreed by the parties
hereto that each representation and warranty set forth in this Section 4 is
made prior to and does not include or cover any of the assets and properties to
be acquired in the Acquisition (it being acknowledged that the representation
contained in Section 4.24 is being made notwithstanding such exclusion and the
representation in such section refers to the Company Reserve Report used by
Titan in connection with its evaluation of such assets and properties, but is
not a representation as to such assets and properties):
4.1 Organization and Qualification.
4.1.1 The Partnership is a limited partnership duly
organized, validly existing and in good standing under the laws of the
State of Texas and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and the Related
Documents and to consummate the transactions contemplated thereby. The
Partnership is duly qualified to do business and is in good standing as a
foreign limited partnership in each jurisdiction where the nature of the
properties owned or the business transacted by the Partnership requires it
to be so qualified, the failure of which would have a Material Adverse
Effect.
4.1.2 The General Partner is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and Related
Documents and to consummate the transactions contemplated thereby. The
General Partner is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction where the nature of the
properties owned or the business transacted by the General Partner
requires it to be so qualified, the failure of which would have a Material
Adverse Effect.
4.2 Capitalization.
4.2.1 The entire authorized capital stock of the
General Partner consists of 100,000 shares of Common Stock of which 20,540
shares, other than the 5,135 shares of Common Stock to be issued to JEDI
hereunder and the 2,567.5 shares of Common Stock to be issued to First
Union pursuant to the First Union Purchase Agreement, are issued and
outstanding, fully paid and nonassessable and held beneficially and of
record by the shareholders as set forth on Schedule 4.2. There are no
shares of Common Stock reserved for issuance.
4.2.2 Schedule 1 to the Limited Partnership Agreement
and Schedule 1 to the Option Plan lists all of the issued and outstanding
Units and Options, respectively, other
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than the 5,083,650 Units to be issued to JEDI hereunder and the 2,541,825
Units to be issued to First Union pursuant to the First Union Purchase
Agreement, all of which are fully paid and nonassessable and held
beneficially and of record by the partners or option holders, as
applicable, set forth therein. Other than Units reserved for issuance
upon exercise of the Options, there are no Units reserved for issuance.
4.2.3 Upon issuance, the Securities will be validly
issued, fully paid and non-assessable. Other than the Options or as set
forth in the Limited Partnership Agreement or the Shareholders Agreement,
there are no outstanding subscriptions, options, convertible securities,
indebtedness convertible into equity securities, warrants, calls or rights
of any kind (issued, contracted for, granted by, or binding upon the
General Partner or the Partnership) to purchase or otherwise acquire any
security of or equity interest in the General Partner or the Partnership.
Other than the Registration Rights Agreement, there are no outstanding
registration rights relating to the capital stock of the General Partner
or interests in the Partnership. All capital stock of the General Partner
and partnership interests in the Partnership have been issued in
compliance with exemptions from the registration requirements of federal
and state securities laws, as applicable. Except as set forth in the
Limited Partnership Agreement or the Shareholders Agreement, neither the
General Partner nor the Partnership has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Neither the General Partner
(except with respect to the Partnership) nor the Partnership has any
Subsidiaries.
4.3 Authorization and Validity of Agreement and Related
Documents. The General Partner has full corporate power and authority and the
Partnership had full power and authority to execute and deliver this Agreement
and the Related Documents, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution, delivery and
performance of this Agreement and the Related Documents by Titan and the
consummation of the transactions contemplated thereby, have been duly
authorized and approved by the Board of Directors of the General Partner and no
other action on the part of Titan is necessary to authorize the execution,
delivery and performance of this Agreement or the Related Documents by Titan
and the consummation of the transactions contemplated thereby. This Agreement
and the Related Documents have been duly executed and delivered by Titan and
are valid and binding obligations of Titan enforceable against Titan in
accordance with their respective terms, except to the extent that such
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
4.4 Consents and Approvals; No Violations. The execution,
delivery and performance of this Agreement and the Related Documents by Titan
and the consummation by Titan of the transactions contemplated thereby will
not, with or without the giving of notice or
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the lapse of time or both: (i) violate, conflict with, or result in a breach
or default under any provision of the charter or bylaws of the General Partner
or the Limited Partnership Agreement; (ii) violate any statute, ordinance,
rule, regulation, order, judgment or decree of any court or of any governmental
or regulatory body, agency or authority applicable to Titan or by which any of
its properties or assets may be bound; (iii) require any filing by or with, or
require Titan to obtain any Permit from, or require Titan to give any notice
to, any governmental or regulatory body, agency or authority other than as set
forth on Schedule 4.4 attached hereto; or (iv) other than as set forth on
Schedule 4.4 attached hereto, result in a violation or breach by Titan of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default by Titan (or give rise to any right of termination, cancellation,
payment or acceleration) under or result in the creation of any Encumbrance
other than a Permitted Encumbrance upon any of the properties or assets of
Titan under any of the terms, conditions, or provisions of any Permit,
Contract, Lease or other instrument or obligation to which Titan is a party, or
by which it or any of its properties or assets may be bound.
4.5 No Amendments to Governing Documents. The Articles of
Incorporation of the General Partner have not been amended since their filing
with the Secretary of State of Texas on March 30, 1995 and, other than in
connection with this Agreement, the Bylaws of the General Partner have not been
amended since their initial adoption by the Board of Directors on March 30,
1995. Other than in connection with this Agreement, the Limited Partnership
Agreement, including Schedule 1 thereto, has not been amended since its
execution as of March 31, 1995. The Option Plan, including Schedule 1 thereto,
has not been amended since its effective date.
4.6 Title to Properties. The Partnership has Defensible
Title to its Oil and Gas Properties. The Partnership has title to all of its
real and personal property other than the Oil and Gas Properties free of all
Encumbrances other than the Permitted Encumbrances. Schedule 4.6 sets forth a
complete description of all real and personal property owned by the General
Partner and having a value in excess of $100,000. The General Partner has
title to all of its real and personal property free of all Encumbrances other
than the Permitted Encumbrances. Schedule 1.1 contains a complete and
accurate list of the status of any "payout" balance, as of the dates shown in
Schedule 1.1, for each well that is subject to a reversion or other adjustment
at some level of cost recovery or payout.
4.7 Contracts. Except as set forth in Schedule 4.7, Titan is
not a party to or otherwise bound by:
4.7.1 other than the Employment Agreement, any
Contract for the employment of any officer, employee or other person (whether
of a legally binding nature or in the nature of informal understandings) on a
full- time or consulting basis which is not terminable
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on notice without cost or other liability to Titan, except normal severance
arrangements and accrued vacation pay;
4.7.2 other than the Option Plan, any bonus, pension,
profit-sharing, retirement, hospitalization, insurance, stock purchase, stock
option or other plan, contract or understanding pursuant to which benefits are
provided to any employee of Titan (other than group insurance plans applicable
to employees generally);
4.7.3 other than the Credit Agreement and the
instruments executed in connection therewith and any capital lease of assets
not exceeding a total cost to Titan in excess of $25,000, any Contract relating
to the borrowing of money or to the mortgaging or pledging of, or otherwise
placing a lien or security interest on, any asset of Titan; or any guaranty of
any obligation for borrowed money or otherwise;
4.7.4 other than the Anadarko Agreement, the Credit
Agreement, any Contracts relating to hedges and commodity swaps entered into
with First Union, Enron Capital & Trade Resources Corp. and Texas Commerce Bank
National Association (or any of their respective Affiliates) (the "Hedge
Agreements") and any Contracts entered into in the normal course of Titan's
sale of Substances, any tax sharing agreement or any Contract providing for
environmental indemnification of another party;
4.7.5 other than the Shareholders Agreement, the
Limited Partnership Agreement and the General Partner's Articles of
Incorporation, any voting trust or agreement, shareholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of Titan;
4.7.6 other than the Options, any Contract or
obligation (contingent or otherwise) to issue, sell or otherwise distribute or
to repurchase or otherwise acquire or retire any share of its capital stock or
partnership interests, as applicable, or any of its other equity securities;
4.7.7 other than the Limited Partnership Agreement,
Shareholders Agreement, Registration Rights Agreement, Option Plan, Employment
Agreement, Financial Advisory Services Contract, Non-Compete Agreements, the
Administrative Services Contract with Staley Operating Co., dated March 31,
1995, and the purchase agreement pursuant to which Titan acquired Oil and Gas
Properties and related assets from certain of its officers and their
affiliates, any Contract with any affiliate;
4.7.8 any Contract under which it has granted any person
any registration rights, other than the Registration Rights Agreement;
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4.7.9 any Contract under which it has limited or
restricted its right to compete with any person in any respect;
4.7.10 other than the Hedge Agreements, any Contract for
the sale, exchange or other disposition of Substances produced from the Oil and
Gas Properties that is not cancelable without penalty on not more than 60 days
prior written notice;
4.7.11 any option to purchase or call on the Substances
produced from the Oil and Gas Properties;
4.7.12 any material Contract that contains terms or
conditions that are not customary in the oil and gas industry; or
4.7.13 any other Material Contract not described in the
foregoing provisions of this 4.7.
4.8 Status of Contracts. All of the Contracts and other
obligations of Titan that relate to its properties (i) are in full force and
effect, and (ii) neither Titan nor, to the knowledge of Titan, any other party
to the Contracts (a) is in breach of or default, or with the lapse of time or
the giving of notice, or both, would be in breach or default, with respect to
any of its obligations thereunder to the extent that such breaches or defaults
could have a Material Adverse Effect or (b) has given or threatened to give
notice of any default under or inquiry into any possible default under, or
action to alter, terminate, rescind or procure a judicial reformation of any
Contract.
4.9 Permits and Intellectual Property. Titan possesses all
Permits and Intellectual Property which are necessary to its business as
presently conducted. All of the foregoing items are in full force and effect.
Titan has not received any notice that it is infringing upon the Intellectual
Property of any other person, and Titan is not aware of any such infringement.
4.10 Compliance with Laws. Titan has complied and is in
compliance with all applicable federal, state, municipal and other political
subdivision or governmental agency statutes, ordinances and regulations in
every applicable jurisdiction, in respect of the ownership of its properties
and the conduct of its business, including, without limitation, all
occupational safety and health, fair employment, equal opportunity and
antitrust laws, rules and regulations. Titan is not aware of any facts,
conditions or circumstances in connection with, related to or associated with
its properties or the ownership or operation of any thereof that could
reasonably be expected to give rise to any claim or assertion that Titan, its
properties or the ownership or operation of any thereof is not in compliance
with any applicable law, rule, regulation, ordinance, order, decision or decree
of any governmental authority or with any term or conditions of any applicable
permit, license, approval, consent, certificate or other authorization.
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4.11 Environmental Laws and Regulations. Except as is set
forth on Schedule 4.11.1 or in the written environmental assessment reports
previously delivered to JEDI and listed on Schedule 4.11.2, (i) Titan, its
properties and the ownership and operation thereof are in compliance with all
applicable Environmental Laws and all prior instances of non-compliance have
been fully and finally resolved to the satisfaction of all governmental
authorities with jurisdiction over such matters; (ii) neither Titan, its
properties, nor the ownership or operation thereof is subject to any
Environmental Claim or Environmental Liabilities, arising from, based upon,
associated with or related to the properties or the ownership or operation of
any thereof; (iii) Titan has not received any notice of any Environmental
Claim, Environmental Liabilities or any violation or non-compliance with any
Environmental Law, arising from, based upon, associated with or related to its
properties or the ownership or operation of any thereof; (iv) no Hazardous
Materials are present, or have been handled, managed, stored, transported,
processed, treated, disposed of, released, migrated or have escaped on, in,
from, under or in connection with Titan's properties or the ownership or
operation of any thereof, such as to cause a condition or circumstance that
could reasonably be expected to result in an Environmental Claim or
Environmental Liabilities or a violation of any Environmental Law; and (v)
Titan is not otherwise aware of any facts, conditions or circumstances in
connection with, related to or associated with its properties or the ownership
or operation of any thereof, that could reasonably be expected to give rise to
any Environmental Claim, Environmental Liabilities or any claim or assertion
that Titan, its properties or the ownership or operation thereof are not in
compliance with all Environmental Laws.
4.12 Production Balances and Penalties; Other Production Sales
Matters. Except as set forth on Schedule 4.12 or as otherwise could not either
individually or in the aggregate cause a Material Adverse Effect (i) none of
the purchasers under any production sales contracts is entitled to "make-up" or
otherwise receive deliveries of Substances without paying at the time of such
deliveries the full contract price therefor by reason of prior payments; (ii)
none of the purchasers under any production sales contracts has exercised any
economic out provision; (iii) none of the purchasers under any production
sales contracts has curtailed its takes of natural gas in violation of such
contracts; (iv) none of the purchasers under any production sales contracts has
given notice that it desires to amend the production sales contracts with
respect to price or quantity of deliveries under take-or-pay provisions or
otherwise; (v) no person is entitled to receive any portion of the interest of
the Partnership in any Substances or to receive cash or other payments to
"balance" any disproportionate allocation of Substances under any operating
agreement, gas balancing and storage agreement, gas processing or dehydration
agreement, gas transportation or other similar agreements; and (vi) Titan is
not obligated to pay any penalties or other payments under any gas
transportation or other agreement as a result of the delivery of quantities of
gas from the Oil and Gas Properties in excess of the contract requirements.
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4.13 Well Status. As of the date of this Agreement, the
Partnership's accrued plugging and abandonment liabilities are less than
$100,000 with respect to all wells located on the Oil and Gas Properties that
(i) Titan is currently obligated by law or contract to presently plug and
abandon; (ii) Titan will be obligated by law or contract to plug and abandon
with the lapse of time or notice or both because the well is not currently
capable of producing Substances in commercial quantities or otherwise currently
being used in normal operations; (iii) are subject to exceptions to a
requirement to plug and abandon issued by a regulatory authority having
jurisdiction over the Oil and Gas Properties; or (iv) to the best knowledge of
Titan, have been plugged and abandoned but have not been plugged in accordance
in all material respects with all applicable requirements of each regulatory
authority having jurisdiction over the Oil and Gas Properties.
4.14 Current Commitments. Schedule 4.14 contains a true and
complete list as of the date of this Agreement of all authorities for
expenditures ("AFEs") to drill or rework wells or for capital expenditures
pursuant to any of the Contracts having a cost to the Partnership in excess of
$500,000 that either (i) have been proposed by any person on or after August 1,
1995 or (ii) not been fully funded by all parties participating in such AFE.
4.15 Litigation and Claims. There is no litigation at law or
in equity, and no proceeding or investigation before or by any governmental
agency pending or, to the knowledge of Titan, threatened against or affecting
Titan or its properties or the transactions contemplated in this Agreement or
the Related Documents and Titan is not aware of any facts, conditions or
circumstances in connection with, related to or associated with its properties
or the ownership or operation of any thereof that could reasonably be expected
to give rise to any such claim, demand, filing, investigation, administrative
proceeding, action, suit or other legal proceeding. There are no judgments or
outstanding orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency, or by arbitration, pursuant to a
grievance or other procedure) against or affecting Titan or its properties or
business. Titan has not received any notice from any governmental authority or
any other person (including employees) (i) claiming any violation or
repudiation of the Oil and Gas Properties or any violation of any law, rule,
regulation, ordinance, order, decision or decree of any governmental authority
(including, without limitation, any such law, rule, regulation, ordinance,
order, decision or decree concerning the conservation of natural resources) or
(ii) requiring, or calling attention to the need for, any work, repairs,
construction, alterations, installations, remediation, response, removal or
abatement actions, restoration, investigation or monitoring of, on, in, under,
in connection with or related to its properties or the ownership or operation
of any thereof. There is no action or suit by Titan pending or threatened
against others.
4.16 Production Burdens, Taxes, Expenses and Revenues. All
rentals, royalties, excess royalty, overriding royalty interests and other
payments due under or with respect to the Oil and Gas Properties have been
properly and timely paid. All Taxes which have become due
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<PAGE> 20
and payable by Titan have been properly and timely paid. No waiver of the time
to assess any Tax is in effect and no request for a waiver is pending. All
expenses payable under the terms of the Contracts have been properly and timely
paid except for such expenses as are being currently paid prior to delinquency
in the ordinary course of business or that are being contested in good faith,
for which reserves or other provisions, if appropriate, have been made and
reflected in the Interim Balance Sheet. All of the proceeds from the sale of
Substances are being properly and timely paid to Seller by the purchasers of
production without suspension or indemnity other than standard division order
indemnities.
4.17 Financial Statements. The General Partner has delivered
to JEDI the unaudited balance sheets of the General Partner and the Partnership
for the six-month period ended September 30, 1995 (the "Interim Balance Sheet")
and the related unaudited statements of income and cash flows (all of the
foregoing being referred to as the "Financial Statements"). The Financial
Statements have been prepared in accordance with the books and records of Titan
and present fairly the financial position of Titan at the dates indicated and
the results of its operations for the periods indicated.
4.18 Books and Records. The books and records of Titan
(including the books and records of account) are in all material respects
complete and correct and reflect the record of all financial affairs, meetings
and proceedings of the Board of Directors and the shareholders of the General
Partner and the partners of the Partnership.
4.19 Absence of Undisclosed Liabilities. Except with respect
to liabilities incurred pursuant to the terms of the Credit Agreement or as
reflected in the Interim Balance Sheet or on Schedule 4.19 hereto, Titan has
not incurred, and none of its assets or properties are subject to, any absolute
or contingent liabilities or obligations other than liabilities arising in the
ordinary course of their business since the date of the Interim Balance Sheet.
Titan is not aware of any facts in existence on the date hereof which might
serve as the basis for any such liability or obligation which are not disclosed
on the Interim Balance Sheet.
4.20 Absence of Changes. Since the date of the Interim
Balance Sheet, there has not been:
4.20.1 any event either individually or in the
aggregate, which could cause a Material Adverse Effect;
4.20.2 any obligation or liability incurred by Titan or
any agreement to issue any such obligation or liability other than in the
ordinary course of its business, as contemplated by or described in the Interim
Balance Sheet or incurred pursuant to the terms of the Credit Agreement;
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<PAGE> 21
4.20.3 any direct or indirect redemption, purchase or
other acquisition by Titan of any shares of its equity securities, or any
declaration, setting aside or payment of any dividends or other distributions
in respect of any such securities or agreement to do so;
4.20.4 any material reduction in the rate of production
of Substances from any of the Oil and Gas Properties other than changes (i) in
the ordinary course of operation, (ii) that result from depletion in the
ordinary course of operation and (iii) that result from variances in markets
for Substances ; or
4.20.5 any Casualty Loss with respect to any of the Oil
and Gas Properties, whether or not covered by insurance.
4.21 Employee Benefit Plans. None of the Employee Benefit
Plans are subject to Title IV of ERISA or the minimum funding obligations of
Section 412 of the Code, and Titan and any entity required to be aggregated
therewith pursuant to Section 414(b) or (c) of the Code have no liability under
Title IV of ERISA or under Section 412(f) or 412(n) of the Code.
4.22 No Brokers. Other than the advisory fees to be paid to
ECT Securities and the payments due by Titan to The Windrock Group, Ltd. (or
its Affiliates), Titan has no direct or indirect agreement with any person,
firm or corporation for the payment of any commission, brokerage or "finder's
fee" in connection with the transactions contemplated herein.
4.23 Governmental Regulation. Titan is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, nor is Titan subject to regulation under the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to incur indebtedness for borrowed money.
4.24 Reserve Report. Reserve Report. Titan has delivered to
Buyer (i) a copy of a reserve report prepared by the Company dated October 16,
1995 entitled "Titan Resources, L.P. Andarko Purchase Economics Book 1 and Book
2 prepared by Rodney Woodard" covering the Oil and Gas Properties being
acquired in the Acquisition (the "Company Reserve Report"), and (ii) a reserve
report prepared by Williamson Petroleum Consultants ("Williamson Report")
dated October 12, 1995, with respect to all of the Partnership's existing Oil
and Gas Properties (collectively, the "Reserve Reports") relating to the oil
and gas reserves attributable to the Oil and Gas Properties owned by the
Partnership (collectively, the "Reserves"). The estimates of the Reserves in
the Company's Reserve Report were prepared in accordance with standard
geological and engineering methods generally applied by Titan, which, to
Titan's knowledge, are consistent with those accepted in the oil and gas
industry, and were based upon historical factual information
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<PAGE> 22
provided to it by Anadarko. The estimates of the Reserves in the Williamson
Report were prepared in accordance with standard geological and engineering
methods generally accepted in the oil and gas industry. The estimates of the
lease operating expenses in the Williamson Report are reasonable and represent
the historical experience of the Oil and Gas Properties covered therein. The
historical factual information relied on in connection with the preparation of
the Williamson Report was accurate and complete in all material respects. The
Company is not aware of any facts which have caused it to question the factual
information upon which the Reserve Reports were based.
4.25 Disclosure. No representation or warranty by Titan in
this Agreement (including the Schedules attached hereto) or in any certificate
or other document delivered by or on behalf of Titan to JEDI in connection
herewith, contains any untrue statement of a material fact, or omits to state a
material fact which would be necessary to make the statements contained herein
or therein not misleading. There is no fact known to Titan that either
individually or in the aggregate could result in a Material Adverse Effect that
has not been set forth in this Agreement or otherwise disclosed in writing to
JEDI in connection herewith other than matters generally affecting the oil and
gas industry. Titan has provided to JEDI a true and correct copy of the
Anadarko Agreement and has provided or otherwise made available for review by
JEDI and its agents and representatives, all of the documents, instruments,
reports, opinions and other records and written information provided to Titan
by or on behalf of Anadarko Petroleum Corp. as of the date hereof in connection
with the Acquisition (the "Acquisition Information").
5. Representations and Warranties of JEDI. JEDI represents and
warrants to Titan as follows:
5.1 Authorization and Validity of Agreement. JEDI is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement and the
Related Documents and to consummate the transactions contemplated thereby.
The execution, delivery and performance of this Agreement and the Related
Documents by JEDI and the consummation of the transactions contemplated
thereby, have been duly authorized and approved by the Board of Directors of
the general partner of JEDI, and no other action on the part of JEDI is
necessary to authorize the execution, delivery and performance of this
Agreement and the Related Documents by JEDI and the consummation of the
transactions contemplated thereby. This Agreement and the Related Documents
have been duly executed and delivered by an authorized officer of the general
partner of JEDI and are valid and binding obligations of JEDI enforceable
against JEDI in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
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<PAGE> 23
5.2 Consents and Approvals; No Violations. The execution,
delivery and performance of this Agreement and the Related Documents by JEDI
and the consummation by JEDI of the transactions contemplated thereby will not,
with or without the giving of notice or the lapse of time or both: (i)
violate, conflict with, or result in a breach or default under any provision of
the limited partnership agreement of JEDI or the charter or bylaws of its
general partner; (ii) violate any statute, ordinance, rule, regulation, order,
judgment or decree of any court or of any governmental or regulatory body,
agency or authority applicable to JEDI or by which any of its properties or
assets may be bound; (iii) require any filing by with, or require JEDI to
obtain any Permit from, or require JEDI to give any notice to, any governmental
or regulatory body, agency or authority; or (iv) result in a violation or
breach by JEDI of, conflict with, constitute (with or without due notice or
lapse of time or both) a default by JEDI (or give rise to any right of
termination, cancellation, payment or acceleration) under or result in the
creation of any Encumbrance upon any of the properties or assets of JEDI under
any of the terms, conditions, or provisions of any Permit, Contract, Lease or
other instrument or obligation to which JEDI is a party, or by which it or any
of its properties or assets may be bound.
5.3 No Brokers. Other than the advisory fees to be paid to
ECT Securities, JEDI has no direct or indirect agreement with any person, firm
or corporation for the payment of any commission, brokerage or "finder's fee"
in connection with the transactions contemplated herein.
5.4 Compliance with Securities Laws. JEDI represents that it
is an "accredited investor" within the meaning of Regulation D under the
Securities Act of 1933, as amended. JEDI further represents and warrants that
it has reviewed all of the representations and warranties set forth in Section
10.1 of the Partnership Agreement, which (except for Sections 10.1(i) and
10.1(k)(i)) are incorporated herein by reference as if fully set forth herein,
and hereby makes such incorporated representations and warranties with respect
to its acquisition of the Common Stock as well as its acquisition of the Units.
5.5 Acknowledgment of Risks; Availability of Information;
Independent Engineering. JEDI acknowledges that the purchase of Securities
involves a number of significant risks and that an investment in Titan may
result in a loss of all or part of its investment in the Securities. JEDI has
carefully evaluated these risks before making a decision to purchase the
Securities. JEDI further acknowledges that (i) Titan has made available to
JEDI and its attorneys, accountants, engineers and other advisors, (hereafter
collectively, the "Purchaser Advisors"), prior to any issuance of the
Securities, all documents or other matters that they have requested relating to
Titan and its proposed operations and an investment in Titan or any other
matters requested by such persons, (ii) Titan has accorded JEDI and the
Purchaser Advisors the opportunity to review files of Titan relating to its
currently owned properties and the Acquisition Information and to ask questions
and receive answers from Titan and the engineering, legal, accounting and other
advisors of Titan to all their questions concerning Titan and its operations
and an investment in Titan and such other matters raised by JEDI and the
Purchaser Advisors, (iii) Titan
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<PAGE> 24
has provided documents, responses to questions and other materials, (iv) JEDI
has conducted its own independent engineering review of Titan's Oil and Gas
Properties and the properties to be acquired by Titan in the acquisition; and
(v) JEDI acknowledges that Titan has identified to it certain properties which
were initially contemplated to be acquired by Titan in the Acquisition which
are now contemplated to be sold by Anadarko to certain third parties as of the
effective date of the Acquisition (resulting in an approximately $14.4 million
reduction in the purchase price).
6. Covenants. From and after the date hereof for so long as JEDI
or an Affiliate of JEDI continues to own the Units or Shares of Common Stock
initially purchased hereunder, the parties agree as follows:
6.1 Financial Reports. Titan shall deliver monthly financial
statements to JEDI including a balance sheet and related income statement and
covering the matters provided for in Section 7.3(a) of the Limited Partnership
Agreement. In addition, Titan shall concurrently deliver to JEDI reports, on
an aggregate basis, relating to Titan's monthly production volumes, revenues,
sales volumes, lease operating expenses, capital expenditures, net cash flow
and such other information as JEDI may reasonably request in writing from time
to time. The foregoing reports shall be delivered monthly within the time
periods set forth in Section 7.3(a) of the Limited Partnership Agreement.
6.2 Amendment of Agreements. During any period in which JEDI
owns an equity interest in Titan, Titan shall not, without the prior written
consent of JEDI, (i) amend the Financial Advisory Services Contract(other than
an amendment thereto to increase the fee payable thereunder by $10,000 per
annum, to be entered into concurrently with or promptly after the consummation
of the purchase of the Securities) nor enter into any similar agreement with
NGP or (ii) make any preferential distributions or payments to NGP.
6.3 ERISA Status of JEDI. Upon the request of Titan at the
time of admission of any additional limited partners after the date hereof or
at the time any action is to be taken to adjust sharing ratios of the partners,
JEDI will provide a certificate to Titan stating whether at that time JEDI is
or is not (i) an employee benefit plan as defined in Section 3(3) of the United
States Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(whether or not subject to the provisions of Title I of ERISA), (ii) a plan
described in Section 4975(e)(1) of the Code, or (iii) any other entity that is
treated as a "benefit plan investor," within the meaning of United States
Department of Labor Regulation Section 2510.3-101(f)(2) other than a government
plan wholly exempt from the coverage of ERISA.
7. Claims.
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<PAGE> 25
7.1 Survival. The liability of JEDI and Titan under each of
their respective representations, warranties and covenants contained in this
Agreement shall survive the execution and delivery of this Agreement and the
Related Documents, notwithstanding any investigation made by or on behalf of
the other party. Any assertion by JEDI that either the Partnership or the
General Partner is liable for the inaccuracy of any representation or warranty
or the breach of any covenant under the terms of this Agreement or the Related
Documents must be made (i) pursuant to the terms of this Section 7 and (ii) in
writing and must be given to the Partnership not later than the first Business
Day after the first anniversary of the date hereof. The notice shall state the
facts known to JEDI giving rise to such notice in sufficient detail to allow
the Partnership and the General Partner to evaluate the claim.
7.2 Demands. The parties hereto agree that JEDI shall not
have the right to make a claim with respect to, or receive any recovery for, a
breach by the General Partner or the Partnership of a representation, warranty
or covenant hereunder until the aggregate amount of losses suffered by JEDI as
a result of all such breaches exceeds $500,000, at which time the General
Partner and the Partnership shall thereafter be jointly and severally liable
for all losses incurred in excess of such amount, subject to Section 7.3 below.
In determining whether JEDI has incurred or suffered a loss for purposes of
this Section 7.2, JEDI shall combine, without duplication, (i) all direct
losses suffered by JEDI as a result of any claim made pursuant to the terms of
this Section 7 and (ii) JEDI's proportionate share of any direct losses
suffered or incurred by Titan as the result of any act, event, condition or
omission that gives rise to a claim by JEDI pursuant to the terms of Section
7.1. JEDI's proportionate share as referenced in clause (ii) above shall be
deemed to be 18.18% with respect to direct losses incurred by Titan. All
payments made to JEDI pursuant to the terms of this Section 7 shall be grossed
up to compensate JEDI for payments it is deemed to be making to itself as a
result of its equity investment in Titan.
7.3 Claim Cap. When JEDI has been paid $5,000,000 pursuant
to Section 7.2, JEDI shall not be entitled to make any additional claims
against or receive any additional payments from Titan with respect to losses
arising as a result of any breaches of representations or warranties under
Sections 4.6., 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.19,
4.20, 4.24 or 4.25. Under no circumstances shall the aggregate amount paid to
JEDI pursuant to Section 7.2 exceed $10,000,000.
8. Miscellaneous.
8.1 Expenses. The Partnership shall reimburse JEDI for all
of JEDI's legal fees, professional fees and other transaction costs incurred in
the evaluation and negotiation of this Agreement and the Related Documents;
provided, however, that the Partnership's obligations with respect to such fees
and costs shall not exceed $30,000. The Partnership shall promptly reimburse
JEDI for such expenses upon presentation to the Partnership of a statement of
such
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expenses. All expenses of Titan (including all broker's or finder's fees or
commissions) shall be paid by Titan.
8.2 Notices. Any notice, request, instruction,
correspondence or other document to be given hereunder by either party to the
other (herein collectively called "Notice") shall be in writing and delivered
in person or by courier service requiring acknowledgment of receipt of delivery
or mailed by certified mail, postage prepaid and return receipt requested, or
by telecopier, as follows:
If to Titan, addressed to:
Titan Resources I, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Mr. Jack Hightower
Telecopy: (915) 687-0192
with a copy to:
Mr. Jeff Zlotky
Thompson & Knight
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201-4693
Telecopy: (214) 969-1751
If to JEDI, addressed to:
Joint Energy Development Investments Limited
Partnership
1400 Smith Street
Houston, Texas 77002
Attention: Mr. Wynne M. Snoots, Jr.
Telecopy: (713) 646-3750
with a copy to:
Mr. Keith Power
Joint Energy Development Investments Limited
Partnership
1400 Smith Street
Houston, Texas 77002
Telecopy: (713) 646-3602
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<PAGE> 27
Notice given by personal delivery, courier service or mail shall be
effective upon actual receipt. Notice given by telecopier shall be
confirmed by appropriate answer back and shall be effective upon actual
receipt if received during the recipient's normal business hours, or at
the beginning of the recipient's next business day after receipt if not
received during the recipient's normal business hours. All Notices by
telecopier shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address to
which Notice is to be given to it by giving Notice as provided above of
such change of address.
8.3 Amendments. This Agreement may be amended only by an
instrument in writing signed by the parties hereto.
8.4 Remedies. In addition to the remedies available to JEDI
under Section 7 with respect to the covenants or agreements of Titan following
the date hereof, such covenants and agreements shall be specifically
enforceable by JEDI (to the extent that such covenants and agreements run in
favor of JEDI), and Titan and the Subsidiaries agree to waive the posting of
any bond in connection with the issuance of any injunction or other equitable
relief in connection therewith. These remedies shall constitute the exclusive
remedies available to JEDI with respect to the covenant or agreements of Titan
hereunder.
8.5 Governing Law. The provisions of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Texas (excluding any conflicts-of-law rule or principle that might refer
same to the laws of another jurisdiction), except to the extent that same are
mandatorily subject to the laws of another jurisdiction pursuant to the laws of
such other jurisdiction.
8.6 Entire Agreement; Waivers. This Agreement constitutes
the entire agreement between the parties hereto pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth specifically
herein or contemplated hereby. No waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. The failure of a
party to exercise any right or remedy shall not be deemed or constitute a
waiver of such right or remedy in the future. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
8.7 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns; provided, that (1) all rights and
benefits granted to JEDI by this Agreement shall be freely
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<PAGE> 28
assignable by JEDI with the proper transfer of JEDI's shares of Common Stock or
Units, and (2) this Agreement may not be assigned by Titan except upon the
prior written consent of JEDI. Nothing in this Agreement, express or implied,
is intended to confer upon any person or entity other than the parties hereto
and their respective permitted successors and assigns, any rights, benefits or
obligations hereunder.
8.8 Severability. If any provision of the Agreement is
rendered or declared illegal or unenforceable by reason of any existing or
subsequently enacted legislation or by decree of a court of last resort, JEDI
and Titan shall promptly meet and negotiate substitute provisions for those
rendered or declared illegal or unenforceable, but all of the remaining
provisions of this Agreement shall remain in full force and effect.
8.9 Headings. The headings of the sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
8.10 Singular and Plural. Words used herein in the singular,
except where the context would otherwise require, shall be deemed to include
the plural and vice versa. The definitions of words in the singular herein
shall apply to such words when used in the plural where the context so permits
and vice versa.
8.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
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<PAGE> 29
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
TITAN RESOURCES I, INC.
By: /s/ JACK HIGHTOWER
---------------------------------------
Name: Jack Hightower
----------------------------------
Title: President
---------------------------------
TITAN RESOURCES, L.P.
-
by Titan Resources I, Inc.
its General Partner
By: /s/ JACK HIGHTOWER
---------------------------------------
Name: Jack Hightower
----------------------------------
Title: President
---------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp.,
its general partner
By: /s/ WYNNE SNOOTS, JR.
---------------------------------------
Name: Wynne Snoots, Jr.
----------------------------------
Title: Agent and Attorney in Fact
---------------------------------
25
<PAGE> 1
EXHIBIT 10.10.1
TITAN RESOURCES, L.P.
DESIGNATION AGREEMENT
THIS DESIGNATION AGREEMENT (this "Agreement"), dated as of December 11,
1995, is made by and between Titan Resources, L.P., a Texas limited partnership
(the "Partnership"), and Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership (along with its permitted
successors and assigns, "JEDI").
W I T N E S S E T H :
WHEREAS, concurrently with the execution of this Agreement, the
Partnership, Titan Resources I, Inc., a Texas corporation (the "General
Partner") and JEDI have entered into that certain Stock and Unit Purchase
Agreement pursuant to which JEDI shall acquire limited partnership units of the
Partnership; and
WHEREAS, Section 3.2 of the Agreement of Limited Partnership dated as of
March 31, 1995, as amended, of the Partnership (the "Partnership Agreement")
provides that the Partnership may enter into separate agreements to set forth
the respective rights of additional Units issued by the Partnership to a
Limited Partner; and
WHEREAS, the parties hereto desire to enter into this Agreement in order
to designate certain rights and privileges that pertain to the Units that JEDI
has acquired in the Partnership;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein, in the Stock and Unit Purchase Agreement and
in the Partnership Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the meanings set forth in the Partnership
Agreement.
2. Additional Definitions. The following additional terms used
herein shall be defined as follows:
"Enron Group" shall mean JEDI and its affiliates to which a
Permitted Transfer is made.
"Permitted Transfer" shall mean a transfer of the Partnership
interest of JEDI to any person that is an affiliate of JEDI; provided,
however, that for the purpose of this Agreement, (i) a person shall be
an "affiliate" of JEDI only in the event that such person directly or
indirectly controls or manages, is controlled or managed by or is under
common control or management with JEDI. As used in the preceding
sentence, control
<PAGE> 2
includes the control of the management and policies of another person,
whether through the ownership of voting securities, partnership
interests, by contract or otherwise; and without limiting the foregoing,
it shall be deemed that the ownership of more than 50% of the voting
securities, partnership interests or percentage interest of another
person shall be deemed to meet such control test.
"Transfer" or "transfer" shall mean the sale, transfer,
assignment, hypothecation, or other disposition, encumbrance or
alienation of any interest in the Partnership (including Units), or any
right or interest therein.
3. Special Preemptive Rights.
(a) Notwithstanding any contrary provision of the Partnership
Agreement, JEDI shall have preemptive rights to acquire any (i) additional
Units, (ii) classes or series thereof, (iii) options, rights, warrants or
appreciation rights relating thereto, (iv) any other type of equity security
that the Partnership may lawfully issue, (v) any debt obligations of the
Partnership convertible into any class or series of equity securities of the
Partnership (collectively, "Partnership Securities"), to be issued for cash
such that JEDI may retain its Sharing Ratio equal to that existing at the time
immediately prior to the issuance of such Partnership Securities; provided,
however, that JEDI shall not have preemptive rights to acquire any Partnership
Securities issued for cash relating to employees of the Partnership or
employees of the General Partner engaged primarily in the business and affairs
of the Partnership pursuant to the incentive option plan adopted by the
Partnership on March 31, 1995.
(b) The Partnership shall provide JEDI with notice prior to the time
that the Partnership proposes to issue additional Partnership Securities for
cash consideration, which notice shall contain the terms pursuant to which the
Partnership proposes to issue such additional Partnership Securities. Within
ten (10) days of its receipt of such notice, JEDI shall inform the Partnership
whether it will waive its preemptive rights to acquire such Partnership
Securities or exercise its right to acquire such additional Partnership
Securities on the same terms as set forth in the Partnership's notice. Any
failure of JEDI to respond to the Partnership's notice within the required time
period shall be deemed to be a waiver of its preemptive rights to acquire the
Partnership Securities described in such notice.
4. Special Rights of JEDI to Transfer Units. Notwithstanding any
contrary provision of the Partnership Agreement, JEDI may transfer its interest
in the Partnership as follows:
(a) JEDI shall have the right to transfer all or any portion of its
interest in the Partnership pursuant to a Permitted Transfer without complying
with the other provisions of this Section 4; provided, however, that (i) any
such transferee of the Partnership interest of JEDI may not become a
substituted Limited Partner unless such transferee shall comply with the
provisions of Section 5 of this Agreement, and (ii) the Enron Group shall
designate one person that shall receive notices and other communications from
the Partnership and communicate with the Partnership regarding the
Partnership's affairs.
-2-
<PAGE> 3
(b) No person may make more than two transfers of its Partnership
interest pursuant to this Section 4, other than Permitted Transfers. Any
transferee of any portion of JEDI's Partnership interest pursuant to this
Section 4, other than a member of the Enron Group, may not transfer any portion
of its Partnership Interest pursuant to this Section 4 unless such transfer is
for all of its Partnership interest.
(c) In the event that JEDI desires to transfer all or any portion of
its interest in the Partnership other than pursuant to a Permitted Transfer,
JEDI shall comply with the terms contained in the remainder of this Section 4.
Unless JEDI shall have received an "Unsolicited Offer" from an unrelated third
party (as defined in Section 4(f)) and thereby elect to proceed in accordance
with Section 4(f), JEDI shall first offer to sell the interest in the
Partnership sought to be transferred to the Partnership (the "Offer to Sell")
in accordance with the terms of this Section 4(c). The Offer to Sell to the
Partnership shall be in writing and shall set forth the Partnership interest of
JEDI proposed to be transferred (the "Subject Interest"). For 30 days (or
such longer period that JEDI in its sole discretion may grant to the
Partnership) from the date of the Offer to Sell (the "Expiration Date"), JEDI
shall provide the Partnership with the exclusive right to negotiate a mutually
acceptable agreement (a "Negotiated Agreement") pursuant to which the
Partnership shall purchase, and JEDI shall sell, the Subject Interest proposed
to be transferred. In the event that JEDI and the Partnership shall reach a
Negotiated Agreement with respect to the purchase of the Subject Interest prior
to the Expiration Date, then the Partnership and JEDI shall be obligated to
proceed with a sale and purchase of such Subject Interest for the consideration
and upon the other terms provided in the Negotiated Agreement in accordance
with Section 4(g).
(d) In the event that JEDI and the Partnership are unable to reach a
Negotiated Agreement prior to the Expiration Date, the Partnership shall
certify in writing to JEDI within three days subsequent to the Expiration Date
the best offer made by the Partnership to JEDI prior to the Expiration Date
(the "Benchmark Offer"). The Partnership shall not have any obligation to make
a Benchmark Offer, but if it shall not do so, JEDI may proceed to transfer the
Subject Interest pursuant to Section 4(e) without offering the Subject Interest
to the Partnership on the same terms as the Benchmark Offer. The Benchmark
Offer made to JEDI by the Partnership may be accepted by JEDI at any time
within 90 days after the Expiration Date; provided that the terms of such
Benchmark Offer shall be subject to downward adjustment in the event that JEDI
shall receive a "Bona-Fide Offer" (as such term is defined in Section 4(e))
that is less than the Benchmark Offer. Subsequent to the Expiration Date, JEDI
shall have an unrestricted right to seek a third party purchaser of the Subject
Interest pursuant to a Bona-Fide Offer, and the Partnership shall use its
reasonable best efforts to facilitate the effort of JEDI to sell such Subject
Interest; provided that in using such reasonable best efforts, the Partnership
shall not be required to take any action which in the opinion of counsel to the
Partnership would (i) cause the Partnership to breach any material agreement to
which the Partnership is a party, (ii) cause the Partnership to be treated as
an association taxable as a corporation for federal income tax purposes, or
(iii) cause the Partnership to incur any material liability. In addition, JEDI
shall have the obligation to reimburse all reasonable out-of-pocket expenses
incurred by the Partnership in taking such action within 30 days of the
Partnership's presentation of its statement for such
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<PAGE> 4
expenses to JEDI. Notwithstanding the preceding provisions of this Section
4(c), the Partnership shall have no obligation to facilitate the effort of JEDI
to sell the Subject Interest more frequently than twice every three years
regardless of the number of times that JEDI shall initiate an Offer to Sell
pursuant to Section 4(c); provided, however, that notwithstanding such
limitations, the Partnership shall with respect to additional attempts to sell
by JEDI provide any information reasonably requested by JEDI and cooperate with
the reasonable requests of JEDI to the extent such cooperation does not require
an undue time commitment from the Partnership.
(e) If, within 90 days of the expiration of the Expiration Date, JEDI
shall receive a bona-fide written offer from an unrelated third party to
purchase for cash the Subject Interest (a "Bona-Fide Offer"), and JEDI desires
to accept such Bona-Fide Offer, JEDI shall, as a condition precedent to its
right to do so, by notice in writing, inform the Partnership of the receipt of
such Bona-Fide Offer, the identity of the party that made such Bona-Fide Offer,
the offered price for the Subject Interest and all other terms and conditions
of such Bona-Fide Offer. In the event that the Bona-Fide Offer is in excess of
the Benchmark Offer or in the event that the Partnership did not make a
Benchmark Offer, JEDI shall have the right to accept such Bona-Fide Offer or to
elect to retain its Subject Interest without any obligation to offer to
transfer the Subject Interest to the Partnership upon substantially the same
terms as the Bona-Fide Offer; provided, however, that in the event that JEDI
does not consummate the transfer of the Subject Interest within 90 days from
the date of the Bona-Fide Offer, JEDI shall be required to comply with the
provisions of this Section 4 prior to any transfer of the Subject Interest. In
the event that such Bona-Fide Offer is less than the Benchmark Offer, then JEDI
shall have the option, in its sole discretion, to (i) cause the Partnership to
purchase the Subject Interest on the same terms and conditions described in the
Bona-Fide Offer (provided that the Partnership shall consummate such purchase
of the Subject Interest on such date that is the later of (1) 30 days
subsequent to the Partnership's receipt of notice from JEDI as to the existence
of the Bona-Fide Offer, (2) 30 days subsequent to the Partnership's receipt of
JEDI's election to transfer the Subject Interest pursuant to this Section 4(e)
or (3) such longer period as contained in the Bona-Fide Offer) or (ii) elect to
retain the Subject Interest.
(f) In the event that JEDI shall receive a bona fide written offer
from an unrelated third party to purchase all or any part of its interest in
the Partnership and such offer arose other than pursuant to a solicitation by
JEDI after an Offer to sell, arose subsequent to the 90 day period after the
Expiration Date or is for consideration other than cash (an "Unsolicited
Offer"), and JEDI desires to accept such Unsolicited Offer, JEDI shall, as a
condition precedent to its right to do so, by notice in writing ("Unsolicited
Notice"), inform the Partnership of the receipt of such Unsolicited Offer, the
identity of the party that made such Unsolicited Offer, the Subject Interest
subject to the Unsolicited Offer, the offered price for such Subject Interest
(including the value that JEDI in good faith places on any consideration other
than cash, the manner that JEDI used to obtain such value and any information
that JEDI has utilized to determine such value) and all other terms and
conditions of such Unsolicited Offer. Within ten (10) business days after the
Partnership's receipt of the Unsolicited Notice, the Partnership shall notify
JEDI in writing of the Partnership's election to purchase the Subject Interest
that JEDI proposes to sell pursuant to the Unsolicited Offer. If the
Partnership makes such election, the Partnership shall purchase
-4-
<PAGE> 5
the Subject Interest on the same terms and conditions described in the
Unsolicited Offer (or for the equivalent cash amount set forth in the
Unsolicited Notice with respect to any portion of the Unsolicited Offer that is
not for cash); provided that the Partnership shall consummate such purchase of
the Subject Interest within 30 days of the Partnership's receipt of the
Unsolicited Notice or such longer period as contained in the Unsolicited Offer.
If JEDI does not receive the Partnership's notice of such election within the
above-described time period, or, if the Partnership notifies JEDI in writing
that the Partnership will not make such election, JEDI shall have the right to
accept the Unsolicited Offer or to elect to retain the Subject Interest without
any obligation to offer to transfer the subject interest upon substantially the
same terms as the Unsolicited Offer. If JEDI does not accept the Unsolicited
Offer and retains the Subject Interest, JEDI shall be required to comply with
the provisions of this Section 4 prior to any transfer of the Subject Interest.
(g) The consummation of the sale provided in a Negotiated Agreement
pursuant to Section 4(c), pursuant to the consummation of a Bona-Fide Offer
pursuant to Section 4(e) or pursuant to the exercise of the right of first
refusal in Section 4(f) (the "Closing") shall occur within the 30 day period
next following the Expiration Date or such longer period of time as provided in
Section 4(e) or Section 4(f), as applicable. At the time of Closing, the
Partnership shall deliver the consideration as required pursuant to the
Negotiated Agreement, the Bona-Fide Offer or the Unsolicited Offer, as
applicable, and JEDI shall deliver or cause to be delivered to the Partnership,
against receipt of such consideration, such assignments and other instruments
of conveyance, warranty of title, transfer, and assignment of the Subject
Interest to be conveyed hereunder, as shall be effective to vest in the
Partnership good title and interest in and to such interest in the Partnership,
free and clear of any and all liens, encumbrances, conditions, assessments, and
restrictions. Subsequent to such Closing, JEDI from time to time at the
request of the Partnership and without further consideration, shall do,
execute, acknowledge, and deliver, or shall cause to be done, executed,
acknowledged, and delivered, all such further acts, deeds, assignments,
acquittance, transfers, conveyances, powers of attorney, and assurances as the
Partnership may reasonably require more fully to convey, assign, transfer, or
confirm the Partnership interest so conveyed to the Partnership.
5. Substitution of Transferee of JEDI. Notwithstanding any
provision to the contrary contained in the Partnership Agreement, any
transferee of any portion of the Partnership interest of JEDI may become a
substituted Partner if, and only if, such transferee shall comply with the
following provisions:
(a) No transfer of any Partnership interest shall be made by JEDI,
(i) unless in the opinion of counsel to the Partnership, such transfer would
not cause the termination of the Partnership for federal income tax purposes
under section 708 of the Internal Revenue Code, (ii) unless waived by the
General Partner an opinion is rendered to the Partnership by counsel reasonably
satisfactory to the Partnership, to the effect that such transfer may be
effected without registration under the Securities Act of 1933, as amended, and
would not result in the violation of any applicable state securities laws, and
(iii) unless waived in writing by the General Partner,
-5-
<PAGE> 6
if the proposed transfer would result in a person that is not a citizen of the
United States having a direct interest in such Partnership interest.
(b) No transfer of a Partnership interest shall be made by JEDI if
such transfer would cause, as reasonably determined by the General Partner (i)
the Partnership to incur a material liability under the tax laws of any
applicable federal, state, local, or foreign jurisdiction, or (ii) the
Partnership to be in violation of any applicable laws.
(c) The Partnership shall not be required to recognize any transfer
of a Partnership interest until the instrument conveying such Partnership
interest has been delivered to the General Partner for recordation on the books
of the Partnership.
(d) The transferor shall notify the General Partner of any transfer
of a Partnership interest and provide the General Partner with such information
regarding the transferee and such transfer (including the name, address, and
taxpayer identification number of the transferor and transferee and the date of
the transfer) as is required under section 6050K of the Internal Revenue Code
(if the transfer of a Partnership interest is a sale or exchange described in
section 751(a) of the Internal Revenue Code) and section 6112 of the Internal
Revenue Code (relating to tax shelter investor lists) and Treasury Regulations
promulgated thereunder by the Internal Revenue Service in the manner and at the
time prescribed by law.
(e) A transfer of Partnership interest by JEDI in violation of any
provision contained in this Agreement shall be void and ineffectual and shall
not bind the Partnership or any other Partner. The transferee of JEDI's
Partnership interest shall pay all costs and expenses incurred by the
Partnership in connection with such transfer. In the discretion of the General
Partner, such costs and expenses may be collected out of revenues otherwise
allocable to such transferee under this Agreement.
(f) JEDI gives the transferee such right.
(g) The transferee pays to the Partnership all costs and expenses
incurred in connection with such substitution, which costs and expenses, in the
discretion of the General Partner, may be collected out of revenues otherwise
allocable to such substituted Partner under this Agreement.
(h) The transferee executes and delivers such instruments, in form
and substance satisfactory to the General Partner, as the General Partner may
reasonably determine in its sole discretion is necessary or desirable to effect
such substitution and to confirm the agreement of the transferee to be bound by
all of the terms and provisions of this Agreement.
(i) The consent of the Limited Partners shall not be required for
admission to the Partnership of a substituted Partner for the Partnership
interest of JEDI. The Partnership and the General Partner shall be entitled to
treat the record owner of any Limited Partner's Partnership interest as the
absolute owner thereof in all respects, and shall incur no liability for
distributions of cash or other property made in good faith to such record owner
until such time as a written
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<PAGE> 7
assignment of such Limited Partner's Partnership interest has been received and
accepted by the General Partner and recorded on the books of the Partnership.
In no event shall any Limited Partner's Partnership interest, or any portion
thereof, be transferred to a minor or incompetent or any other person not
legally qualified to become an Limited Partner hereunder, and any such
attempted transfer shall be void and ineffectual and shall not bind the
Partnership or the General Partner. The effective date of any transfer of
Limited Partner's Partnership interest shall be the date on which all of the
prerequisites to the transfer specified in this Section 5 have been met. In
the case of a transfer, where the transferee does not become a substituted
Limited Partner, the Partnership shall recognize such transfer not later than
the last day of the calendar month following receipt of notice of assignment
and required documentation.
6. Miscellaneous.
(a) Notices. All notices, elections, demands or other communications
required or permitted to be made or given pursuant to this Agreement shall be
in writing and shall be considered as properly given or made if given by (a)
personal delivery, (b) United States mail, (c) expedited delivery service with
proof of delivery, or (d) via facsimile with confirmation of delivery,
addressed to the respective addressee(s) at the address set forth in the books
and records of the Partnership. Any party may change its address by giving
notice in writing to the other party of its new address.
(b) Amendment. This Agreement may be changed, modified or amended
only by an instrument in writing agreed upon by the parties hereto.
(c) Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof.
(d) No Waiver. The failure of any party to insist upon strict
performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
constitute a waiver of such party's right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of any breach or
default in the performance of any obligation hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of
the same or any other obligation hereunder.
(e) Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted,
construed and enforced in accordance with the laws of the State of Texas.
(f) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its general
partner
By: /s/ JACK D. HIGHTOWER
----------------------------------------
Jack D. Hightower, President
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general
partner
By: /s/ WYNNE SNOOTS, JR.
----------------------------------------
<PAGE> 1
EXHIBIT 10.11
================================================================================
STOCK AND UNIT PURCHASE AGREEMENT
by and among
FIRST UNION CORPORATION
and
TITAN RESOURCES I, INC.
AND
TITAN RESOURCES, L.P.
December 11, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Securities . . . . . . . . . . . . . . . . . . 7
3. Concurrent Actions . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Representations and Warranties of Titan . . . . . . . . . . . . . . 8
4.1. Organization and Qualification . . . . . . . . . . . . . . . 9
4.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . 9
4.3. Authorization and Validity of Agreement and
Related Documents . . . . . . . . . . . . . . . . . . . . . 10
4.4. Consents and Approvals; No Violations . . . . . . . . . . . 10
4.5. No Amendments to Governing Documents . . . . . . . . . . . . 11
4.6. Title to Properties . . . . . . . . . . . . . . . . . . . . 11
4.7. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8. Status of Contracts . . . . . . . . . . . . . . . . . . . . 13
4.9. Permits and Intellectual Property . . . . . . . . . . . . . 13
4.10. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 13
4.11. Environmental Laws and Regulations . . . . . . . . . . . . . 13
4.12. Production Balances and Penalties; Other
Production Sales Matters . . . . . . . . . . . . . . . . . . 14
4.13. Well Status . . . . . . . . . . . . . . . . . . . . . . . . 14
4.14. Current Commitments . . . . . . . . . . . . . . . . . . . . 15
4.15. Litigation and Claims . . . . . . . . . . . . . . . . . . . 15
4.16. Production Burdens, Taxes, Expenses and Revenues . . . . . . 15
4.17. Financial Statements . . . . . . . . . . . . . . . . . . . . 16
4.18. Books and Records . . . . . . . . . . . . . . . . . . . . . 16
4.19. Absence of Undisclosed Liabilities . . . . . . . . . . . . . 16
4.20. Absence of Changes . . . . . . . . . . . . . . . . . . . . 16
4.21. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 17
4.22. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.23. Governmental Regulation . . . . . . . . . . . . . . . . . . 17
4.24. Reserve Report . . . . . . . . . . . . . . . . . . . . . . . 17
4.25. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 18
5. Representations and Warranties of First Union . . . . . . . . . . 18
5.1. Authorization and Validity of Agreement . . . . . . . . . . 18
5.2. Consents and Approvals; No Violations . . . . . . . . . . . 18
5.3. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4. Compliance with Securities Laws . . . . . . . . . . . . . . 19
5.5. Acknowledgment of Risks; Availability of Information;
Independent Engineering. . . . . . . . . . . . . . . . . . . 19
6. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1. Financial Reports . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.2. Amendment of Agreements . . . . . . . . . . . . . . . . . . 20
6.3. ERISA Status of First Union . . . . . . . . . . . . . . . . 20
7. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2. Demands . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3. Claim Cap . . . . . . . . . . . . . . . . . . . . . . . . . 21
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.4. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 23
8.6. Entire Agreement; Waivers . . . . . . . . . . . . . . . . . 23
8.7. Binding Effect and Assignment . . . . . . . . . . . . . . . 23
8.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . 23
8.9. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.10. Singular and Plural . . . . . . . . . . . . . . . . . . . . 24
8.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
ii
<PAGE> 4
SCHEDULES
Schedule 1.1 Oil and Gas Properties
Schedule 4.2 Capitalization
Schedule 4.4 Consents and Approvals; No Violations
Schedule 4.6 Properties of the General Partner
Schedule 4.7 Contracts
Schedule 4.11.1 Environmental Laws and Regulations
Schedule 4.11.2 Environmental Assessment Reports
Schedule 4.12 Production Balances and Penalties; Other Production Sales
Matters
Schedule 4.14 Current Commitments
Schedule 4.19 Other Liabilities
iii
<PAGE> 5
STOCK AND UNIT PURCHASE AGREEMENT
This Stock and Unit Purchase Agreement (the "Agreement"), dated as of
December __, 1995, is made and entered into by and among, First Union
Corporation, a North Carolina Corporation ("First Union"), Titan Resources,
L.P., a Texas limited partnership (the "Partnership"), and Titan Resources I,
Inc., a Texas corporation and the sole general partner of the Partnership (the
"General Partner"). The Partnership and the General Partner are referred to
herein together as "Titan."
W I T N E S S E T H:
WHEREAS, First Union desires to purchase shares of common stock, par
value $0.01 per share (the "Common Stock"), of the General Partner and limited
partnership units of the Partnership (the "Units") on the terms and subject to
the conditions set forth herein;
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein and for such other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms have the meanings set forth below:
"Affiliate": as to any Person, any other Person that directly or
indirectly controls or manages, is controlled or managed by or is under common
control or management with the party. As used in the preceding sentence,
control includes control of the management and policies of another Person,
whether through the ownership of voting securities, partnership interests, by
contract or otherwise; and without limiting the foregoing, it shall be deemed
that the ownership of more than 50% of the voting securities, partnership
interests or percentage interest of another Person shall be deemed to meet such
control test.
"Agreement": as defined in the introduction hereto.
"Acquisition": the Partnership's acquisition of certain West Texas and
New Mexico oil and gas properties being sold by Anadarko Petroleum Corp. and
contemporaneously therewith the Partnership's entering into the Credit
Agreement.
"Anadarko Agreement": the Purchase and Sale Agreement between Titan and
Anadarko Petroleum Corp. pertaining to the Acquisition, as in effect on the
date hereof.
"Casualty Loss": any destruction by fire, blowout, storm or other
casualty or any taking, or pending or threatened taking, in condemnation or
expropriation or under the right of eminent domain of any properties or portion
thereof.
<PAGE> 6
"Code": the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"Common Stock": as defined in the preamble hereto.
"Contract": any enforceable contract, agreement or instrument,
including, without limitation, supply contracts, customer agreements, any
mortgages, leases of personal property, deeds of trust, notes or guarantees,
pledges, liens, or conditional sales agreements to which the Person referred to
is a party or by which any of its assets may be bound, but excluding Leases and
Employee Benefit Plans.
"Credit Agreement": that certain Credit Agreement entered into between
the Partnership and Texas Commerce Bank National Association as of December 11,
1995, providing for at least $43.5 million in debt financing to the Partnership
($35 million in the event Anadarko elects to sell certain properties to third
parties).
"Defensible Title": such title as (i) will enable the Partnership to
receive from each well listed on Schedule 1.1 the "Net Revenue Interest" for
such wells identified on Schedule 1.1, without reduction, suspension or
termination throughout the productive life of such well, except as expressly
set forth on Schedule 1.1; (ii) will obligate the Partnership to bear no
greater working interest than the "Working Interest" for each of the wells
identified on Schedule 1.1 as being associated with a particular Oil and Gas
Property, without increase throughout the productive life of such well, except
as expressly set forth on Schedule 1.1; and (iii) is free and clear of all
Encumbrances, except for Permitted Encumbrances.
"ECT Securities": ECT Securities Corp., a Delaware corporation.
"Employee Benefit Plans": any employee benefit plans, policies,
programs and arrangements and all related contracts, agreements and other
descriptions thereof with respect to the employee benefits provided to the
employees of the General Partner or the Partnership.
"Employment Agreement": the Employment Agreement dated as of March 31,
1995, among Hightower, the General Partner and the Partnership.
"Encumbrances": liens, security interests, pledges, proxies,
shareholder agreements, voting agreements or trusts, options, rights of first
refusal, easements, mortgages, deeds of trust, rights-of-way, restrictions,
encroachments, licenses, or any other encumbrances, claims and other
restrictions or limitations on the use or ownership of real or personal
property.
"Environmental Claim": any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such Environmental Law
(cumulatively and for purposes of this definition, "Environmental Claims"),
2
<PAGE> 7
including without limitation (i) any and all Environmental Claims by
governmental authorities for enforcement, cleanup, removal, remedial or other
actions or damages pursuant to any applicable Environmental Law, and (ii) any
and all Environmental Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief relating to
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law": any federal, state or local statute, law, rule,
regulation, ordinance, code, permit, policy or rule of common law and in each
case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. Section 9601 et seq.; the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Section 5101 et seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et
seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the
Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42
U.S.C. Section 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section
2701 et seq.; and relevant state and local laws.
"Environmental Liabilities": any and all Liabilities arising from, based
upon, associated with or related to (i) any Environmental Claim, (ii) any
Environmental Law or (iii) the presence, handling, management, storage,
transportation, processing, treatment, disposal, release, threatened release,
migration or escape of Hazardous Materials, (including, without limitation, all
costs arising under any theory of recovery, in law or at equity), whether based
on negligence, strict liability, or otherwise, including, without limitation,
remediation, removal, response, restoration, abatement, investigative,
monitoring, personal injury, and property damage costs and all other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations
(including interest paid or accrued, attorneys' fees, and court costs).
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date
of this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"Exchange Act": the Securities Exchange Act of 1934, as amended, or any
successor federal statute and the rules and regulations promulgated thereunder.
"Financial Advisory Services Contract": the Financial Advisory Services
Contract dated as of March 31, 1995, between the Partnership and NGP, as
amended on the date hereof.
"First Union": as defined in the introduction hereto.
"General Partner": as defined in the introduction hereto.
3
<PAGE> 8
"Hazardous Materials": any chemicals, materials or substances defined
as or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants,"
"regulated substances" or words of similar import under any applicable
Environmental Law, including but not limited to any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, radon gas and urea formaldehyde foam insulation, transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls.
"Hedge Agreements": as defined in Section 4.7.4.
"Hightower": Jack D. Hightower.
"Intellectual Property": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade
names and logos, registered and unregistered copyrights, computer programs,
data bases, trade secrets, methods, designs, processes, procedures, proprietary
information and any other intangible property used in or associated with the
conduct of Titan's business and the ownership of the assets of Titan, including
all of Titan's rights to any such property which is owned by and licensed from
others.
"Interim Balance Sheet": as defined in Section 4.17.
"JEDI": Joint Energy Development Investments Limited Partnership.
"JEDI Purchase Agreement" that certain Stock and Unit Purchase Agreement
between JEDI, the Partnership and the General Partner, a true and complete copy
of which has been supplied to First Union.
"Liabilities": any and all direct or indirect demands, claims, notices
of violation, filings, investigations, administrative proceedings, causes of
action, suits, other legal proceedings, payments, charges, judgments,
assessments, liabilities, damages, deficiencies, penalties, fines, obligations,
responsibilities, costs and expenses paid or incurred, or diminutions in value
of any kind or character (whether or not asserted prior to the date hereof, and
whether known or unknown, fixed or unfixed, conditional or unconditional, based
on negligence, strict liability or otherwise, choate or inchoate, liquidated or
unliquidated, accrued, absolute, contingent or otherwise), including, without
limitation, (i) penalties and interest on any amount payable to a third party
as a result of the foregoing, (ii) any legal or other expenses reasonably
incurred in connection with investigating or defending any claim, demand or
legal proceeding, whether or not resulting in any liability, and (iii) all
amounts paid in settlement of claims, demands, or legal proceedings.
"Limited Partnership Agreement": the Agreement of Limited Partnership
of the Partnership dated as of March 31, 1995, as amended on the date hereof.
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"Material Adverse Effect": any event or occurrence which could
reasonably be expected to result in a liability to Titan of more than
$1,000,000 or would substantially interfere with the ability of Titan to
conduct its business.
"Material Contract": any Contract which requires special authorization
by the General Partners Board of Directors pursuant to Article Four of the
General Partner's bylaws.
"NGP": Natural Gas Partners, L.P., a Delaware limited partnership, and
Natural Gas Partners II, L.P., a Delaware limited partnership.
"Non-Compete Agreements": those certain Confidentiality and Non-Compete
Agreements, each dated March 31, 1995, by and between the Partnership, the
General Partner and one of the following individuals: Messrs. Benfatti,
Colwell, Moore, Staley and Woodard.
"Oil and Gas Property": all rights, titles, interests and estates in and
to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases, mineral fee interests, licenses, concessions, farmout
rights, royalty, overriding royalty or other non-working or carried interests,
operating rights, net profit and production payment interests, any reserved or
residual interest of whatever nature and any other mineral rights of every
nature and any rights that arise by operation of law or otherwise.
"Option Plan": the Option Plan of the Partnership effective as of March
31, 1995.
"Options": any options issued or to be issued under the Option Plan.
"Partnership": as defined in the introduction hereto.
"Permitted Encumbrances": (i) lessors' royalties, overriding royalties,
division orders, reversionary interests, and similar burdens that do not
operate to reduce the net revenue interest of the Partnership in any of the
Oil and Gas Properties to less than the amount set forth therefor on Schedule
1.1, (ii) the Contracts insofar as they do not operate to increase the working
interest of the Partnership set forth on Schedule 1.1 for any of the Oil and
Gas Properties or decrease the net revenue interest of the Partnership set
forth on Schedule 1.1 for any of the Oil and Gas Properties; (iii) liens for
taxes, assessments or other governmental charges or levies not yet due; (iv)
operators', vendors', repairmen's, mechanics', workmen's, materialmen's,or
other like liens arising by operation of law in the ordinary course of business
or incident to the exploration, development, operation and maintenance of Oil
and Gas Properties in respect of obligations which are not yet due and payable
or are being contested in good faith, for which reserves or other provisions,
if appropriate, have been made and reflected in the Interim Balance Sheet; (v)
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations, and minor defects, irregularities and deficiencies in title
which individually or in the aggregate will not have a Material Adverse Effect;
and (vi) any Encumbrances securing the indebtedness incurred pursuant to the
terms of the Credit Agreement.
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"Permits": any license, permit, franchise, consent, approval,
certification or authority granted by any Person.
"Person": any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or other department or agency
thereof or any other legally recognized entity.
"Purchase Price": as defined in Section 2 hereof.
"Registration Rights Agreement": the Registration Rights Agreement,
dated as of March 31, 1995, among Hightower and NGP, as amended on the date
hereof.
"Related Documents": the documents and instruments delivered
concurrently with this Agreement to the extent the referenced party is a party
thereto, including, without limitation, the documents and instruments set forth
in Section 3 hereof.
"Securities": as defined in Section 2 hereof.
"Shareholders Agreement": the Voting and Shareholders Agreement dated
as of March 31, 1995 among the General Partner, Hightower and NGP, as amended
on the date hereof.
"Substances": all severed crude oil, natural gas, casinghead gas, drip
gasoline, natural gasoline, petroleum, natural gas liquids, condensate,
products, liquids and other hydrocarbons and other minerals or materials of
every kind and description produced from the Oil and Gas Properties.
"Tax": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, ad valorem, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
"Titan": as defined in the introduction hereto.
"Units": as defined in the preamble hereto.
Other terms may be defined elsewhere in the text of this Agreement. The words
"hereof," "herein" and "hereunder," and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not any particular
provision of this Agreement. The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa. The terms defined
in the neuter or masculine gender shall include the feminine, neuter and
masculine genders, unless the context clearly indicates otherwise. Reference
to the "best knowledge" of a Person or words of similar import shall mean the
actual or constructive best
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knowledge of such Person after reasonable due diligence by such Person as to
the facts and circumstances addressed.
2. Purchase and Sale of Securities. On the date hereof First Union
shall purchase and the Partnership and the General Partner, as applicable,
shall sell (i) 2,567.5 shares of Common Stock and 2,541,825 Units (together the
"Securities") for an aggregate purchase price of $5 million (the "Purchase
Price"), allocated as follows: $4.95 million to the Units and $50,000 to the
Common Stock.
3. Concurrent Actions. Concurrently with the execution of this
Agreement, the following actions have taken place:
3.1. First Union has delivered $5 million by wire transfer to
the General Partner, of which $4.95 million shall be for the purchase of the
Units and $50,000 shall be for the purchase of the Common Stock, and
contemporaneously therewith the General Partner shall deliver to First Union
certificates representing the 2,567.5 shares of Common Stock;
3.2. The Partnership, the General Partner and the requisite
number of partners of the Partnership have entered into an amendment of the
Limited Partnership Agreement, including an amendment to Schedule 1 thereof to
evidence First Union's purchase of the Units issued in accordance herewith in
the form attached as Exhibit A;
3.3. First Union has executed a signature page to the Limited
Partnership Agreement and any other adoption agreements to other documents to
which it is intended to be a party in connection with this Agreement;
3.4. First Union has received evidence of adoption of
amendments to the Bylaws of the General Partner by the Board of Directors and,
if applicable, the shareholders of the General Partner in the form attached as
Exhibit B;
3.5. First Union, Hightower, NGP (and JEDI) have entered into
an amendment and restatement of the Voting and Shareholders Agreement in the
form attached as Exhibit C;
3.6. First Union, Hightower, NGP (and JEDI) have entered into
an amendment to the Registration Rights Agreement in the form attached as
Exhibit D;
3.7. The General Partner has delivered to First Union evidence
of the consent of (i) the limited partners of the Partnership in accordance
with the terms of the Limited Partnership Agreement to the waiver of the
preemptive rights of the limited partners under Section 3.2 of the Limited
Partnership Agreement and (ii) the shareholders of the General Partner in
accordance with the terms of the Articles of Incorporation to the waiver of the
preemptive rights of the shareholders under Article 11 of the Articles of
Incorporation;
3.8. The Partnership, the General Partner and First Union have
entered into a Designation Agreement in the form attached as Exhibit E;
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3.9. The General Partner, Hightower, NGP, JEDI and First Union
have entered into an Agreement Re: Conversion Event in the form attached as
Exhibit F;
3.10. The General Partner has delivered to First Union a
certificate of its president and secretary in the form attached as Exhibit G;
and
3.11. Thompson & Knight, counsel to Titan, has delivered to
First Union its legal opinion in the form attached as Exhibit H.
4. Representations and Warranties of Titan. The General Partner and
the Partnership hereby represent and warrant, jointly and severally, to First
Union as follows, as of the date hereof, but it is expressly agreed by the
parties hereto that each representation and warranty set forth in this Section
4, is made prior to and does not include or cover any of the assets and
properties to be acquired in the Acquisition (it being acknowledged that the
representation contained in Section 4.24 is being made notwithstanding such
exclusion and the representation in such section refers to the Company Reserve
Report used by Titan in connection with its evaluation of such assets and
properties, but is not a representation as to such assets and properties):
4.1. Organization and Qualification.
4.1.1. The Partnership is a limited partnership duly
organized, validly existing and in good standing under the laws of the
State of Texas and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and the Related
Documents and to consummate the transactions contemplated thereby. The
Partnership is duly qualified to do business and is in good standing as
a foreign limited partnership in each jurisdiction where the nature of
the properties owned or the business transacted by the Partnership
requires it to be so qualified, the failure of which would have a
Material Adverse Effect.
4.1.2. The General Partner is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and Related
Documents and to consummate the transactions contemplated thereby. The
General Partner is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction where the nature of the
properties owned or the business transacted by the General Partner
requires it to be so qualified, the failure of which would have a
Material Adverse Effect.
4.2. Capitalization.
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4.2.1. The entire authorized capital stock of the General
Partner consists of 100,000 shares of Common Stock of which 20,540
shares, other than the 5,135 shares of Common Stock to be issued to JEDI
under the JEDI Purchase Agreement and the 2,567.5 shares of Common Stock
to be issued to First Union hereunder, are issued and outstanding, fully
paid and nonassessable and held beneficially and of record by the
shareholders as set forth on Schedule 4.2. There are no shares of
Common Stock reserved for issuance.
4.2.2. Schedule 1 to the Limited Partnership Agreement and
Schedule 1 to the Option Plan lists all of the issued and outstanding
Units and Options, respectively, other than the 5,083,650 Units to be
issued to JEDI hereunder and the 2,541,825 Units to be issued to First
Union hereunder, all of which are fully paid and nonassessable and held
beneficially and of record by the partners or option holders, as
applicable, set forth therein. Other than Units reserved for issuance
upon exercise of the Options, there are no Units reserved for issuance.
4.2.3. Upon issuance, the Securities will be validly
issued, fully paid and non-assessable. Other than the Options or as set
forth in the Limited Partnership Agreement or the Shareholders
Agreement, there are no outstanding subscriptions, options, convertible
securities, indebtedness convertible into equity securities, warrants,
calls or rights of any kind (issued, contracted for, granted by, or
binding upon the General Partner or the Partnership) to purchase or
otherwise acquire any security of or equity interest in the General
Partner or the Partnership. Other than the Registration Rights
Agreement, there are no outstanding registration rights relating to the
capital stock of the General Partner or interests in the Partnership.
All capital stock of the General Partner and partnership interests in
the Partnership have been issued in compliance with exemptions from the
registration requirements of federal and state securities laws, as
applicable. Except as set forth in the Limited Partnership Agreement or
the Shareholders Agreement, neither the General Partner nor the
Partnership has any obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interest
therein or to pay any dividend or make any other distribution in respect
thereof. Neither the General Partner (except with respect to the
Partnership) nor the Partnership has any Subsidiaries.
4.3. Authorization and Validity of Agreement and Related
Documents. The General Partner has full corporate power and authority and the
Partnership had full power and authority to execute and deliver this Agreement
and the Related Documents, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution, delivery and
performance of this Agreement and the Related Documents by Titan and the
consummation of the transactions contemplated thereby, have been duly
authorized and approved by the Board of Directors of the General Partner and no
other action on the part of Titan is necessary to authorize the execution,
delivery and performance of this Agreement or the Related Documents by Titan
and the consummation of the transactions contemplated thereby. This Agreement
and the Related Documents have been duly executed and delivered by Titan and
are valid and binding obligations of Titan enforceable against Titan in
accordance with their respective terms, except to the extent that such
enforceability may be subject to applicable
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bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
4.4. Consents and Approvals; No Violations. The execution,
delivery and performance of this Agreement and the Related Documents by Titan
and the consummation by Titan of the transactions contemplated thereby will
not, with or without the giving of notice or the lapse of time or both: (i)
violate, conflict with, or result in a breach or default under any provision of
the charter or bylaws of the General Partner or the Limited Partnership
Agreement; (ii) violate any statute, ordinance, rule, regulation, order,
judgment or decree of any court or of any governmental or regulatory body,
agency or authority applicable to Titan or by which any of its properties or
assets may be bound; (iii) require any filing by or with, or require Titan to
obtain any Permit from, or require Titan to give any notice to, any
governmental or regulatory body, agency or authority other than as set forth on
Schedule 4.4 attached hereto; or (iv) other than as set forth on Schedule 4.4
attached hereto, result in a violation or breach by Titan of, conflict with,
constitute (with or without due notice or lapse of time or both) a default by
Titan (or give rise to any right of termination, cancellation, payment or
acceleration) under or result in the creation of any Encumbrance other than a
Permitted Encumbrance upon any of the properties or assets of Titan under any
of the terms, conditions, or provisions of any Permit, Contract, Lease or other
instrument or obligation to which Titan is a party, or by which it or any of
its properties or assets may be bound.
4.5. No Amendments to Governing Documents. The Articles of
Incorporation of the General Partner have not been amended since their filing
with the Secretary of State of Texas on March 30, 1995 and, other than in
connection with this Agreement, the Bylaws of the General Partner have not been
amended since their initial adoption by the Board of Directors on March 30,
1995. Other than in connection with this Agreement, the Limited Partnership
Agreement, including Schedule 1 thereto, has not been amended since its
execution as of March 31, 1995. The Option Plan, including Schedule 1 thereto,
has not been amended since its effective date.
4.6. Title to Properties. The Partnership has Defensible Title
to its Oil and Gas Properties. The Partnership has title to all of its real
and personal property other than the Oil and Gas Properties free of all
Encumbrances other than the Permitted Encumbrances. Schedule 4.6 sets forth a
complete description of all real and personal property owned by the General
Partner and having a value in excess of $100,000. The General Partner has
title to all of its real and personal property free of all Encumbrances other
than the Permitted Encumbrances. Schedule 1.1 contains a complete and
accurate list of the status of any "payout" balance, as of the dates shown in
Schedule 1.1, for each well that is subject to a reversion or other adjustment
at some level of cost recovery or payout.
4.7. Contracts. Except as set forth in Schedule 4.7, Titan is
not a party to or otherwise bound by:
4.7.1. other than the Employment Agreement, any Contract
for the employment of any officer, employee or other person (whether of a
legally binding nature or in
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the nature of informal understandings) on a full-time or consulting basis which
is not terminable on notice without cost or other liability to Titan, except
normal severance arrangements and accrued vacation pay;
4.7.2. other than the Option Plan, any bonus, pension,
profit-sharing, retirement, hospitalization, insurance, stock purchase, stock
option or other plan, contract or understanding pursuant to which benefits are
provided to any employee of Titan (other than group insurance plans applicable
to employees generally);
4.7.3. other than the Credit Agreement and the instruments
executed in connection therewith and any capital lease of assets not exceeding
a total cost to Titan in excess of $25,000, any Contract relating to the
borrowing of money or to the mortgaging or pledging of, or otherwise placing a
lien or security interest on, any asset of Titan; or any guaranty of any
obligation for borrowed money or otherwise;
4.7.4. other than the Anadarko Agreement, the Credit
Agreement, any Contracts relating to hedges and commodity swaps entered into
with First Union, Enron Capital & Trade Resources Corp. and Texas Commerce Bank
National Association (or any of their respective Affiliates) (the "Hedge
Agreements") and any Contracts entered into in the normal course of Titan's
sale of Substances, any tax sharing agreement or any Contract providing for
environmental indemnification of another party;
4.7.5. other than the Shareholders Agreement, the Limited
Partnership Agreement and the General Partner's Articles of Incorporation, any
voting trust or agreement, shareholders' agreement, pledge agreement, buy-sell
agreement or first refusal or preemptive rights agreement relating to any
securities of Titan;
4.7.6. other than the Options, any Contract or obligation
(contingent or otherwise) to issue, sell or otherwise distribute or to
repurchase or otherwise acquire or retire any share of its capital stock or
partnership interests, as applicable, or any of its other equity securities;
4.7.7. other than the Limited Partnership Agreement,
Shareholders Agreement, Registration Rights Agreement, Option Plan, Employment
Agreement, Financial Advisory Services Contract, Non-Compete Agreements, the
Administrative Services Contract with Staley Operating Co., dated March 31,
1995, and the purchase agreement pursuant to which Titan acquired Oil and Gas
Properties and related assets from certain of its officers and their
affiliates, any Contract with any affiliate;
4.7.8. any Contract under which it has granted any person
any registration rights, other than the Registration Rights Agreement;
4.7.9. any Contract under which it has limited or
restricted its right to compete with any person in any respect;
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4.7.10. other than the Hedge Agreements, any Contract for
the sale, exchange or other disposition of Substances produced from the Oil and
Gas Properties that is not cancelable without penalty on not more than 60 days
prior written notice;
4.7.11. any option to purchase or call on the Substances
produced from the Oil and Gas Properties;
4.7.12. any material Contract that contains terms or
conditions that are not customary in the oil and gas industry; or
4.7.13. any other Material Contract not described in the
foregoing provisions of this 4.7.
4.8. Status of Contracts. All of the Contracts and other
obligations of Titan that relate to its properties (i) are in full force and
effect, and (ii) neither Titan nor, to the knowledge of Titan, any other party
to the Contracts (a) is in breach of or default, or with the lapse of time or
the giving of notice, or both, would be in breach or default, with respect to
any of its obligations thereunder to the extent that such breaches or defaults
could have a Material Adverse Effect or (b) has given or threatened to give
notice of any default under or inquiry into any possible default under, or
action to alter, terminate, rescind or procure a judicial reformation of any
Contract.
4.9. Permits and Intellectual Property. Titan possesses all
Permits and Intellectual Property which are necessary to its business as
presently conducted. All of the foregoing items are in full force and effect.
Titan has not received any notice that it is infringing upon the Intellectual
Property of any other person, and Titan is not aware of any such infringement.
4.10. Compliance with Laws. Titan has complied and is in
compliance with all applicable federal, state, municipal and other political
subdivision or governmental agency statutes, ordinances and regulations in
every applicable jurisdiction, in respect of the ownership of its properties
and the conduct of its business, including, without limitation, all
occupational safety and health, fair employment, equal opportunity and
antitrust laws, rules and regulations. Titan is not aware of any facts,
conditions or circumstances in connection with, related to or associated with
its properties or the ownership or operation of any thereof that could
reasonably be expected to give rise to any claim or assertion that Titan, its
properties or the ownership or operation of any thereof is not in compliance
with any applicable law, rule, regulation, ordinance, order, decision or decree
of any governmental authority or with any term or conditions of any applicable
permit, license, approval, consent, certificate or other authorization. The
Partnership is treated as a partnership for federal income tax purposes.
4.11. Environmental Laws and Regulations. Except as is set forth
on Schedule 4.11.1 or in the written environmental assessment reports
previously delivered to First Union and listed on Schedule 4.11.2, (i) Titan,
its properties and the ownership and operation thereof are in compliance with
all applicable Environmental Laws and all prior instances of non-compliance
have been fully and finally resolved to the satisfaction of all governmental
authorities with
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jurisdiction over such matters; (ii) neither Titan, its properties, nor the
ownership or operation thereof is subject to any Environmental Claim or
Environmental Liabilities, arising from, based upon, associated with or related
to the properties or the ownership or operation of any thereof; (iii) Titan has
not received any notice of any Environmental Claim, Environmental Liabilities
or any violation or non-compliance with any Environmental Law, arising from,
based upon, associated with or related to its properties or the ownership or
operation of any thereof; (iv) no Hazardous Materials are present, or have been
handled, managed, stored, transported, processed, treated, disposed of,
released, migrated or have escaped on, in, from, under or in connection with
Titan's properties or the ownership or operation of any thereof, such as to
cause a condition or circumstance that could reasonably be expected to result
in an Environmental Claim or Environmental Liabilities or a violation of any
Environmental Law; and (v) Titan is not otherwise aware of any facts,
conditions or circumstances in connection with, related to or associated with
its properties or the ownership or operation of any thereof, that could
reasonably be expected to give rise to any Environmental Claim, Environmental
Liabilities or any claim or assertion that Titan, its properties or the
ownership or operation thereof are not in compliance with all Environmental
Laws.
4.12. Production Balances and Penalties; Other Production Sales
Matters. Except as set forth on Schedule 4.12 or as otherwise could not either
individually or in the aggregate cause a Material Adverse Effect (i) none of
the purchasers under any production sales contracts is entitled to "make-up" or
otherwise receive deliveries of Substances without paying at the time of such
deliveries the full contract price therefor by reason of prior payments; (ii)
none of the purchasers under any production sales contracts has exercised any
economic out provision; (iii) none of the purchasers under any production
sales contracts has curtailed its takes of natural gas in violation of such
contracts; (iv) none of the purchasers under any production sales contracts has
given notice that it desires to amend the production sales contracts with
respect to price or quantity of deliveries under take-or-pay provisions or
otherwise; (v) no person is entitled to receive any portion of the interest of
the Partnership in any Substances or to receive cash or other payments to
"balance" any disproportionate allocation of Substances under any operating
agreement, gas balancing and storage agreement, gas processing or dehydration
agreement, gas transportation or other similar agreements; and (vi) Titan is
not obligated to pay any penalties or other payments under any gas
transportation or other agreement as a result of the delivery of quantities of
gas from the Oil and Gas Properties in excess of the contract requirements.
4.13. Well Status. As of the date of this Agreement, the
Partnership's accrued plugging and abandonment liabilities are less than
$100,000 with respect to all wells located on the Oil and Gas Properties that
(i) Titan is currently obligated by law or contract to presently plug and
abandon; (ii) Titan will be obligated by law or contract to plug and abandon
with the lapse of time or notice or both because the well is not currently
capable of producing Substances in commercial quantities or otherwise currently
being used in normal operations; (iii) are subject to exceptions to a
requirement to plug and abandon issued by a regulatory authority having
jurisdiction over the Oil and Gas Properties; or (iv) to the best knowledge of
Titan, have been plugged and abandoned but have not been plugged in accordance
in all material respects with all applicable requirements of each regulatory
authority having jurisdiction over the Oil and Gas Properties.
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4.14. Current Commitments. Schedule 4.14 contains a true and
complete list as of the date of this Agreement of all authorities for
expenditures ("AFEs") to drill or rework wells or for capital expenditures
pursuant to any of the Contracts having a cost to the Partnership in excess of
$500,000 that either (i) have been proposed by any person on or after August 1,
1995 or (ii) not been fully funded by all parties participating in such AFE.
4.15. Litigation and Claims. There is no litigation at law or
in equity, and no proceeding or investigation before or by any governmental
agency pending or, to the knowledge of Titan, threatened against or affecting
Titan or its properties or the transactions contemplated in this Agreement or
the Related Documents and Titan is not aware of any facts, conditions or
circumstances in connection with, related to or associated with its properties
or the ownership or operation of any thereof that could reasonably be expected
to give rise to any such claim, demand, filing, investigation, administrative
proceeding, action, suit or other legal proceeding. There are no judgments or
outstanding orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency, or by arbitration, pursuant to a
grievance or other procedure) against or affecting Titan or its properties or
business. Titan has not received any notice from any governmental authority
or any other person (including employees) (i) claiming any violation or
repudiation of the Oil and Gas Properties or any violation of any law, rule,
regulation, ordinance, order, decision or decree of any governmental authority
(including, without limitation, any such law, rule, regulation, ordinance,
order, decision or decree concerning the conservation of natural resources) or
(ii) requiring, or calling attention to the need for, any work, repairs,
construction, alterations, installations, remediation, response, removal or
abatement actions, restoration, investigation or monitoring of, on, in, under,
in connection with or related to its properties or the ownership or operation
of any thereof. There is no action or suit by Titan pending or threatened
against others.
4.16. Production Burdens, Taxes, Expenses and Revenues. All
rentals, royalties, excess royalty, overriding royalty interests and other
payments due under or with respect to the Oil and Gas Properties have been
properly and timely paid. All Taxes which have become due and payable by Titan
have been properly and timely paid. No waiver of the time to assess any Tax is
in effect and no request for a waiver is pending. All expenses payable under
the terms of the Contracts have been properly and timely paid except for such
expenses as are being currently paid prior to delinquency in the ordinary
course of business or that are being contested in good faith, for which
reserves or other provisions, if appropriate, have been made and reflected in
the Interim Balance Sheet. All of the proceeds from the sale of Substances are
being properly and timely paid to Seller by the purchasers of production
without suspension or indemnity other than standard division order indemnities.
4.17. Financial Statements. The General Partner has delivered
to First Union the unaudited balance sheets of the General Partner and the
Partnership for the six-month period ended September 30, 1995 (the "Interim
Balance Sheet") and the related unaudited statements of income and cash flows
(all of the foregoing being referred to as the "Financial Statements"). The
Financial Statements have been prepared in accordance with the books and
records of Titan and
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present fairly the financial position of Titan at the dates indicated and the
results of its operations for the periods indicated.
4.18. Books and Records. The books and records of Titan
(including the books and records of account) are in all material respects
complete and correct and reflect the record of all financial affairs, meetings
and proceedings of the Board of Directors and the shareholders of the General
Partner and the partners of the Partnership.
4.19. Absence of Undisclosed Liabilities. Except with respect
to liabilities incurred pursuant to the terms of the Credit Agreement or as
reflected in the Interim Balance Sheet or on Schedule 4.19 hereto, Titan has
not incurred, and none of its assets or properties are subject to, any absolute
or contingent liabilities or obligations other than liabilities arising in the
ordinary course of their business since the date of the Interim Balance Sheet.
Titan is not aware of any facts in existence on the date hereof which might
serve as the basis for any such liability or obligation which are not disclosed
on the Interim Balance Sheet.
4.20. Absence of Changes. Since the date of the Interim
Balance Sheet, there has not been:
4.20.1 any event either individually or in the aggregate,
which could cause a Material Adverse Effect;
4.20.2 any obligation or liability incurred by Titan or
any agreement to issue any such obligation or liability other than in the
ordinary course of its business, as contemplated by or described in the Interim
Balance Sheet or incurred pursuant to the terms of the Credit Agreement;
4.20.3 any direct or indirect redemption, purchase or
other acquisition by Titan of any shares of its equity securities, or any
declaration, setting aside or payment of any dividends or other distributions
in respect of any such securities or agreement to do so;
4.20.4 any material reduction in the rate of production of
Substances from any of the Oil and Gas Properties other than changes (i) in the
ordinary course of operation, (ii) that result from depletion in the ordinary
course of operation and (iii) that result from variances in markets for
Substances ; or
4.20.5 any Casualty Loss with respect to any of the Oil
and Gas Properties, whether or not covered by insurance.
4.21. Employee Benefit Plans. None of the Employee Benefit
Plans are subject to Title IV of ERISA or the minimum funding obligations of
Section 412 of the Code, and Titan and any entity required to be aggregated
therewith pursuant to Section 414(b) or (c) of the Code have no liability under
Title IV of ERISA or under Section 412(f) or 412(n) of the Code.
15
<PAGE> 20
4.22. No Brokers. Other than the advisory fees to be paid to
ECT Securities and the payments due by Titan to The Winrock Group, Ltd. (or its
Affiliates), Titan has no direct or indirect agreement with any person, firm or
corporation for the payment of any commission, brokerage or "finder's fee" in
connection with the transactions contemplated herein.
4.23. Governmental Regulation. Titan is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, nor is Titan subject to regulation under the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to incur indebtedness for borrowed money.
4.24. Reserve Report. Reserve Report. Titan has delivered to
First Union (i) a copy of a reserve report prepared by the Company dated
October 16, 1995 entitled "Titan Resources, L.P. Anadarko Purchase Economics
Book 1 and Book 2 prepared by Rodney Woodard" covering the Oil and Gas
Properties being acquired in the Acquisition (the "Company Reserve Report"),
and (ii) a reserve report prepared by Williamson Petroleum Consultants
("Williamson Report") dated October 12, 1995, with respect to all of the
Partnership's existing Oil and Gas Properties (collectively, the "Reserve
Reports") relating to the oil and gas reserves attributable to the Oil and Gas
Properties owned by the Partnership (collectively, the "Reserves"). The
estimates of the Reserves in the Company's Reserve Report were prepared in
accordance with standard geological and engineering methods generally applied
by Titan, which, to Titan's knowledge, are consistent with those accepted in
the oil and gas industry, and were based upon historical factual information
provided to it by Anadarko. The estimates of the Reserves in the Williamson
Report were prepared in accordance with standard geological and engineering
methods generally accepted in the oil and gas industry. The estimates of the
lease operating expenses in the Williamson Report are reasonable and represent
the historical experience of the Oil and Gas Properties covered therein. The
historical factual information relied on in connection with the preparation of
the Williamson Report was accurate and complete in all material respects. The
Company is not aware of any facts which have caused it to question the factual
information upon which the Reserve Reports were based.
4.25. Disclosure. No representation or warranty by Titan in
this Agreement (including the Schedules attached hereto) or in any certificate
or other document delivered by or on behalf of Titan to First Union in
connection herewith, contains any untrue statement of a material fact, or omits
to state a material fact which would be necessary to make the statements
contained herein or therein not misleading. There is no fact known to Titan
that either individually or in the aggregate could result in a Material Adverse
Effect that has not been set forth in this Agreement or otherwise disclosed in
writing to First Union in connection herewith other than matters generally
affecting the oil and gas industry. Titan has provided to First Union a true
and correct copy of the Anadarko Agreement and has provided or otherwise made
available for review by First Union and its agents and representatives, all of
the documents, instruments, reports, opinions and other records and written
information provided to Titan by or on behalf of
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<PAGE> 21
Anadarko Petroleum Corp. as of the date hereof in connection with the
Acquisition (the "Acquisition Information").
5. Representations and Warranties of First Union. First Union
represents and warrants to Titan as follows:
5.1. Authorization and Validity of Agreement. First Union is a
corporation duly organized, validly existing and in good standing under the
laws of the State of North Carolina and has all requisite power and authority
to execute, deliver and perform its obligations under this Agreement and the
Related Documents and to consummate the transactions contemplated thereby.
This Agreement and the Related Documents have been duly executed and delivered
by an authorized officer of First Union and are valid and binding obligations
of First Union enforceable against First Union in accordance with its terms,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
5.2. Consents and Approvals; No Violations. The execution,
delivery and performance of this Agreement and the Related Documents by First
Union and the consummation by First Union of the transactions contemplated
thereby will not, with or without the giving of notice or the lapse of time or
both: (i) violate, conflict with, or result in a breach or default under any
provision of its charter or bylaws; (ii) violate any statute, ordinance, rule,
regulation, order, judgment or decree of any court or of any governmental or
regulatory body, agency or authority applicable to First Union or by which any
of its properties or assets may be bound; (iii) require any filing by with, or
require First Union to obtain any Permit from, or require First Union to give
any notice to, any governmental or regulatory body, agency or authority; or
(iv) result in a violation or breach by First Union of, conflict with,
constitute (with or without due notice or lapse of time or both) a default by
First Union (or give rise to any right of termination, cancellation, payment or
acceleration) under or result in the creation of any Encumbrance upon any of
the properties or assets of First Union under any of the terms, conditions, or
provisions of any Permit, Contract, Lease or other instrument or obligation to
which First Union is a party, or by which it or any of its properties or assets
may be bound.
5.3. No Brokers. First Union has no direct or indirect
agreement with any person, firm or corporation for the payment of any
commission, brokerage or "finder's fee" in connection with the transactions
contemplated herein.
5.4. Compliance with Securities Laws. First Union represents
that it is an "accredited investor" within the meaning of Regulation D under
the Securities Act of 1933, as amended. First Union further represents and
warrants that it has reviewed all of the representations and warranties set
forth in Section 10.1 of the Partnership Agreement, which (except for Sections
10.1(i) and 10.1(k)(i)) are incorporated herein by reference as if fully set
forth herein, and hereby makes such incorporated representations and warranties
with respect to its acquisition of the Common Stock as well as its acquisition
of the Units.
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<PAGE> 22
5.5. Acknowledgment of Risks; Availability of Information;
Independent Engineering. First Union acknowledges that the purchase of
Securities involves a number of significant risks and that an investment in
Titan may result in a loss of all or part of its investment in the Securities.
First Union has carefully evaluated these risks before making a decision to
purchase the Securities. First Union further acknowledges that (i) Titan has
made available to First Union and its attorneys, accountants, engineers and
other advisors, (hereafter collectively, the "Purchaser Advisors"), prior to
any issuance of the Securities, all documents or other matters that they have
requested relating to Titan and its proposed operations and an investment in
Titan or any other matters requested by such persons, (ii) Titan has accorded
First Union and the Purchaser Advisors the opportunity to review files of Titan
relating to its currently owned properties and the Acquisition Information and
to ask questions and receive answers from Titan and the engineering, legal,
accounting and other advisors of Titan to all their questions concerning Titan
and its operations and an investment in Titan and such other matters raised by
First Union and the Purchaser Advisors, (iii) Titan has provided documents,
responses to questions and other materials, (iv) First Union has conducted its
own independent engineering review of Titan's Oil and Gas Properties and the
properties to be acquired by Titan in the acquisition; and (v) First Union
acknowledges that Titan has identified to it certain properties which were
initially contemplated to be acquired by Titan in the Acquisition which are now
contemplated to be sold by Anadarko to certain third parties as of the
effective date of the Acquisition (resulting in an approximately $14.4 million
reduction in the purchase price).
6. Covenants. From and after the date hereof for so long as First
Union or an Affiliate of First Union continues to own the Units or Shares of
Common Stock initially purchased hereunder, the parties agree as follows:
6.1. Financial Reports. Titan shall deliver monthly financial
statements to First Union including a balance sheet and related income
statement and covering the matters provided for in Section 7.3(a) of the
Limited Partnership Agreement. In addition, Titan shall concurrently deliver
to First Union reports, on an aggregate basis, relating to Titan's monthly
production volumes, revenues, sales volumes, lease operating expenses, capital
expenditures, net cash flow and such other information as First Union may
reasonably request in writing from time to time. The foregoing reports shall
be delivered monthly within the time periods set forth in Section 7.3(a) of the
Limited Partnership Agreement.
6.2. Amendment of Agreements. During any period in which First
Union owns an equity interest in Titan, Titan shall not, without the prior
written consent of First Union, (i) amend the Financial Advisory Services
Contract(other than an amendment thereto to increase the fee payable thereunder
by $10,000 per annum, to be entered into concurrently with or promptly after
the consummation of the purchase of the Securities) nor enter into any similar
agreement with NGP or (ii) make any preferential distributions or payments to
NGP.
6.3. ERISA Status of First Union. Upon the request of Titan at
the time of admission of any additional limited partners after the date hereof
or at the time any action is to be taken to adjust sharing ratios of the
partners, First Union will provide a certificate to Titan stating whether at
that time First Union is or is not (i) an employee benefit plan as defined in
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<PAGE> 23
Section 3(3) of the United States Employee Retirement Income Security Act of
1974, as amended ("ERISA") (whether or not subject to the provisions of Title I
of ERISA), (ii) a plan described in Section 4975(e)(1) of the Code, or (iii)
any other entity that is treated as a "benefit plan investor," within the
meaning of United States Department of Labor Regulation Section 2510.3-
101(f)(2) other than a government plan wholly exempt from the coverage of
ERISA.
7. Claims.
7.1. Survival. The liability of First Union and Titan under
each of their respective representations, warranties and covenants contained in
this Agreement shall survive the execution and delivery of this Agreement and
the Related Documents, notwithstanding any investigation made by or on behalf
of the other party. Any assertion by First Union that either the Partnership
or the General Partner is liable for the inaccuracy of any representation or
warranty or the breach of any covenant under the terms of this Agreement or the
Related Documents must be made (i) pursuant to the terms of this Section 7 and
(ii) in writing and must be given to the Partnership not later than the first
Business Day after the first anniversary of the date hereof. The notice shall
state the facts known to First Union giving rise to such notice in sufficient
detail to allow the Partnership and the General Partner to evaluate the claim.
7.2. Demands. The parties hereto agree that First Union shall
not have the right to make a claim with respect to, or receive any recovery
for, a breach by the General Partner or the Partnership of a representation,
warranty or covenant hereunder until the aggregate amount of losses suffered
by First Union as a result of all such breaches exceeds $500,000, at which time
the General Partner and the Partnership shall thereafter be jointly and
severally liable for all losses incurred in excess of such amount, subject to
Section 7.3 below. In determining whether First Union has incurred or suffered
a loss for purposes of this Section 7.2, First Union shall combine, without
duplication, (i) all direct losses suffered by First Union as a result of any
claim made pursuant to the terms of this Section 7 and (ii) First Union
proportionate share of any direct losses suffered or incurred by Titan as the
result of any act, event, condition or omission that gives rise to a claim by
First Union pursuant to the terms of Section 7.1. First Union's proportionate
share as referenced in clause (ii) above shall be deemed to be 9.09% with
respect to direct losses incurred by Titan. All payments made to First Union's
pursuant to the terms of this Section 7 shall be grossed up to compensate First
Union for payments it is deemed to be making to itself as a result of its
equity investment in Titan.
7.3. Claim Cap. When First Union has been paid $2,500,000
pursuant to Section 7.2, First Union shall not be entitled to make any
additional claims against or receive any additional payments from Titan with
respect to losses arising as a result of any breaches of representations or
warranties under Sections 4.6., 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14,
4.15, 4.16, 4.19, 4.20, 4.24 or 4.25. Under no circumstances shall the
aggregate amount paid to First Union pursuant to Section 7.2 exceed $5,000,000.
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<PAGE> 24
8. Miscellaneous.
8.1. Expenses. The Partnership shall reimburse First Union for
all of First Union's legal fees, professional fees and other transaction costs
incurred in the evaluation and negotiation of this Agreement and the Related
Documents; provided, however, that the Partnership's obligations with respect
to such fees and costs shall not exceed $20,000. The Partnership shall
promptly reimburse First Union for such expenses upon presentation to the
Partnership of a statement of such expenses. All expenses of Titan (including
all broker's or finder's fees or commissions) shall be paid by Titan.
8.2. Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by either party to the other (herein
collectively called "Notice") shall be in writing and delivered in person or by
courier service requiring acknowledgment of receipt of delivery or mailed by
certified mail, postage prepaid and return receipt requested, or by telecopier,
as follows:
If to Titan, addressed to:
Titan Resources I, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Mr. Jack Hightower
Telecopy: (915) 687-0192
with a copy to:
Mr. Jeff Zlotky
Thompson & Knight
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201-4693
Telecopy: (214) 969-1751
If to First Union, addressed to:
First Union Corporation
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. Ted A. Gardner
Telecopy: (704) 374-6711
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<PAGE> 25
with a copy to:
Mr. Ken Bramlett
Robinson, Bradshaw & Hinson, P.A.
1900 Independence Center
101 North Trion Street
Charlotte, North Carolina 28246
Telecopy: (704) 378-4000
Notice given by personal delivery, courier service or mail shall be
effective upon actual receipt. Notice given by telecopier shall be
confirmed by appropriate answer back and shall be effective upon actual
receipt if received during the recipient's normal business hours, or at
the beginning of the recipient's next business day after receipt if not
received during the recipient's normal business hours. All Notices by
telecopier shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. Any party may change any address
to which Notice is to be given to it by giving Notice as provided above
of such change of address.
8.3. Amendments. This Agreement may be amended only by an
instrument in writing signed by the parties hereto.
8.4. Remedies. In addition to the remedies available to First
Union under Section 7 with respect to the covenants or agreements of Titan
following the date hereof, such covenants and agreements shall be specifically
enforceable by First Union (to the extent that such covenants and agreements
run in favor of First Union), and Titan and the Subsidiaries agree to waive the
posting of any bond in connection with the issuance of any injunction or other
equitable relief in connection therewith. These remedies shall constitute the
exclusive remedies available to First Union with respect to the covenant or
agreements of Titan hereunder.
8.5. Governing Law. The provisions of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Texas (excluding any conflicts-of-law rule or principle that might refer
same to the laws of another jurisdiction), except to the extent that same are
mandatorily subject to the laws of another jurisdiction pursuant to the laws of
such other jurisdiction.
8.6. Entire Agreement; Waivers. This Agreement constitutes the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth specifically
herein or contemplated hereby. No waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. The failure of a
party to exercise any right or remedy shall not be deemed or constitute a
waiver of such right or remedy in the future. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless
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<PAGE> 26
of whether similar), nor shall any such waiver constitute a continuing waiver
unless otherwise expressly provided.
8.7. Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns; provided, that (1) all rights and
benefits granted to First Union by this Agreement shall be freely assignable by
First Union with the proper transfer of First Union shares of Common Stock or
Units, and (2) this Agreement may not be assigned by Titan except upon the
prior written consent of First Union. Nothing in this Agreement, express or
implied, is intended to confer upon any person or entity other than the parties
hereto and their respective permitted successors and assigns, any rights,
benefits or obligations hereunder.
8.8. Severability. If any provision of the Agreement is
rendered or declared illegal or unenforceable by reason of any existing or
subsequently enacted legislation or by decree of a court of last resort, First
Union and Titan shall promptly meet and negotiate substitute provisions for
those rendered or declared illegal or unenforceable, but all of the remaining
provisions of this Agreement shall remain in full force and effect.
8.9. Headings. The headings of the sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
8.10. Singular and Plural. Words used herein in the singular,
except where the context would otherwise require, shall be deemed to include
the plural and vice versa. The definitions of words in the singular herein
shall apply to such words when used in the plural where the context so permits
and vice versa.
8.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
TITAN RESOURCES I, INC.
By: /s/ JACK HIGHTOWER
----------------------------------------
Name: Jack Hightower
--------------------------------------
Title: President
-------------------------------------
TITAN RESOURCES, L.P.
by Titan Resources I, Inc.
its General Partner
By: /s/ JACK HIGHTOWER
----------------------------------------
Name: Jack Hightower
--------------------------------------
Title: President
-------------------------------------
FIRST UNION CORPORATION
By: /s/ TED A. GARDNER
----------------------------------------
Name: Ted A. Gardner
--------------------------------------
Title: Senior Vice President
-------------------------------------
23
<PAGE> 1
EXHIBIT 10.11.1
TITAN RESOURCES, L.P.
DESIGNATION AGREEMENT
THIS DESIGNATION AGREEMENT (this "Agreement"), dated as of December 11,
1995, is made by and among Titan Resources, L.P., a Texas limited partnership
(the "Partnership"), Titan Resources I, Inc., a Texas corporation and the
general partner of the Partnership (the "General Partner"), and First Union
Corporation, a North Carolina corporation (along with its permitted successors
and assigns, "First Union").
W I T N E S S E T H :
WHEREAS, concurrently with the execution of this Agreement, the
Partnership, the General Partner and First Union have entered into that certain
Stock and Unit Purchase Agreement pursuant to which First Union shall acquire
limited partnership units of the Partnership; and
WHEREAS, Section 3.2 of the Agreement of Limited Partnership dated as of
March 31, 1995, as amended, of the Partnership (the "Partnership Agreement")
provides that the Partnership may enter into separate agreements to set forth
the respective rights of additional Units issued by the Partnership to a
Limited Partner; and
WHEREAS, the parties hereto desire to enter into this Agreement in order
to designate certain rights and privileges that pertain to the Units that First
Union has acquired in the Partnership;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein, in the Stock and Unit Purchase Agreement and
in the Partnership Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Certain Definitions. Terms used in this Agreement and not
otherwise defined shall have the meanings set forth in the Partnership
Agreement.
2. Additional Definitions. The following additional terms used
herein shall be defined as follows:
"First Union Group" shall mean First Union and its affiliates to
which a Permitted Transfer is made.
"Permitted Transfer" shall mean a transfer of the Partnership
interest of First Union to any person that is an affiliate of First
Union; provided, however, that for the purpose of this Agreement, (i) a
person shall be an "affiliate" of First Union only in the event that
<PAGE> 2
such person directly or indirectly controls or manages, is controlled or
managed by or is under common control or management with First Union.
As used in the preceding sentence, control includes control of the
management and policies of another person, whether through the ownership
of voting securities, partnership interests, by contract or otherwise;
and without limiting the foregoing, it shall be deemed that the
ownership of more than 50% of the voting securities, partnership
interests or percentage interest of another person shall be deemed to
meet such control test.
"Transfer" or "transfer" shall mean the sale, transfer,
assignment, hypothecation, or other disposition, encumbrance or
alienation of any interest in the Partnership (including Units), or any
right or interest therein.
3. Special Preemptive Rights.
(a) Notwithstanding any contrary provision of the Partnership
Agreement, First Union shall have preemptive rights to acquire any (i)
additional Units, (ii) classes or series thereof, (iii) options, rights,
warrants or appreciation rights relating thereto, (iv) any other type of equity
security that the Partnership may lawfully issue, (v) any debt obligations of
the Partnership convertible into any class or series of equity securities of
the Partnership (collectively, "Partnership Securities"), to be issued for cash
such that First Union may retain its Sharing Ratio equal to that existing at
the time immediately prior to the issuance of such Partnership Securities;
provided, however, that First Union shall not have preemptive rights to acquire
any Partnership Securities issued for cash relating to employees of the
Partnership or employees of the General Partner engaged primarily in the
business and affairs of the Partnership pursuant to the incentive option plan
adopted by the Partnership on March 31, 1995.
(b) The Partnership shall provide First Union with notice prior to
the time that the Partnership proposes to issue additional Partnership
Securities for cash consideration, which notice shall contain the terms
pursuant to which the Partnership proposes to issue such additional Partnership
Securities. Within ten (10) days of its receipt of such notice, First Union
shall inform the Partnership whether it will waive its preemptive rights to
acquire such Partnership Securities or exercise its right to acquire such
additional Partnership Securities on the same terms as set forth in the
Partnership's notice. Any failure of First Union to respond to the
Partnership's notice within the required time period shall be deemed to be a
waiver of its preemptive rights to acquire the Partnership Securities described
in such notice.
4. Special Rights of First Union to Transfer Units. Notwithstanding
any contrary provision of the Partnership Agreement, subsequent to June 11,
1997, First Union may transfer its interest in the Partnership as follows:
(a) First Union shall have the right to transfer all or any portion
of its interest in the Partnership pursuant to a Permitted Transfer without
complying with the other provisions of this Section 4; provided, however, that
(i) any such transferee of the Partnership interest of First Union may not
become a substituted Limited Partner unless such transferee shall comply with
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<PAGE> 3
the provisions of Section 5 of this Agreement, (ii) the First Union Group shall
designate one person that shall receive notices and other communications from
the Partnership and communicate with the Partnership regarding the
Partnership's affairs, and (iii) the original Partnership interest of First
Union as obtained pursuant to the Stock and Unit Purchase Agreement
concurrently with the date of this Agreement shall never be owned by more than
two persons (provided that the First Union Group shall be counted as one person
for this purpose).
(b) No person may make more than two transfers of its Partnership
interest pursuant to this Section 4, other than Permitted Transfers. Any
transferee of any portion of First Union's Partnership interest pursuant to
this Section 4, other than a member of the First Union Group, may not transfer
any portion of its Partnership Interest pursuant to this Section 4 unless such
transfer is for all of its Partnership interest.
(c) In the event that First Union desires to transfer all or any
portion of its interest in the Partnership other than pursuant to a Permitted
Transfer, First Union shall comply with the terms contained in the remainder of
this Section 4. Unless First Union shall have received a "Bona Fide Offer"
from an unrelated third party (as defined in Section 4(d)) and thereby elect to
proceed in accordance with Section 4(d), First Union shall first offer to sell
the interest in the Partnership sought to be transferred to the Partnership
(the "Offer to Sell") in accordance with the terms of this Section 4(c). The
Offer to Sell to the Partnership shall be in writing and shall set forth the
Partnership interest of First Union proposed to be transferred (the "Subject
Interest"). For 30 days (or such longer period that First Union in its sole
discretion may grant to the Partnership) from the date of the Offer to Sell
(the "Expiration Date"), First Union shall provide the Partnership with the
exclusive right to negotiate a mutually acceptable agreement (a "Negotiated
Agreement") pursuant to which the Partnership shall purchase, and First Union
shall sell, the Subject Interest proposed to be transferred. In the event that
First Union and the Partnership shall reach a Negotiated Agreement with respect
to the purchase of the Subject Interest prior to the Expiration Date, then the
Partnership and First Union shall be obligated to proceed with a sale and
purchase of such Subject Interest for the consideration and upon the other
terms provided in the Negotiated Agreement in accordance with Section 4(e).
(d) In the event that First Union and the Partnership are unable to
reach a Negotiated Agreement prior to the Expiration Date, First Union shall
have an unrestricted right to seek a third party purchaser of the Subject
Interest, subject to the right of first refusal of the Partnership contained in
this Section 4(d). In the event that First Union shall desire to transfer all
or any part of its interest in the Partnership to any unrelated third party (a
"Bona Fide Offer"), and First Union desires to accept such Bona Fide Offer,
First Union shall, as a condition precedent to its right to do so, by notice in
writing (the "Notice"), inform the Partnership of such Bona Fide Offer, the
identity of the prospective party that intends to acquire the Subject Interest
pursuant to the Bona Fide Offer, the Subject Interest subject to the Bona Fide
Offer, the offered price for such Subject Interest (including the value that
First Union in good faith places on any consideration other than cash, the
manner that First Union used to obtain such value and any information that
First Union has utilized to determine such value) and all other terms and
conditions of such Bona Fide Offer. Within thirty (30) business days after the
Partnership's
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<PAGE> 4
receipt of the Notice, the Partnership shall notify First Union in writing of
the Partnership's election to purchase the Subject Interest that First Union
proposes to sell pursuant to the Bona Fide Offer; provided that in the event
that the Bona Fide Offer shall contain consideration other than cash and the
Partnership shall disagree with the value that First Union has placed on such
consideration, the Partnership shall have an additional ten (10) business days
to obtain a third party appraisal of the value of such consideration prior to
the time that it must notify First Union as to its election. If the
Partnership makes such election, the Partnership shall purchase the Subject
Interest on the same terms and conditions described in the Bona Fide Offer (or
for the equivalent cash amount set forth in the Notice with respect to any
portion of the Bona Fide Offer that is not for cash); provided that the
Partnership shall consummate such purchase of the Subject Interest within 30
days of the date that the Partnership shall notify First Union as to its
election to purchase the Subject Interest or such longer period as contained in
the Bona Fide Offer. If First Union does not receive the Partnership's notice
of such election within the above-described time period, or, if the Partnership
notifies First Union in writing that the Partnership will not make such
election, First Union shall have the right to accept the Bona Fide Offer or to
elect to retain the Subject Interest without any obligation to offer to
transfer the subject interest upon substantially the same terms as the Bona
Fide Offer. If First Union does not accept the Bona Fide Offer and retains the
Subject Interest, First Union shall be required to comply with the provisions
of this Section 4 prior to any transfer of the Subject Interest.
(e) The consummation of the sale provided in a Negotiated Agreement
pursuant to Section 4(c) or pursuant to the exercise of the right of first
refusal in Section 4(d) (the "Closing") shall occur within the 30 day period
next following the Expiration Date or such longer period of time as provided in
Section 4(d). At the time of Closing, the Partnership shall deliver the
consideration as required pursuant to the Negotiated Agreement, or the Bona
Fide Offer, as applicable, and First Union shall deliver or cause to be
delivered to the Partnership, against receipt of such consideration, such
assignments and other instruments of conveyance, warranty of title, transfer,
and assignment of the Subject Interest to be conveyed hereunder, as shall be
effective to vest in the Partnership good title and interest in and to such
interest in the Partnership, free and clear of any and all liens, encumbrances,
conditions, assessments, and restrictions. Subsequent to such Closing, First
Union from time to time at the request of the Partnership and without further
consideration, shall do, execute, acknowledge, and deliver, or shall cause to
be done, executed, acknowledged, and delivered, all such further acts, deeds,
assignments, acquittance, transfers, conveyances, powers of attorney, and
assurances as the Partnership may reasonably require more fully to convey,
assign, transfer, or confirm the Partnership interest so conveyed to the
Partnership.
5. Substitution of Transferee of First Union. Notwithstanding any
provision to the contrary contained in the Partnership Agreement, subsequent to
June 11, 1997, any transferee of any portion of the Partnership interest of
First Union may become a substituted Limited Partner if, and only if, such
transferee shall comply with the following provisions:
(a) No transfer of any Partnership interest shall be made by First
Union, (i) unless in the opinion of counsel to the Partnership, such transfer
would not cause the termination of the
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<PAGE> 5
Partnership for federal income tax purposes under section 708 of the Internal
Revenue Code, (ii) unless waived by the General Partner an opinion is rendered
to the Partnership by counsel reasonably satisfactory to the Partnership, to
the effect that such transfer may be effected without registration under the
Securities Act of 1933, as amended, and would not result in the violation of
any applicable state securities laws, and (iii) unless waived in writing by the
General Partner, if the proposed transfer would result in a person that is not
a citizen of the United States having a direct interest in such Partnership
interest.
(b) No transfer of a Partnership interest shall be made by First
Union if such transfer would cause, as reasonably determined by the General
Partner (i) the Partnership to incur a material liability under the tax laws of
any applicable federal, state, local, or foreign jurisdiction, or (ii) the
Partnership to be in violation of any applicable laws.
(c) The Partnership shall not be required to recognize any transfer
of a Partnership interest until the instrument conveying such Partnership
interest has been delivered to the General Partner for recordation on the books
of the Partnership.
(d) The transferor shall notify the General Partner of any transfer
of a Partnership interest and provide the General Partner with such information
regarding the transferee and such transfer (including the name, address, and
taxpayer identification number of the transferor and transferee and the date of
the transfer) as is required under section 6050K of the Internal Revenue Code
(if the transfer of a Partnership interest is a sale or exchange described in
section 751(a) of the Internal Revenue Code) and section 6112 of the Internal
Revenue Code (relating to tax shelter investor lists) and Treasury Regulations
promulgated thereunder by the Internal Revenue Service in the manner and at the
time prescribed by law.
(e) A transfer of Partnership interest by First Union in violation of
any provision contained in this Agreement shall be void and ineffectual and
shall not bind the Partnership or any other Partner. The transferee of First
Union's Partnership interest shall pay all costs and expenses incurred by the
Partnership in connection with such transfer. In the discretion of the General
Partner, such costs and expenses may be collected out of revenues otherwise
allocable to such transferee under this Agreement.
(f) First Union gives the transferee such right.
(g) The transferee pays to the Partnership all costs and expenses
incurred in connection with such substitution, which costs and expenses, in the
discretion of the General Partner, may be collected out of revenues otherwise
allocable to such substituted Limited Partner under this Agreement.
(h) The transferee executes and delivers such instruments, in form
and substance satisfactory to the General Partner, as the General Partner may
reasonably determine in its sole discretion is necessary or desirable to effect
such substitution and to confirm the agreement of the transferee to be bound by
all of the terms and provisions of this Agreement.
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<PAGE> 6
(i) The consent of the Limited Partners shall not be required for
admission to the Partnership of a substituted Limited Partner for the
Partnership interest of First Union. The Partnership and the General Partner
shall be entitled to treat the record owner of any Limited Partner's
Partnership interest as the absolute owner thereof in all respects, and shall
incur no liability for distributions of cash or other property made in good
faith to such record owner until such time as a written assignment of such
Limited Partner's Partnership interest has been received and accepted by the
General Partner and recorded on the books of the Partnership. In no event
shall any Limited Partner's Partnership interest, or any portion thereof, be
transferred to a minor or incompetent or any other person not legally qualified
to become an Limited Partner hereunder, and any such attempted transfer shall
be void and ineffectual and shall not bind the Partnership or the General
Partner. The effective date of any transfer of Limited Partner's Partnership
interest shall be the date on which all of the prerequisites to the transfer
specified in this Section 5 have been met. In the case of a transfer, where
the transferee does not become a substituted Limited Partner, the Partnership
shall recognize such transfer not later than the last day of the calendar month
following receipt of notice of assignment and required documentation.
6. Regulatory Compliance Cooperation.
(a) Before the Partnership or the General Partner redeems, purchases
or otherwise acquires, directly or indirectly, or converts or takes any action
with respect to the voting rights of, any of its outstanding equity interests
or any securities convertible into or exchangeable for any of its equity
interests, the Partnership or the General Partner, as the case may be, shall
give written notice of such pending action to First Union. Upon the written
request of First Union made within 10 days after its receipt of any such notice
stating that after giving effect to such action First Union would have a
"Regulatory Problem" (as defined below), the Partnership or the General
Partner, as the case may be, shall defer taking such action for such period
(not to extend beyond 30 days after First Union's receipt of the original
notice referred to above) as First Union requests to permit it and its
affiliates to reduce the quantity of the Partnership's or General Partner's
securities or other equity interests they own in order to avoid the Regulatory
Problem. In addition, the Partnership or the General Partner shall not be a
party to any merger, consolidation, recapitalization or other transaction
pursuant to which First Union would be required to take any voting securities,
or any securities convertible into voting securities, unless adequate provision
is made to issue nonvoting securities, otherwise identical to the voting
securities being issued in connection with such transaction, to First Union at
First Union's request. For purposes of this paragraph, a person shall be
deemed to have a "Regulatory Problem" when such person and such person's
affiliates would own, control or have power over a greater quantity of
securities or other equity interests of any kind than are permitted under any
requirement of any governmental authority.
(b) Upon the written request of First Union made from time to time,
First Union may designate all or a portion of its Units purchased hereunder as
a non-voting interest in the Partnership, and as a result of such designation,
First Union shall not thereafter participate in any vote or consent of Limited
Partners of the Partnership, but only to the extent of such non-voting
interest; provided, however, that no amendment to the Partnership Agreement
shall, without the
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<PAGE> 7
consent of First Union, enlarge the obligations of First Union under the
Partnership Agreement, and in any event any non-voting interest will also be
entitled to vote or consent where a vote or consent of the Limited Partners of
the Partnership is required by law in order to take any action. In all other
respects the non-voting interest created hereunder, as such, will not be
counted in determining the requisite percentage of Limited Partners of the
Partnership required for action. For all other purposes, the non-voting status
of any non-voting interest shall have no effect, and First Union shall have the
same rights and obligations hereunder as though all of its Units purchased
hereunder were voting interests in all respects. First Union may hold Units
representing both non-voting interests and voting interests, and the status of
First Union as a non-voting Limited Partner of the Partnership shall not affect
its voting or other rights as they relate to any of its interests not
designated as a non-voting interest. Any non-voting interest held by First
Union at any time may be converted in whole or in part into voting interests at
the written request of First Union. In addition to the foregoing, and
notwithstanding anything to the contrary contained herein, First Union's
ownership of Common Stock in the General Partner for the purpose of any vote,
approval or consent or participating in a notice requiring specified action by
the General Partner's shareholders (and only for such purpose) shall be deemed
not to exceed 4.99%, and the excess, if any, of First Union's ownership of
Common Stock in the General Partner over 4.99% shall be deemed a special class
of Common Stock which is non-voting, but it is in all other respects identical
to the General Partner's voting Common Stock.
(c) The Partnership and the General Partner will grant to any
subsequent holder of the Units and Common Stock purchased hereunder, upon such
holder's request, the same rights granted to First Union pursuant to this
Section 6.
7. Miscellaneous.
(a) Notices. All notices, elections, demands or other communications
required or permitted to be made or given pursuant to this Agreement shall be
in writing and shall be considered as properly given or made if given by (a)
personal delivery, (b) United States mail, (c) expedited delivery service with
proof of delivery, or (d) via facsimile with confirmation of delivery,
addressed to the respective addressee(s) at the address set forth in the books
and records of the Partnership. Any party may change its address by giving
notice in writing to the other party of its new address.
(b) Amendment. This Agreement may be changed, modified or amended
only by an instrument in writing agreed upon by the parties hereto.
(c) Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof.
(d) No Waiver. The failure of any party to insist upon strict
performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
constitute a waiver of such party's right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of any breach or
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<PAGE> 8
default in the performance of any obligation hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of
the same or any other obligation hereunder.
(e) Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted,
construed and enforced in accordance with the laws of the State of Texas.
(f) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its general
partner
By: /s/ JACK D. HIGHTOWER
----------------------------------------
Jack D. Hightower, President
TITAN RESOURCES I, INC.
By: /s/ JACK D. HIGHTOWER
----------------------------------------
Jack D. Hightower, President
FIRST UNION CORPORATION
By: /s/ TED A. GARDNER
----------------------------------------
<PAGE> 1
EXHIBIT 10.12
ADVISORY SERVICES CONTRACT
This Advisory Services Contract, dated as of December 11, 1995 (this
"Contract") is between Titan Resources, L.P., a Texas limited partnership
("Company"), and ECT Securities Corp. ("ECT"), a Delaware corporation, and sets
forth the terms and conditions pursuant to which the Company will retain ECT to
act as its advisor. Capitalized terms used herein and not otherwise defined
shall have the meanings set forth for such terms in the Agreement of Limited
Partnership of the Company.
The Company and ECT agree as follows:
1. Retention of Advisor; Scope of Services.
(a) Subject to the terms and conditions set forth herein, the Company
hereby retains ECT to act as an advisor to the Company during the Contract
Period (as defined in paragraph 3 below).
(b) As advisor to the Company, ECT will, from time to time, as
requested by the Company, provide consultation, assistance and advice to the
Company with respect to its operations and properties, including, without
limitation, engineering reserve analysis and evaluations, analysis of potential
property acquisitions, advice regarding commodity pricing strategies and
assistance in developing marketing strategies.
(c) The parties hereto acknowledge that (i) ECT is not regularly
engaged in the business of providing advisory services and personnel and that
the services to be performed by ECT hereunder are provided as an incident to
ECT's relationship with Enron Capital Management Limited Partnership, the
General Partner to Joint Development Investments Limited Partnership ("JEDI")
and JEDI's activities as an owner of limited partnership interests of the
Company and common stock of Titan Resources I, Inc., the general partner of the
Company (the "General Partner"), (ii) the fees to be paid to ECT hereunder were
established at an amount which is believed to be approximately equal to the
amount of indirect costs and expenses ECT will incur in providing such
services, (iii) ECT is not an "investment advisor", within the meaning of the
Investment Advisors Act of 1940, as amended, or applicable state laws, or a
"broker" or "dealer" under the Securities Exchange Act of 1934, as amended, or
applicable state laws, (iv) the nature of the services to be provided by ECT
under this Contract do not include those of an "investment advisor" (i.e.
providing advice as to the value of securities or the advisability of investing
in, purchasing or selling securities), or those of a "broker" or "dealer" (i.e.
effecting transaction in securities for the account of the Company or others),
and (v) it is specifically intended by the parties hereto that ECT's activities
hereunder not subject ECT to any regulation or registration under federal or
state laws.
(d) The parties hereto acknowledge and agree that upon reasonable
request by the Company, ECT will, subject to the availability of such
personnel, make available such of its engineers and other employees, as ECT may
determine may reasonably be necessary for ECT's performance of its services
hereunder. The parties further acknowledge that unless and until ECT
<PAGE> 2
provides notice to the contrary, all decisions with respect to staffing,
scheduling and allocating ECT's resources for purposes of this Contract will be
coordinated on behalf of ECT by Wynne M. Snoots, and any request by the Company
for the performance of services hereunder shall be directed to Wynne M. Snoots.
2. Contract Period and Termination.
(a) Unless earlier terminated under subparagraph (b), ECT shall act
as the Company's advisor under this Contract, effective as of the date hereof
(the "Effective Date") and continuing until the first date on which the
Company, the General Partner or their successors complete an offering to the
public of equity securities pursuant to a registration statement on Form S-1
(or comparable form allowed to be used in connection with an initial public
offering of securities) under the Securities Act of 1933, as amended. This
Contract may be terminated effective as of the end of any fiscal quarter of the
Company on or after March 31, 1996 if ECT provides written notice of its
election to terminate the Contract to the Company not less than 30 days before
the date on which such termination is to be effective.
(b) Notwithstanding any other provision of this Contract, if, in
connection with any transfer by ECT or an Affiliate (including JEDI) of its
equity investment in the Company or the General Partner, JEDI or an Affiliate
conveys to any party who is not an Affiliate the right to designate a
representative on the board of directors pursuant to the voting and
shareholders agreement among the shareholders of the General Partner (the
"Board Rights") or otherwise agrees to exercise such Board Rights to designate
a representative who is not an employee of ECT or an Affiliate, then this
Contract and any right to fees provided for hereunder shall terminate.
(c) Upon termination of this Contract, neither party will have any
further obligation under this Contract, except for (i) the Company's obligation
to pay to ECT the fees then due pursuant to Paragraph 3, which shall continue
after such termination until such amounts are paid in full, and (ii) the
Company's or ECT's obligation to provide the indemnities contained in Paragraph
4, which shall continue in effect for a period of three years after such
termination.
3. Advisement Fee.
(a) ECT shall be entitled to an annual fee for its services provided
during the period from the effective date of this Contract until the date of
its termination (the "Contract Period"). The fee for the first annual period
shall be $300,000, payable as follows: (1) $200,000 payable in advance on the
date hereof, and (2) the remaining $100,000 due and payable by the Company
quarterly in arrears, on the last day of each fiscal quarter of the Company
beginning on March 31, 1996; provided that, such fees shall be subject to
reduction or rebate as provided in subparagraph (b). Thereafter, the fee for
each subsequent annual period shall be $100,000 payable quarterly in arrears,
on the last day of each fiscal quarter of the Company (in each case pro-rated
for any portion of a year), subject to reduction as provided in subparagraph
(b).
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<PAGE> 3
(b) If before the first anniversary of this Agreement, JEDI or an
Affiliate of JEDI transfers (other than a transfer to another Affiliate of
JEDI) the limited partnership interests in the Company acquired as of the date
of this Agreement, then concurrently with such sale or other disposition, ECT
shall rebate to Titan one-half of the $200,000 advance payment of the first
annual fee due hereunder and one-half of the remaining $100,000 of the first
annual fee due hereunder, but only to the extent actually paid to ECT before
the date of such sale or other disposition. If at any time JEDI or an
Affiliate of JEDI transfers any of its limited partnership interests in the
Company (other than a transfer to another Affiliate of JEDI), then the annual
fee shall be reduced by a proportion, the numerator of which is equal to the
immediate number of Units of limited partnership interests in the Company then
transferred by JEDI and its Affiliates and the denominator of which is equal to
the number of Units of limited partnership interests in the Company held by
JEDI and its Affiliates immediately prior to such transfer.
4. Indemnification. In consideration of the services performed and
to be performed by ECT for the Company, and for other good and valuable
consideration, the Company and ECT hereby agree as follows:
(a) The Company shall indemnify and hold harmless ECT its affiliates
and affiliated entities, each of its partners, officers, employees, agents and
each person, if any, who "controls" ECT (within the meaning of the federal
securities laws) (collectively the "Indemnified Parties" and individually, an
"Indemnified Party") from and against any and all actions or claims and any and
all losses, claims, damages, liabilities, costs or expenses (including, without
limitation, reasonable attorneys' fees and any legal or other expenses in
giving testimony or furnishing documents in response to a subpoena or otherwise
or the costs of investigating, preparing or defending any action or claim,
whether or not in connection with any action or litigation in which any
Indemnified Party is a party), joint or several, to which any Indemnified Party
may become subject under the Securities Act of 1933 or any other federal or
state securities law or otherwise as and when incurred, directly or indirectly,
caused by, relating to, based upon or arising out of any matter related to this
Contract, including, without limitation, any act or omission by ECT in
connection with its role as advisor and its acceptance of or the performance
or non-performance of its obligations under this Contract.
(b) The indemnity provided for in subparagraph (a) above shall cover
any loss, claim, damage, liability, cost or expense incurred by an Indemnified
Person REGARDLESS OF THE ORDINARY NEGLIGENCE OF SUCH INDEMNIFIED PERSON, but
shall not cover any loss, claim, damage, liability, cost or expense to the
extent it is found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) to have resulted from an Indemnified Party's
gross negligence or willful misconduct.
(c) The indemnity provided for in subparagraph (a) shall be in
addition to any liability that the Company may otherwise have to the
Indemnified Parties and shall be subject to the following:
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<PAGE> 4
(i) Promptly after receipt by an Indemnified Party under
subparagraph (a) above of notice of the commencement of any action,
proceeding, investigation or other event with respect to which any
Indemnified Party demands indemnification hereunder, such Indemnified
Party shall, if a claim in respect thereof is to be made against the
Company, notify the Company in writing of the commencement thereof,
provided that the failure to so notify the Company shall not relieve it
from any liability that it may have to any Indemnified Party, except to
the extent the Company is prejudiced by such failure.
(ii) Notwithstanding anything expressed or implied herein to the
contrary, the indemnity provided for herein shall cover the amount of
any settlements entered into in connection with any claim for which an
Indemnified Party may be indemnified hereunder, if and only if such
settlement is consented to by the Company.
(iii) No settlement binding on an Indemnified Party may be made
without the consent of such Indemnified Party (which consent shall not
be unreasonably withheld).
(iv) If the claim for indemnification arises out of a claim for
damages by a person other than an Indemnified Party, the Company, after
giving notice to the Indemnified Party, may undertake to defend or
settle such claim for damages and may employ counsel for such purpose.
The Indemnified Party, at its own expense, shall have the right to
employ separate counsel with respect to such claim and to participate
in, but not control, such settlement or defense; provided that, if the
Company is also a defendant in respect of any such claim and a potential
conflict exists between the interests of the Company and those of an
Indemnified Party or if the Company does not elect to undertake the
settlement or defense of such claim, the Indemnified Parties shall, at
the expense of the Company, have the right to employ not more than one
counsel to represent the Indemnified Parties with respect to such claim
and the Indemnified Parties may control any settlement or defense
applicable to the claims brought against such Indemnified Parties.
(v) Expenses and other costs incurred by an Indemnified Party in
connection with any suit, action or other proceeding relating to this
Contract shall be advanced by the Company to such Indemnified Party
prior to any final determination of whether an Indemnified Party is
entitled to be indemnified for such costs and expenses hereunder, if the
Indemnified Party provides to the Company an undertaking to return any
amounts so received to the extent that it is ultimately determined that
he was not entitled to be indemnified for such costs and expenses
hereunder.
(vi) In order to provide for just and equitable contribution,
if a claim for indemnification is made hereunder but a court of
competent jurisdiction finds in a final judgment (not subject to appeal)
that such indemnification may not be enforced in such case, even though
the express provisions hereof provide for indemnification, then in such
case, the Company on the one hand, and the Indemnified Parties on the
other hand, shall contribute to the losses, claims, damages, liabilities
or costs so that the Indemnified Parties
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<PAGE> 5
are responsible in the aggregate for a percentage of the losses, claims,
damages, liabilities or costs equal to a fraction, the numerator of
which is the fees (but not expenses) previously received by ECT pursuant
to Paragraph 3 of this Contract, and the denominator of which is the sum
of total aggregate amount of all consideration received by the Company
in respect of transactions giving rise to such claim for
indemnification, or, if no such transaction exists or has not been
completed, the fair market value of the outstanding units of the
Company's partnership interests on the date hereof, and the Company
shall be responsible for the remainder of such losses, claims, damages,
liabilities or costs; provided, however, that if such allocation is not
permitted by applicable law then the relative fault of the Company, on
the one hand, and the Indemnified Parties, on the other hand, in
connection with the statements, acts or omissions that resulted in such
losses, claims, damages, liabilities or costs and relevant equitable
considerations shall also be considered. No person found liable for a
fraudulent misrepresentation shall be entitled to contribution from any
person who is not also found liable for such fraudulent
misrepresentation. Notwithstanding the foregoing, the Indemnified
Parties, in the aggregate, shall not be obligated to contribute any
amount hereunder that exceeds the amount of fees (but not expenses) ECT
received previously pursuant to this Contract.
(vii) The Company agrees that the Indemnified Parties shall not
have any liability (whether direct or indirect, in contract, tort or
otherwise) to the Company for or in connection with any matter related
to this Contract, except for liabilities or expenses that are found in a
final judgment by a court of competent jurisdiction (not subject to
further appeal) to have resulted primarily and directly from ECT or such
other Indemnified Party's gross negligence or willful misconduct.
(d) If it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) in a proceeding in which a claim
for indemnification has been made by an Indemnified Party, that the Company has
sustained any loss, claim, damage, liability, cost or expense resulting
directly and exclusively from ECT's gross negligence or willful misconduct in
connection with the performance or non-performance by ECT of its obligations
under this Contract, then ECT shall indemnify and hold harmless the Company for
the amount of any such loss, claim, damage, liability, costs or expense so
determined to have been sustained by the Company.
5. GOVERNING LAW. THE VALIDITY AND INTERPRETATION OF THIS CONTRACT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND TO BE FULLY PERFORMED THEREIN.
6. Successors and Assigns. The benefits of this Contract shall
inure to the parties hereto, their respective successors and permitted assigns,
and to the indemnified parties hereunder and their successors and
representatives, and the obligations and liabilities assumed in this Contract
by the parties hereto shall be binding upon their respective successors and
assigns. This
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<PAGE> 6
Contract may not be assigned by any party to an unaffiliated party without the
express written consent of the other party hereto.
7. Notices. All communications under this Contract shall be in
writing and shall be delivered personally or sent by personal delivery,
expedited delivery, certified mail, return receipt requested or by telecopy as
follows:
If to ECT:
ECT Securities Corp.
1400 Smith Street
Houston, Texas 77002
Telecopy Number: (713) 646-3750
Attention: Wynne Snoots
If to the Company:
Titan Resources, L.P.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Jack D. Hightower
Either party may change its address or telecopy number set forth above
by giving the other party notice of such change in accordance with the
provisions of this Paragraph 7. A notice shall be deemed given, if by personal
delivery or expedited delivery service, on the date of such delivery to such
address, if by certified mail, on the date shown on the applicable return
receipt, or if by telecopy, on the date of receipt of the transmission of such
notice at such telecopy number.
8. Nature of Relationship. The parties hereto intend that ECT's
relationship to the Company and the relationship of each employee or agent of
ECT to the Company shall be that of an independent contractor. Nothing
contained in this Contract shall constitute or be construed to be or create a
partnership or joint venture between ECT and the Company or their respective
successors or assigns. Neither ECT nor any partner, employee or agent of ECT
shall ever be considered to be an employee of the Company.
9. Captions. The Paragraph titles herein are for reference purposes
only and do not control or affect the meaning or interpretation of any term or
provision hereof.
10. Amendments. No alteration, amendment, change or addition hereto
shall be binding or effective unless the same is set forth in writing signed by
a duly authorized representative of each party.
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<PAGE> 7
11. Partial Invalidity. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provision hereof is invalid or unenforceable, (i) the remaining terms
and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable
term or provision shall be replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision.
12. Survival. All representations, warranties and agreements
contained herein, or contained in certificates submitted pursuant to this
Contract, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, and shall survive the
execution and delivery hereof.
13. Entire Contract. This Contract and the exhibits hereto embody
the entire agreement and understanding of the parties and supersede any and all
prior agreements, arrangements and understandings relating to matters provided
for herein.
14. Counterparts. This Contract may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall be considered one and the same agreement.
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<PAGE> 8
This Contract is executed as of the date first written above by a duly
authorized representative of each of the Company and ECT.
COMPANY
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.
By: /s/ JACK HIGHTOWER
----------------------------------------
Name: Jack Hightower
----------------------------------
Title: President
---------------------------------
ECT
ECT SECURITIES CORP.
By: /s/ WYNNE SNOOTS JR.
----------------------------------------
Name: Wynne Snoots Jr.
----------------------------------
Title: Vice President
---------------------------------
-8-
<PAGE> 1
EXHIBIT 10.14
AGREEMENT OF SALE AND PURCHASE
This agreement of sale and purchase ("Agreement") dated April 19, 1995,
between ENERTEX, INC., a Texas corporation ("Seller"), and TITAN RESOURCES,
L.P., a Texas limited partnership ("Purchaser"), evidences that Seller desires
to sell to Purchaser and Purchaser desires to purchase from Seller all right,
title and interest of Seller in certain non-producing oil and gas properties in
Dunn County, North Dakota and Loving, Terrell, Ward and Winkler Counties, Texas
on the terms and conditions hereinafter specified, and that, therefore, in
consideration of the premises and of the mutual covenants and obligations
specified herein, Seller and Purchaser agree as follows:
1. Purchase of Properties. At the Closing (as hereinafter defined),
in accordance with and subject to the other terms and conditions hereof, Seller
shall sell, assign, transfer and deliver to Purchaser, and Purchaser shall
purchase, acquire and accept from Seller, the following (collectively the
"Properties"):
(a) Jim Creek Prospect. All of Seller's right, title and
interest in and to the letter agreements identified and described on
Exhibit A attached hereto, including, without limitation, the oil, gas
and mineral leases identified and described on Exhibit A;
(b) Evetts Prospect. All of Seller's right, title and
interest in and to the oil, gas and mineral leases identified and
described on Exhibit B attached hereto, subject to the operating
agreement identified and described on Exhibit B;
(c) Culbertson Prospect. All of Seller's right, title and
interest in and to the oil, gas and mineral leases identified and
described on Exhibit C attached hereto, insofar as said leases cover the
land identified and described on Exhibit C, subject to the assignment
and operating agreement identified and described on Exhibit C; and
(d) Barstow Prospect. All of Seller's right, title and
interest in and to the oil, gas and mineral leases identified and
described on Exhibit D attached hereto, insofar as said leases cover to
the stated depth the land identified and described on Exhibit D, subject
to the farmout agreement and term assignments identified and described
on Exhibit D.
The letter agreements, operating agreements, assignment, farmout agreement and
term assignments identified and described on Exhibits A, B, C and D are
hereinafter individually called a "Contract" and
<PAGE> 2
collectively called the "Contracts." The oil, gas and mineral leases identified
and described on Exhibits A, B, C and D are hereinafter individually called a
"Lease" and collectively called the "Leases."
2. Assumption of Obligations. At the Closing, Purchaser shall
assume and agree to pay, perform and discharge promptly and completely as the
same may be or become due all of the obligations and liabilities of Seller
under the Contracts and Leases which accrue from and after the Closing (the
"Assumed Obligations").
3. Purchase Price and Payment. In addition to the assumption of the
Assumed Obligations, Purchaser will pay to Seller for the Properties a price
equal to the sum of (a) the price paid by Seller for the Properties, including
lease bonuses, advance rentals and other acquisition costs and delay rentals,
plus (b) title examination costs, brokers' commissions, attorneys' fees, filing
fees, recording costs and transfer and sales taxes, if any, and other similar
costs paid by Seller with respect to the acquisition of the Properties
(collectively the "Acquisition Costs"). At the Closing, Purchaser will deliver
or cause to be delivered to Seller, against delivery of the assignments
conveying the Properties to Purchaser, immediately available funds ("Funds") in
the amount of $1,065,623, being the estimated amount of the Acquisition Costs.
As soon as practicable after the Closing, Seller shall calculate the
difference, if any, between the estimated amount of the Acquisition Costs and
the actual amount of the Acquisition Costs. If the estimated amount is less
than the actual amount, Purchaser shall owe to Seller the difference thereof,
but if the estimated amount is greater than the actual amount, Seller shall owe
to Purchaser the difference thereof. Seller shall prepare a certificate (the
"Post-Closing Certificate") certifying the actual amount of the Acquisition
Costs and the net amount due to or owing by Seller (the "Post-Closing
Adjustment"). Seller shall allow one or more designated representatives of
Purchaser to observe the calculation of the Post-Closing Adjustment and to
review all accounting records and other information used by Seller with respect
thereto. As soon as practicable and in no event later than May 31, 1995, Seller
shall deliver the Post-Closing Certificate to Purchaser.
4. Additional Leases and Interests. Before the Closing, Seller may
acquire additional oil, gas and mineral leases under the Contracts identified
and described on Exhibit A and additional interests in the Leases identified
and described on Exhibit D. If Seller acquires any such leases or interests,
such leases shall be deemed Leases (and thus a part of the Properties) and such
interests shall be deemed a part of the Properties for all purposes hereof, the
Acquisition Costs actually paid by Seller with respect to such leases and
interests shall be added to the actual amount of the Acquisition Costs for
purposes of calculating the Post-Closing
2
<PAGE> 3
Adjustment and at the Closing Seller shall convey such leases and interests to
Purchaser as a part of the Properties.
5. Representations and Warranties by Seller. In order to induce
Purchaser to enter into this Agreement and each transaction contemplated
hereby, Seller represents and warrants to Purchaser as follows:
(a) Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Texas.
(b) Authority. Seller has full power necessary, and has taken
or by the Closing will have taken all action necessary, to authorize the
execution, delivery and performance hereof by Seller. The execution,
delivery and performance hereof by Seller will not conflict with nor
result in a violation or breach of the terms or provisions of (i) the
articles of incorporation or bylaws of Seller, (ii) any agreement to
which Seller is a party or by which Seller or any of its properties or
assets are bound, or (iii) any Judgment, statute, rule or governmental
regulation applicable to Seller.
(c) Validity and Enforceability. When this Agreement is
signed by all parties hereto, it will be a valid and binding obligation
of Seller, enforceable against Seller in accordance with its terms.
(d) Title. Seller has good and marketable title to the
Properties free and clear of all liens, security interests, mortgages,
pledges, preferential purchase rights or other encumbrances or claims
other than (i) contractual obligations arising under the Contracts and
the Leases, (ii) tax liens arising in the ordinary course of business
with respect to obligations not yet due and (iii) imperfections of title
and encumbrances which are not material in character, amount or extent
and do not detract from the value nor interfere with the use of the
Properties subject thereto or affected thereby or otherwise impair the
operations to be conducted thereon.
(e) Contracts and Leases. To the knowledge of Seller, the
Contracts and the Leases are in full force and effect. Seller has not
been advised by any other party of any default under any Contract or
Lease. Seller has not taken any action or failed to take any action
which would cause any Contract or Lease to fail to be in full force and
effect or allow any other party to terminate any Contract or Lease.
3
<PAGE> 4
(f) Taxes. All ad valorem and other taxes due and payable
with respect to the Properties have been fully paid.
(g) Consents. Other than as required under the Contracts, no
consents, approvals, authorizations or other requirements prescribed by
any agreement or any law, regulation or order must be obtained or
satisfied by Seller for the execution, delivery and performance by
Seller of this Agreement or any of the instruments to be executed and
delivered by Seller in connection herewith.
(h) No Litigation. No litigation, proceeding or governmental
investigation is pending or, to Seller's knowledge, threatened affecting
the Properties.
(i) No Broker or Finder. Seller has not agreed to pay any
party a commission, finder's fee or similar payment in regard to this
Agreement or any matter related hereto nor taken any action on which a
claim for any such payment could be based.
6. Representations and Warranties by Purchaser. In order to induce
Seller to enter into this Agreement and each transaction contemplated hereby,
Purchaser represents and warrants to Seller as follows:
(a) Organization. Purchaser is a limited partnership duly
formed under the Texas Revised Limited Partnership Act. The general
partner of Purchaser (the "General Partner") is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas.
(b) Authority. Purchaser has full power necessary, and has
taken or by the Closing will have taken all action necessary, to
authorize the execution, delivery and performance hereof by Purchaser.
The General Partner has full power necessary, and has taken or by the
Closing will have taken all action necessary, to authorize the
execution, delivery and performance hereof by the General Partner on
behalf of the Purchaser. The execution, delivery and performance hereof
by Purchaser will not conflict with nor result in a violation or breach
of the terms or provisions of (i) the partnership agreement governing
Purchaser, (ii) any agreement to which Purchaser is a party or by which
Purchaser or any of its properties or assets are bound or (iii) any
judgment, statute, rule or governmental regulation applicable to
Purchaser. The execution, delivery and performance hereof by the General
Partner on behalf of Purchaser will not conflict with nor result in a
violation or breach of the
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<PAGE> 5
terms or provisions of (i) the articles of incorporation or bylaws of
the General Partner, (ii) any agreement to which the General Partner is
a party or by which the General Partner or any of its properties or
assets are bound or (iii) any judgment, statute, rule or governmental
regulation applicable to the General Partner.
(c) Validity and Enforceability. When this Agreement is
signed by all parties hereto, it will be a valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its
terms.
(d) Consents. No consents, approval, authorizations or
requirements prescribed by any agreement or any law, regulation or order
must be obtained or satisfied by Purchaser for the execution, delivery
and performance by Purchaser of this Agreement or any of the instruments
to be executed and delivered by Purchaser in connection herewith.
(e) No Broker or Finder. Purchaser has not agreed to pay any
party a commission, finder's fee or similar payment in regard to this
Agreement or any matter related hereto nor taken any action on which a
claim for any such payment could be based.
7. Actions before the Closing. Seller and Purchaser covenant that
before the Closing:
(a) Availability of Data and Files. Seller shall make
available to Purchaser's representatives all land files, lease files,
abstracts, title opinions, seismic data or files and any interpretations
of such data or files in the possession of Seller or its counsel and
relating exclusively to the Properties.
(b) Examination of Title. Purchaser shall make such
examination of title to the Properties as it deems necessary or
desirable. At or before 5:00 p.m., central standard time, on April 21,
1995, Purchaser shall furnish written notice to Seller stating whether
or not Purchaser has found Seller's title to the Properties to be as
represented in Section 5 hereof. If Seller's title is not found to be
so, said written notice shall specify the objections to Seller's title
to the Properties. Thereafter, Seller shall use its best efforts to
satisfy any such objections. If Purchaser does not furnish said written
notice at or before 5:00 p.m., central standard time, on April 21, 1995,
Purchaser shall be deemed to have no objection to Seller's title to the
Properties.
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<PAGE> 6
(c) Waivers and Consents. Seller shall use reasonable efforts
to obtain all waivers of preferential purchase rights and consents to
assignment required by the Contracts in connection with the consummation
of the sale and purchase contemplated hereby. Purchaser acknowledges
that Seller will be unable to obtain such waivers and consents before
the Closing. If Seller is unable to obtain any such waiver or consent
within sixty (60) days after the Closing, Purchaser shall have the right
to negotiate, at its expense, with the appropriate party to obtain such
waiver or consent.
(d) Preserve Accuracy of Representations and Warranties.
Seller and Purchaser each shall use its best efforts to refrain from
taking any action which would render any representation or warranty
contained in Section 5 or 6 hereof inaccurate as of the Closing. Seller
promptly will notify Purchaser of any litigation, proceeding or
governmental investigation that may be threatened or commenced against
Seller involving in any way (i) this Agreement or the transactions
contemplated hereby or (ii) any of the Properties.
(e) Approvals. Seller and Purchaser each have taken or by the
Closing will have taken all action necessary under applicable law to
approve this Agreement and the transactions contemplated hereby.
8. Closing and Post-Closing. The closing ("Closing") of the sale
and purchase contemplated hereby will take place either (a) at the offices of
Purchaser, 500 West Texas Avenue, Suite 500, Midland, Texas, at 10:00 a.m. on
April 24, 1995, or (b) at any other place, date and time agreed upon by Seller
and Purchaser. At Closing:
(a) Deliveries by Seller. Seller will deliver or cause to be
delivered to Purchaser:
(i) Assignments, in such forms as Seller and
Buyer may agree but containing a special warranty of
title, conveying the Properties to Purchaser; and
(ii) The certificate contemplated by Section
9(c).
(b) Deliveries by Purchaser. Purchaser will deliver or cause
to be delivered to Seller:
(i) The Funds; and
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<PAGE> 7
(ii) The certificate contemplated by Section
10(c).
The closing at which the Post-Closing Adjustment shall be paid (the
"Post-Closing") shall take place on the first business day after the expiration
of ten (10) days after the Post-Closing Certificate is delivered by Seller to
Purchaser, at 10:00 a.m. at the same location as the Closing. At the
Post-Closing, the appropriate party shall pay the other party hereto an amount
equal to the Post-Closing Adjustment.
9. Conditions Precedent to Obligation of Purchaser. The obligation
of Purchaser to proceed with the Closing is subject to the following
conditions:
(a) Representations. All representations and warranties of
Seller herein will be true in all material respects at the time of the
Closing;
(b) Covenants. All covenants and agreements required hereby
to be performed by Seller before the Closing will have been performed in
all material respects; and
(c) Certificate. Seller will have delivered to Purchaser an
appropriate certificate as to the foregoing.
10. Conditions Precedent to Obligation of Seller. The obligation of
Seller to proceed with the Closing is subject to the following conditions:
(a) Representations. All representations and warranties of
Purchaser herein will be true in all material respects at the time of
the Closing;
(b) Covenants. All covenants and agreements required hereby
to be performed by Purchaser before the Closing will have been performed
in all material respects; and
(c) Certificate. Purchaser will have delivered to Seller an
appropriate certificate as to the foregoing.
11. Termination. This Agreement may be terminated:
(a) By Purchaser. By Purchaser if any condition provided in
Section 9 hereof has not been satisfied or waived before the Closing;
(b) By Seller. By Seller if any condition provided in Section
10 hereof has not been satisfied or waived before the Closing; or
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<PAGE> 8
(c) By Either Party. By Seller or Purchaser if the Closing
has not occurred on or before April 30, 1995.
12. Taxes.
(a) Apportionment of Ad Valorem and Real Property Taxes. All
ad valorem taxes, real property taxes, personal property taxes and
similar tax obligations with respect to the Properties for the calendar
year 1995 shall be apportioned as of the Closing. Purchaser shall file
or cause to be filed all required reports and returns incident to such
taxes and shall pay or cause to be paid to the taxing authorities all
such taxes relating to the calendar year 1995, and Purchaser shall
invoice Seller (with copies of applicable tax bills and assessments to
confirm same) for Seller's apportioned share of such taxes, and Seller
shall pay the same within thirty (30) days of receipt.
(b) Sales Taxes. The Price is net of any sales taxes or other
transfer taxes in connection with the sale of the Properties. Purchaser
shall be liable for any sales tax or other transfer tax, as well as any
applicable conveyance, transfer and recording fees, and transfer stamps
or taxes imposed on the transfer of the Properties pursuant to this
Agreement.
13. Miscellaneous.
(a) Further Assurances. Seller will, at any time and from
time to time after the Closing, upon Purchaser's request, execute,
acknowledge and deliver or cause to be executed, acknowledged and
delivered, all further documents or instruments required in connection
with the assignment and conveyance of the Properties to Purchaser.
(b) Assignment. Between the time of execution hereof and the
Closing, neither this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof may be assigned by any
party without the consent of the other party hereto. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and
assigns.
(c) Expenses. Whether or not the transactions herein
contemplated shall be consummated, Seller and Purchaser each shall pay
its own expenses incident hereto and to preparing to consummate the
transactions provided for herein.
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<PAGE> 9
(d) Texas Law to Govern. THIS AGREEMENT IS BEING SIGNED AND
DELIVERED AND IS INTENDED TO BE PERFORMED IN TEXAS AND IS TO BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF TEXAS.
(e) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, and it shall not be necessary that the
signatures of all parties hereto be contained on any one counterpart
hereof. Each counterpart shall will be deemed an original, but all
counterparts together shall constitute one and the same instrument.
(f) Survival. The representations and warranties contained in
Section 5 (d) shall expire at the Closing. Such expiration shall not
affect the special warranty of title of Seller in the assignments
delivered to Purchaser pursuant to Section 8(a)(i). The representations,
warranties, covenants and agreements set forth elsewhere herein shall
survive the execution and delivery hereof and the consummation of the
transactions contemplated hereby and shall expire in accordance with the
applicable statute of limitations.
(g) Integration. THIS AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREIN ANDY MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES OR BY
EVIDENCE OF PRIOR OR WRITTEN CONTEMPORANEOUS AGREEMENTS OF THE PARTIES.
(h) Amendment Waiver and Cooperation. This Agreement may be
amended only by a written instrument signed by Seller and Purchaser.
Seller or Purchaser may waive any condition to its own obligations
hereunder. Seller and Purchaser each will use its best efforts and good
faith in satisfying all conditions to its obligations.
(i) Notice. All notices hereunder shall be in writing and
shall be mailed first class or express mail, postage prepaid, or sent by
telegram, telecopy or other similar form of rapid transmission confirmed
by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission,
or personally delivered to any individual designated of the receiving
party. All such notices shall be mailed, sent or delivered as follows:
If to Seller: Enertex, Inc.
500 West Texas Avenue, Suite 500
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<PAGE> 10
Midland, Texas 79701
Attention: Jack D. Hightower
Telecopy Number: (915) 687-3863
If to Purchaser: Titan Resources, L.P.
500 West Texas Avenue, Suite 500
Midland, Texas 79701
Attention: George G. Staley
Telecopy Number: (915) 687-3863
Any notice so addressed and mailed shall be deemed to be given three (3)
days after the date so mailed. Any notice so sent by rapid transmission
shall be deemed to be given when receipt of such transmission is
acknowledged. Any communication so delivered in person shall be deemed
to be given when receipted for by, or actually received by, such person.
Seller or Purchaser may, by proper written notice hereunder to the other
party, change the address, individual or telecopy number to which notice
shall thereafter be sent to such party.
In order to evidence the foregoing, Seller and Purchaser have duly
executed this Agreement the date first above written.
SELLER:
ENERTEX, INC.
By:/s/ Jack D. Hightower
--------------------------------------
Jack D. Hightower,
President
PURCHASER:
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.,
General Partner
By:/s/ George G. Staley
---------------------------------
George G. Staley,
Vice President
10
<PAGE> 1
EXHIBIT 10.15
AGREEMENT OF SALE AND PURCHASE
This agreement of sale and purchase ("Agreement") dated April 19, 1995,
between STALEY GAS CO., INC., a Texas corporation ("Seller"), and TITAN
RESOURCES, L.P., a Texas limited partnership ("Purchaser"), evidences that
Seller desires to sell to Purchaser and Purchaser desires to purchase from
Seller all right, title and interest of Seller in certain non-producing oil and
gas leases in Pecos and Reeves Counties, Texas on the terms and conditions
hereinafter specified, and that, therefore, in consideration of the premises
and of the mutual covenants and obligations specified herein, Seller and
Purchaser agree as follows:
1. Purchase of Leases. At the Closing (as hereinafter defined), in
accordance with and subject to the other terms and conditions hereof, Seller
shall sell, assign, transfer and deliver to Purchaser, and Purchaser shall
purchase, acquire and accept from Seller, all of Seller's right, title and
interest in and to the oil, gas and mineral leases identified and described on
Exhibit A attached hereto and incorporated herein (individually a "Lease" and
collectively the "Leases").
2. Consideration and Payment. As full consideration for the Leases,
Purchaser will pay to Seller the price ("Price") of $77,070. At the Closing,
Purchaser will deliver or cause to be delivered to Seller, against delivery of
the assignment conveying the Leases to Purchaser, immediately available funds
("Funds") in the amount of the Price.
3. Allocation of Price. The Price shall be allocated among the
Leases as set forth on Exhibit B attached hereto.
4. Representations and Warranties by Seller. In order to induce
Purchaser to enter into this Agreement and each transaction contemplated
hereby, Seller represents and warrants to Purchaser as follows:
(a) Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Texas.
(b) Authority. Seller has full power necessary, and has taken
or by the Closing will have taken all action necessary, to authorize the
execution, delivery and performance hereof by Seller. The execution,
delivery and performance hereof by Seller will not conflict with nor
result in a violation or breach of the terms or provisions of (i) the
articles of incorporation or bylaws of Seller, (ii) any agreement to
which Seller is a party or by which Seller or any of its properties or
assets are bound, or (iii) any judgment, statute, rule or governmental
regulation applicable to Seller.
<PAGE> 2
(c) Validity and Enforceability. When this Agreement is
signed by all parties hereto, it will be a valid and binding obligation
of Seller, enforceable against Seller in accordance with its terms.
(d) Title. Seller has good and marketable title to the Leases
free and clear of all liens, security interests, mortgages, pledges,
preferential purchase rights or other encumbrances or claims other than
(i) tax liens arising in the ordinary course of business with respect to
obligations not yet due, and (ii) imperfections of title and
encumbrances which are not material in character, amount or extent and
do not detract from the value nor interfere with the use of the Leases
subject thereto or affected thereby or which will otherwise impair the
operations to be conducted thereon.
(e) Interests in Costs and Production. The percentage
interests of Seller's participation in the total costs to be incurred in
connection with the Leases are as set forth on Exhibit A, and the
decimal interests of Seller's participation in the total production of
oil and gas to be produced and saved from the Leases are as set forth on
Exhibit A.
(f) Actual Costs. The Price equals the sum of (i) the actual
price paid by Seller for the Leases, including lease bonuses, advance
rentals and other acquisition costs and delay rentals, plus (ii) title
examination costs, brokers' commissions, attorneys' fees, filing fees,
recording costs and transfer and sales taxes, if any, and other similar
costs actually paid by Seller with respect to the acquisition of the
Leases.
(g) Leases. To the knowledge of Seller, the Leases are in
full force and effect. Seller has not been advised by any lessor of any
default under any Lease. Seller has not taken any action or failed to
take any action which would cause any Lease to fail to be in full force
and effect or allow any lessor to terminate any Lease.
(h) Taxes. All ad valorem and other taxes due and payable
with respect to the Leases have been fully paid.
(i) Consents. All consents and approvals of third parties,
including any regulatory authority, whether required contractually, by
operation of law or otherwise, which are necessary for the consummation
by Seller of the transactions contemplated hereby have been or by the
Closing will be obtained.
(j) No Litigation. No litigation, proceeding or governmental
investigation is pending or, to Seller's knowledge, threatened,
affecting the Leases.
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<PAGE> 3
(k) No Broker or Finder. Seller has not agreed to pay any
party a commission, finder's fee or similar payment in regard to this
Agreement or any matter related hereto nor taken any action on which a
claim for any such payment could be based.
5. Representations and Warranties by Purchaser. In order to induce
Seller to enter into this Agreement and each transaction contemplated hereby,
Purchaser represents and warrants to Seller as follows:
(a) Organization. Purchaser is a limited partnership duly
formed under the Texas Revised Limited Partnership Act. The general
partner of Purchaser (the "General Partner") is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas.
(b) Authority. Purchaser has full power necessary, and has
taken or by the Closing will have taken all action necessary, to
authorize the execution, delivery and performance hereof by Purchaser.
The General Partner has full power necessary, and has taken or by the
Closing will have taken all action necessary, to authorize the
execution, delivery and performance hereof by the General Partner on
behalf of Purchaser. The execution, delivery and performance hereof by
Purchaser will not conflict with nor result in a violation or breach of
the terms or provisions of (i) the partnership agreement governing
Purchaser, (ii) any agreement to which Purchaser is a party or by which
Purchaser or any of its properties or assets are bound or (iii) any
judgment, statute, rule or governmental regulation applicable to
Purchaser. The execution, delivery and performance hereof by the
General Partner on behalf of Purchaser will not conflict with nor result
in a violation or breach of the terms or provisions of (i) the articles
of incorporation or bylaws of the General Partner, (ii) any agreement to
which the General Partner is a party or by which the General Partner or
any of its properties or assets are bound or (iii) any judgment,
statute, rule or governmental regulation application to the General
Partner.
(c) Validity and Enforceability. When this Agreement is
signed by all parties hereto, it will be a valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its
terms.
(d) Consents. All consents and approvals of third parties,
including any regulatory authority, whether required contractually, by
operation of law or otherwise, which are necessary for the consummation
by Purchaser of the transactions contemplated hereby have been or by the
Closing will be obtained.
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<PAGE> 4
(e) No Broker or Finder. Purchaser has not agreed to pay any
party a commission, finder's fee or similar payment in regard to this
Agreement or any matter related hereto nor taken any action on which a
claim for any such payment could be based.
6. Actions before the Closing. Seller and Purchaser covenant that
before the Closing:
(a) Availability of Data and Files. Seller shall make
available to Purchaser's representatives all land files, lease files,
abstracts, title opinions, seismic data or files and any interpretations
of such data or files in the possession of Seller or its counsel and
relating exclusively to the Leases.
(b) Examination of Title. Purchaser shall make such
examination of title to the Leases as it deems necessary or desirable.
At or before 5:00 p.m., central standard time, on April 21, 1995,
Purchaser shall furnish written notice to Seller stating whether or not
Purchaser has found Seller's title to the Leases to be as represented in
Section 4 hereof. If Seller's title is not found to be so, said written
notice shall specify the objections to Seller's title to the Leases.
Thereafter, Seller shall use its best efforts to satisfy any such
objections. If Purchaser does not furnish said written notice at or
before 5:00 p.m., central standard time, on April 21, 1995, Purchaser
shall be deemed to have no objection to Seller's title to the Leases.
(c) Preserve Accuracy of Representations and Warranties.
Seller and Purchaser each shall use its best efforts to refrain from
taking any action which would render any representation or warranty
contained in Section 4 or 5 hereof inaccurate as of the Closing. Seller
promptly will notify Purchaser of any litigation, proceeding or
governmental investigation that may be threatened or commenced against
Seller involving in any way (i) this Agreement or the transactions
contemplated hereby or (ii) any Lease.
(d) Approvals. Seller and Purchaser each have taken or by the
Closing will have taken all action necessary under applicable law to
approve this Agreement and the transactions contemplated hereby.
7. Closing. The closing ("Closing") of the sale and purchase
contemplated hereby will take place either (a) at the offices of Purchaser, 500
West Texas Avenue, Suite 500, Midland, Texas, at 10:00 a.m. on April 24, 1995,
or (b) at any other place, date and time agreed upon by Seller and Purchaser.
At Closing:
(a) Deliveries by Seller. Seller will deliver or cause to be
delivered to Purchaser:
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<PAGE> 5
(i) Two counterparts of an assignment, in the form
attached as Exhibit C, conveying the Leases to Purchaser; and
(ii) The certificate contemplated by Section 8(c).
(b) Deliveries by Purchaser. Purchaser will deliver or cause
to be delivered to Seller:
(i) The Funds; and
(ii) The certificate contemplated by Section 9(c).
8. Conditions Precedent to Obligation of Purchaser. The obligation
of Purchaser to proceed with the Closing is subject to the following
conditions:
(a) Representations. All representations and warranties of
Seller herein will be true in all material respects at the time of the
Closing;
(b) Covenants. All covenants and agreements required hereby
to be performed by Seller before the Closing will have been performed in
all material respects; and
(c) Certificate. Seller will have delivered to Purchaser an
appropriate certificate as to the foregoing.
9. Conditions Precedent to Obligation of Seller. The obligation of
Seller to proceed with the Closing is subject to the following conditions:
(a) Representations. All representations and warranties of
Purchaser herein will be true in all material respects at the time of
the Closing;
(b) Covenants. All covenants and agreements required hereby
to be performed by Purchaser before the Closing will have been performed
in all material respects; and
(c) Certificate. Purchaser will have delivered to Seller an
appropriate certificate as to the foregoing.
10. Termination. This Agreement may be terminated:
(a) By Purchaser. By Purchaser if any condition provided in
Section 8 hereof has not been satisfied or waived before the Closing;
5
<PAGE> 6
(b) By Seller. By Seller if any condition provided in Section
9 hereof has not been satisfied or waived before the Closing; or
(c) By Either Party. By Seller or Purchaser if the Closing
has not occurred on or before April 30, 1995.
11. Taxes.
(a) Apportionment of Ad Valorem and Real Property Taxes. All
ad valorem taxes, real property taxes and similar tax obligations with
respect to the Leases for the calendar year 1995 shall be apportioned as
of the Closing. Purchaser shall file or cause to be filed all required
reports and returns incident to such taxes and shall pay or cause to be
paid to the taxing authorities all such taxes relating to the calendar
year 1995, and Purchaser shall invoice Seller (with copies of applicable
tax bills and assessments to confirm same) for Seller's apportioned
share of such taxes, and Seller shall pay the same within thirty (30)
days of receipt.
(b) Sales Taxes. The Price is net of any sales taxes or other
transfer taxes in connection with the sale of the Leases. Purchaser
shall be liable for any sales tax or other transfer tax, as well as any
applicable conveyance, transfer and recording fees, and transfer stamps
or taxes imposed on the transfer of the Leases pursuant to this
Agreement.
12. Miscellaneous.
(a) Further Assurances. Seller will, at any time and from
time to time after the Closing, upon Purchaser's request, execute,
acknowledge and deliver or cause to be executed, acknowledged and
delivered, all further documents or instruments required in connection
with the assignment and conveyance of the Leases to Purchaser.
(b) Assignment. Between the time of execution hereof and the
Closing, neither this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof may be assigned by any
party without the consent of the other party hereto. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and
assigns.
(c) Expenses. Whether or not the transactions herein
contemplated shall be consummated, Seller and Purchaser each shall pay
its own expenses incident hereto and to preparing to consummate the
transactions provided for herein.
6
<PAGE> 7
(d) Texas Law to Govern. THIS AGREEMENT IS BEING SIGNED AND
DELIVERED AND IS INTENDED TO BE PERFORMED IN TEXAS AND IS TO BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF TEXAS.
(e) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained on any
one counterpart hereof. Each counterpart shall will be deemed an
original, but all counterparts together shall constitute one and the
same instrument.
(f) Survival. The representations and warranties contained in
Section 4(d) and (e) shall expire at the Closing. Such expiration shall
not affect the special warranty of title of Seller in the assignment
delivered to Purchaser pursuant to Section 7(a)(i). The
representations, warranties, covenants and agreements set forth
elsewhere herein shall survive the execution and delivery hereof and the
consummation of the transactions contemplated hereby and shall expire in
accordance with the applicable statute of limitations.
(g) Integration. THIS AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES OR BY
EVIDENCE OF PRIOR OR WRITTEN CONTEMPORANEOUS AGREEMENTS OF THE PARTIES.
(h) Amendment, Waiver and Cooperation. This Agreement may be
amended only by a written instrument signed by Seller and Purchaser.
Seller or Purchaser may waive any condition to its own obligations
hereunder. Seller and Purchaser each will use its best efforts and good
faith in satisfying all conditions to its obligations.
(i) Notice. All notices hereunder shall be in writing and
shall be mailed first class or express mail, postage prepaid, or sent by
telegram, telecopy or other similar form of rapid transmission confirmed
by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission,
or personally delivered to any individual designated of the receiving
party. All such notices shall be mailed, sent or delivered as follows:
If to Seller: Staley Gas Co., Inc.
310 West Wall, Suite 200
Midland, Texas 79701
Attention: George G. Staley
Telecopy Number: (915) 684-5915
7
<PAGE> 8
If to Purchaser: Titan Resources, L.P.
500 West Texas Avenue, Suite 500
Midland, Texas 79701
Attention: Jack D. Hightower
Telecopy Number: (915) 687-3863
Any notice so addressed and mailed shall be deemed to be given three (3)
days after the date so mailed. Any notice so sent by rapid transmission
shall be deemed to be given when receipt of such transmission is
acknowledged. Any communication so delivered in person shall be deemed
to be given when receipted for by, or actually received by, such person.
Seller or Purchaser may, by proper written notice hereunder to the other
party, change the address, individual or telecopy number to which notice
shall thereafter be sent to such party.
In order to evidence the foregoing, Seller and Purchaser have duly
executed this Agreement the date first above written.
SELLER:
STALEY GAS CO., INC.
By:/s/ George G. Staley
-------------------------------------
George G. Staley,
President
PURCHASER:
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.,
General Partner
By:/s/ Jack D. Hightower
--------------------------------
Jack D. Hightower,
President
8
<PAGE> 1
EXHIBIT 10.16
ADMINISTRATIVE SERVICES CONTRACT
This Administrative Services Contract (this "Contract") dated March 31,
1995, is made between STALEY OPERATING CO., a Texas corporation ("Staley"), and
TITAN RESOURCES, L.P., a Texas limited partnership (the "Company").
Recitals
Staley is the current operator under the following operating agreements:
a. Operating Agreement dated December 14, 1979, between
Florida Exploration Company as operator and B.J. Kellenberger et al as
non-operators;
b. Operating Agreement dated July 12, 1982, between Florida
Exploration Company as operator and B.J. Kellenberger et al as non-
operators;
c. Operating Agreement dated July 10, 1985, between Staley as
operator and Shanee Oil Company, Inc. et al as non-operators; and
d. Operating Agreement dated March 23, 1993, between Staley
as operator and Fred B. Schmidt et al as non-operators.
Said Operating Agreements, together with all amendments, supplements and
modifications thereof, are hereinafter individually called an "Operating
Agreement" and collectively called the "Operating Agreements."
Staley desires that the Company perform certain administrative,
engineering, geological, accounting and other office and technical services to
be performed by the operator under the Operating Agreements.
The Company is willing to perform such services on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other mutual
covenants and obligations specific herein, the parties hereto agree as follows:
1. Terms Defined Above. As used herein, the terms "Company,"
"Operating Agreement" and "Staley" shall have the meanings indicated above.
2. Other Definitions. As used herein, the following terms shall
have the following meanings:
"Non-Operator" shall mean any party to an Operating Agreement
other than the Operator under such Operating Agreement.
<PAGE> 2
"Operator" shall mean the party designated as such under an
Operating Agreement or its duly elected successor.
"Overhead Provisions" shall mean the overhead provisions of
Section III of Exhibit "C" to an Operating Agreement.
3. Performance of Services. The Company shall perform all
administrative, engineering, geological, accounting and other office and
technical services (the "Services") to be performed by the Operator under the
Overhead Provisions of each Operating Agreement. The Company will provide all
office space, equipment, materials, supplies and labor necessary to perform the
Services.
4. Compensation. In consideration of the performance of the
Services, the Company shall receive the amount charged by the Operator to each
Non-Operator for the Services as provided in the Overhead Provisions of each
Operating Agreement. The Company shall invoice Staley for such amount 30 days
after the end of the month in which the Services are performed. Staley shall
pay each invoice within five business days of its receipt.
5. Term. The Company shall commence performance of the Services on
April 1, 1995 and continue performance of the Services under each Operating
Agreement until the earlier of (i) the first date on which Staley is no longer
the Operator or (ii) the date on which such Operating Agreement terminates in
accordance with its terms; provided, however, that this Contract may be
terminated by the Company as to any Operating Agreement effective as of the end
of any calendar month if the Company provides written notice to Staley of its
election to terminate this Contract as to such Operating Agreement not less
than 30 days before the date on which such termination is to be effective;
provided, further, that this Contract may be terminated by Staley as to any
Operating Agreement effective as of the end of any calendar month if George G.
Staley shall cease to be employed by the Company or shall be employed by the
Company in a lesser capacity or for less compensation than as of the date of
this Contract and Staley provides written notice to the Company of its election
to terminate this Contract as to such Operating Agreement not less than 30 days
before the date such termination is to be effective. Upon termination of this
contract as to any Operating Agreement, neither party will have any further
obligation under this Contract as to such Operating Agreement, except for (i)
the Company's obligation to invoice Staley for the Services performed under
such Operating Agreement before the effective date of such termination as
provided in Section 4 above, and (ii) Staley's obligation to pay such invoice
as provided in Section 4 above.
6. No Amendment of Operating Agreements. Subject to the rights of
other parties to each Operating Agreement, Staley shall not amend, supplement
or modify any Operating Agreement to decrease the compensation to be received
by the Company hereunder or increase the scope of the Services to be performed
by the Company hereunder without the prior written consent of the Company.
7. Advance. From time to time upon request by Staley, the Company
may, in its sole discretion, advance to Staley an amount to enable Staley to
pay vendors (other than the Company) providing materials, supplies and services
with respect to a property subject to an Operating Agreement before Staley is
reimbursed for same by the Non-Operators to such
2
<PAGE> 3
Operating Agreement. As Staley is reimbursed by the Non-Operators, Staley
shall repay such advance to the Company.
8. Governing Law. THE VALIDITY AND INTERPRETATION OF THIS CONTRACT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND TO BE FULLY PERFORMED THEREIN.
9. No Assignment. This Contract may not be assigned by any party
hereto without the express written consent of the other party hereto.
10. Notices. All communications under this Contract shall be in
writing and shall be delivered personally or sent by certified mail, return
receipt requested or by telecopy as follows:
If to Staley: Staley Operating Co.
310 West Wall, Suite 200
Midland, Texas 79701
Telecopy Number: (915) 684-5915
Attention: George G. Staley
If to the Company: Titan Resources, L.P.
500 West Texas Avenue, Suite 500
Midland, Texas 79701
Telecopy Number: (915) 687-3863
Attention: Jack D. Hightower
Either party may change its address or telecopy number set forth above by
giving the other party notice of such change in accordance with the provisions
of this Section 10. A notice shall be deemed given, if by personal delivery,
on the date of such delivery to such address, if by certified mail, on the date
shown on the applicable return receipt, or if by telecopy, on the date of
receipt of the transmission of such notice at such telecopy number.
11. Nature of Relationship. The parties hereto intend that the
Company's relationship to Staley and the relationship of each employee or agent
of the Company to Staley shall be that of an independent contractor. Nothing
contained in this Contract shall constitute or be construed to be or create a
partnership or joint venture between the Company and Staley or their respective
successors or assigns. Neither the Company nor any partner, employee or agent
of the Company shall ever be considered to be an employee of Staley.
12. Captions. The section headings herein are for reference purposes
only and do not control or affect the meaning or interpretation of any term or
provision hereof.
13. Amendment. No alteration, amendment, change or addition hereto
shall be binding or effective unless the same is set forth in writing signed by
a duly authorized representative of each party.
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<PAGE> 4
14. Partial Invalidity. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provision hereof is invalid or unenforceable, (i) the remaining terms
and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable
term or provision shall be replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision.
15. Entire Contract. THIS CONTRACT AND THE EXHIBITS HERETO EMBODY
THE ENTIRE AGREEMENT AND UNDERSTANDING OF THE PARTIES AND SUPERSEDE ANY AND ALL
PRIOR AGREEMENTS, ARRANGEMENTS AND UNDERSTANDINGS RELATING TO MATTERS PROVIDED
FOR HEREIN.
16. Counterparts. This Contract may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall be considered one and the same agreement.
This Contract is executed as of the date first written above by a duly
authorized representative of each of Staley and the Company.
STALEY OPERATING CO.
By:/s/ George G. Staley
---------------------------------------
George G. Staley,
President
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.,
General Partner
By:/s/ Jack D. Hightower
---------------------------------------
Jack D. Hightower,
President
4
<PAGE> 1
EXHIBIT 10.17
SERVICE AGREEMENT
This Service Agreement (the "Agreement") is made and entered into
effective the 1st day of April, 1995, by and among TITAN RESOURCES, L.P., a
Texas limited partnership (the "Partnership") and TITAN RESOURCES I, INC., a
Texas corporation (the "Operator").
RECITALS
The Partnership is a Texas limited partnership of which the Operator is
the sole general partner; and
The Partnership is the owner of interests in certain oil and gas leases,
mineral interests, real property interests, royalties, overriding royalties and
production payments and, in the future may purchase additional oil and gas
properties (for purposes hereof all such interests, including after acquired
interests or property shall be referred to as "Properties"); and
The parties hereto desire to set forth the understanding between them to
the effect that the Operator, acting in its individual corporate capacity and
not in its capacity as the sole general partner of the Partnership, will serve
as the contract operator of the Properties; and
The Operator possess an expertise with respect to the operation of such
Properties; and
The Operator will provide services as contract operator with respect to
the Properties, which services shall be governed by a separate operating
agreement, the form of which has been negotiated between the parties hereto and
a copy of which is attached hereto as Exhibit "A" (the "Operating Agreement").
NOW THEREFORE, the Partnership and the Operator, agree as follows:
1. Duties of Operator. To the extent agreed to among the parties
and from time to time as necessary, the duties to be performed by the Operator
(acting in its individual corporate capacity and not in its capacity as sole
general partner of the Partnership) shall be those which
<PAGE> 2
are normal and customary for an operator of oil and gas properties, including,
but not limited to: (i) the payment of rentals, shut-in royalties and other
similar fees; (ii) the administration, maintenance and compliance with
leasehold and contract rights; (iii) the reporting, recording and
reconciliation of production; (iv) the administration of spacing and other
regulatory requirements; (v) the day-to-day administration of notices,
requests and recommendations; and (vi) the general day-to-day oversight of
legal, land, engineering, exploration, accounting and other professional
services required in the normal and customary support, maintenance and
operation of oil and gas properties. It is not the intent of the parties that
the Operator be responsible for the overall administration of the Partnership's
properties. At no time shall the Operator's duties be considered to replace
the Partnership's responsibilities as owner and administrator of its interests
in the Properties. Except with respect to expenditures for special projects as
approved in advance by the parties hereto, the reimbursement of actual
out-of-pocket expenses and overhead costs or as otherwise specifically provided
for in the Operating Agreement, no charges or fees shall be paid to the
Operator for its services hereunder.
2. Operations. The Operating Agreement shall govern the
relationship between the parties as it relates to actual operations for the
Properties described in this paragraph below, and, as to issues between the
Partnership and the Operator, the Operating Agreement shall supersede and
replace in their entirety all existing operating agreements which may relate to
such Properties listed below. The Properties subject to the provisions of this
Agreement and the Operating Agreement are as follows:
(i) All Properties of which the Partnership presently serves
as operator whether or not an actual operating agreement presently exists.
(ii) All Properties of which the Partnership is not presently
the operator but become the operator during the term of this Agreement.
2
<PAGE> 3
(iii) All Properties acquired or to be acquired by the parties
during the term of this Agreement, unless operated by a third party.
3. Separate Maintenance of Interests. The parties hereto agree that
the Partnership's interest in the Properties shall, throughout the term of this
Agreement, remain the separate and distinct property of the Partnership; and
nothing contained herein is intended to be, or shall be construed as, a
conveyance of the Partnership's undivided interests in the Properties to the
Operator. It is understood and agreed that the maintenance of the
Partnership's separate interest in the Properties is imperative due to the fact
that the Partnership may be required to borrow funds necessary to purchase
and/or maintain the Properties.
4. Term. This Agreement shall continue in full force and effect
(unless modified by the mutual agreement and written consent of both parties
hereto) for an initial term of five (5) years from the date hereof or until the
complete abandonment of all of the Properties (including subsequently acquired
oil and gas properties) if earlier, or unless terminated in accordance with the
specific provisions hereof. The initial five (5) year term shall automatically
be extended for additional two (2) year terms or until abandonment of all
Properties unless either party hereto provides written notice to the other
party, at least ninety (90) days prior to the expiration of the initial five
(5) year term or of any additional two (2) year term that it desires to
terminate this Agreement. In such case, the same shall terminate at the end of
such term. In addition, either party to this Agreement may terminate this
Agreement upon the occurrence of any of the following:
a. The bankruptcy, insolvency or dissolution of the other
party hereto or the occurrence of any other event which would permit a
trustee or receiver to acquire control of the affairs of the other party
hereto.
3
<PAGE> 4
b. The merger with another entity by, or the reorganization
or consolidation of, the other party to this Agreement (excluding the
merger with, reorganization or call it consolidation into any affiliated
entity of a party which is in existence as of the date of this
Agreement), wherein such other party is not the surviving entity, if
such merger, reorganization or consolidation occurs without the prior
written consent of the other party to this Agreement, which consent
shall not be unreasonably withheld.
The party electing to so terminate this Agreement must give notice thereof to
the other party within thirty (30) days of the occurrence of the event giving
rise to such party's right to terminate this Agreement. In addition, this
Agreement may also be terminated upon the unanimous written consent of the
parties hereto.
If this Agreement is terminated, for any reason whatsoever, any
Operating Agreements naming Operator as the operator of any part of the
Properties in effect at such time shall survive in accordance with the terms
and provisions thereof.
5. Dispute Resolution. Any controversy, claim or dispute relating
to the interpretation, implementation and/or operation of this Agreement
between the parties hereto or, any alleged breach of any of the obligations
hereunder, shall, to the extent possible be resolved between the parties
hereto. In the event, however, the parties cannot so resolve the controversy,
claim, dispute or alleged breach, then the parties hereto agree that such
issue, claim or dispute shall be submitted to binding arbitration in accordance
with the following procedures. At any time after a party shall designate, in
writing to the other party an arbitrator. Within fifteen (15) days after
receiving such decision the other party shall designate in writing its
arbitrator. Two arbitrators will, within ten (10) days after both have been so
designated, select a third arbitrator; provided, however, that if the two
arbitrators are unable to agree on a third arbitrator, the third arbitrator
shall be selected as soon as possible by the Chief United States District Judge
for the
4
<PAGE> 5
Western District of Texas or by any other person designated by such judge. The
three arbitrators so selected shall conduct a hearing in Midland, Texas, no
later than thirty (30) days following the selection of the third arbitrator, at
which time the parties hereto shall present such evidence and witnesses as they
may choose, with or without counsel. Adherence to formal rules of evidence
shall not be required, but the arbitrators shall consider any evidence in
testimony that they determine to be appropriate. The arbitrators shall render
their decision within thirty (30) days following the conclusion of the hearing;
decision by majority of the arbitration panel shall be final and binding. Such
decision may be filed in any court of competent jurisdiction and may be
enforced by and party as a final judgment of such court. The cost and fees of
the first and second arbitrator shall be borne by the party selecting such
arbitrators, as well as any other cost or fees expended by each party in
defending its position in the arbitration, and the cost and fees of the third
arbitrator, as well as any other general costs related to the arbitration
proceedings, shall be borne by both parties equally. Each party shall bear its
own attorney's fees and other expenses associated with the arbitration.
6. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto,
their respective successors and assigns.
(b) This Agreement may not be assigned to any third party
without the prior written consent of the non-assigning party hereto.
(c) This Agreement shall be interpreted pursuant to and
construed in accordance with the laws of the State of Texas.
(d) This Agreement may not be amended except in writing signed
by all parties hereto.
5
<PAGE> 6
(e) All notices required under this Agreement shall be in
writing and shall be considered delivered if delivered via facsimile
transmission to the addresses set forth in the Operating Agreement.
(f) All terms of this Agreement and the Operating Agreement
shall be confidential between the parties, their employees, officers,
consultants and agents, and shall not be disclosed to any third party
except with the express written consent of the other party.
(g) The liability of the parties shall be several, not joint
or collective. Each party shall be responsible only for its
obligations. It is not the intention of the parties to create, nor
shall this Agreement be construed as creating, a mining or other
partnership, joint venture, agency or trust relationship or association,
or to render the parties, as to the matters covered by this Agreement,
liable as partners, coventurers or as principals.
(h) The section headings herein are for reference purposes
only and do not control or affect the meaning or interpretation of any
term or provision hereof.
(i) If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected,
that any term or provision hereof is invalid or unenforceable, (i) the
remaining terms and provisions hereof shall be unimpaired and (ii) the
invalid or unenforceable term or provision shall be replaced by a term
or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or
provision.
(j) THIS AGREEMENT AND THE EXHIBITS HERETO EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING OF THE PARTIES AND
6
<PAGE> 7
SUPERSEDE ANY AND ALL PRIOR AGREEMENTS, ARRANGEMENTS AND UNDERSTANDINGS
RELATING TO MATTERS PROVIDED FOR HEREIN.
IN WITNESS WHEREOF, the parties have set their hands as of the day and
year first above written.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.,
General partner
By: /s/ Jack Hightower
---------------------------------------
Name: Jack Hightower
-------------------------------------
Title: President
------------------------------------
TITAN RESOURCES I, INC.
By: /s/ Jack Hightower
---------------------------------------
Name: Jack Hightower
-------------------------------------
Title: President
------------------------------------
7
<PAGE> 1
EXHIBIT 10.18
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND BASIC LEASE TERMS . . . . . . . . . . . . . . . . . 1
2. GRANTING CLAUSE AND RENT PROVISIONS . . . . . . . . . . . . . . . . 3
2.1 Grant of Premises . . . . . . . . . . . . . . . . . . . . . 3
2.2 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Operating Expenses . . . . . . . . . . . . . . . . . . . . . 3
2.4 Definition of Operating Expenses . . . . . . . . . . . . . . 4
2.5 Late Payment Charge . . . . . . . . . . . . . . . . . . . . 5
2.6 Increase in Insurance Premiums . . . . . . . . . . . . . . . 5
2.7 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. OCCUPANCY, USE AND OPERATIONS . . . . . . . . . . . . . . . . . . . 6
3.1 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Compliance with Laws, Rules and Regulations . . . . . . . . 6
3.4 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Security . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 Personal Property Taxes . . . . . . . . . . . . . . . . . . 7
4. UTILITIES AND SERVICE . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Building Services . . . . . . . . . . . . . . . . . . . . . 8
4.2 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Janitorial Service . . . . . . . . . . . . . . . . . . . . . 8
4.4 Excessive Utility Consumption . . . . . . . . . . . . . . . 8
4.5 Window Coverings . . . . . . . . . . . . . . . . . . . . . . 8
4.6 Restoration of Services; Abatement . . . . . . . . . . . . . 8
4.7 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Lessor Repairs . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Lessee Repairs . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Request for Repairs . . . . . . . . . . . . . . . . . . . . 9
5.4 Lessee Damages . . . . . . . . . . . . . . . . . . . . . . . 9
6. ALTERATIONS AND IMPROVEMENTS . . . . . . . . . . . . . . . . . . . 9
6.1 Construction . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Lessee Improvements . . . . . . . . . . . . . . . . . . . . 9
6.3 Common and Service Area Alterations . . . . . . . . . . . . 10
7. CASUALTY; WAIVERS; SUBROGATION AND INDEMNITY . . . . . . . . . . . 10
7.1 Repair Estimate . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Lessor's and Lessee's Rights . . . . . . . . . . . . . . . . 10
7.3 Lessor's Rights . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Repair Obligation . . . . . . . . . . . . . . . . . . . . . 11
7.5 Property Insurance . . . . . . . . . . . . . . . . . . . . . 11
7.6 Waiver; No Subrogation . . . . . . . . . . . . . . . . . . . 11
7.7 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 12
8. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.1 Taking - Lessor's and Lessee's Rights . . . . . . . . . . . 12
8.2 Taking - Lessor's Right . . . . . . . . . . . . . . . . . . 12
8.3 Award . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
9. ASSIGNMENT OR SUBLEASE; SUBORDINATION AND NOTICE . . . . . . . . . 13
9.1 Sublease; Consent . . . . . . . . . . . . . . . . . . . . . 13
9.2 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.3 Additional Compensation . . . . . . . . . . . . . . . . . . 13
9.4 Lessor Assignment . . . . . . . . . . . . . . . . . . . . . 13
9.5 Rights of Mortgagee . . . . . . . . . . . . . . . . . . . . 13
9.6 Estoppel Certificates . . . . . . . . . . . . . . . . . . . 14
9.7 Notice to Lessor's Mortgagee . . . . . . . . . . . . . . . . 14
10. DELETED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 15
11.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 15
11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.3 Payment by Lessee . . . . . . . . . . . . . . . . . . . . . 16
12. RELOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.1 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.2 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.1 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.2 Act of God or Force Majeure . . . . . . . . . . . . . . . . 16
13.3 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.1 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.2 Act of God . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.3 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . 17
14.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.5 Rent Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 17
14.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.8 Submission of Lease . . . . . . . . . . . . . . . . . . . . 18
14.9 Corporation Authority . . . . . . . . . . . . . . . . . . . 18
14.10 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.11 Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . 18
14.13 Lessor's Liability . . . . . . . . . . . . . . . . . . . . . 18
14.14 Sale of Property . . . . . . . . . . . . . . . . . . . . . . 18
14.15 Time is of the Essence . . . . . . . . . . . . . . . . . . . 18
14.16 Subtenancies . . . . . . . . . . . . . . . . . . . . . . . . 18
15. SPECIAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 18
15.01 Renewal Option . . . . . . . . . . . . . . . . . . . . . . . 18
16. AMENDMENT AND LIMITATION OF WARRANTIES . . . . . . . . . . . . . . 19
16.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 19
16.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 19
16.3 Limitation of Warranties . . . . . . . . . . . . . . . . . . 19
16.4 Waiver and Releases . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
Exhibit "A"
Exhibit "B"
Exhibit "C"
Exhibit "D"
Building Rules and Agreed Regulations
<PAGE> 3
OFFICE LEASE
One Fasken Center, Suite 500
500 West Texas Avenue, Midland, Texas 79701
This Lease, made as of the 8th day of January, 1996 by and between the
Lessor and the Lessee named below.
ARTICLE 1 - BASIC LEASE TERMS
For the purposes of this Lease, the following terms shall have the
meanings set forth below:
1.1 Lessor. Fasken Center, Ltd.
1.2 Lessee. Titan Resources, L.P.
1.3 Building. The Building (including the Leased Premises) known as
One Fasken Center, 500 and 550 West Texas Avenue, Midland, Texas 79701,
located on the tract of land (the "Land") described on Exhibit "A" hereto,
together with all other buildings, structures, fixtures and other improvements
located thereon from time to time. The Building and the Land are collectively
referred to herein as the "Property".
1.4 (a). Leased Premises. Approximately 12,905 square feet of
Useable Area in the Building as more fully diagrammed on the floor plan of such
premises attached hereto and made a part hereof as Exhibit "B", on the floor(s)
indicated thereon.
(b). Net Rentable Area. The Net Rentable Area includes the
Useable Area together with a common area percentage factor of 14.3%. The Net
Rentable Area for the purposes of this Lease Agreement shall be deemed to be
14,750 square feet. Said Net Rentable Area represents approximately 3.499025%
of the Total Net Rentable Area of the Building. The Building contains a total
of approximately 421,546 square feet of Net Rentable Area.
1.5 Lease Term. Three (3) years and Zero (0) months, beginning on the
Commencement Date.
1.6 Commencement Date. Improvements are to be erected upon the
Leased Premises pursuant to a separate Leasehold Improvements Agreement between
Lessor and Lessee, as described in Section 6.1, and the "Commencement Date"
shall be the earlier of the date Lessee begins operating its business in the
Leased Premises or the scheduled "Commencement Date" as stated herein; and if
no improvements are to be erected upon the Leased Premises pursuant to a
Leasehold Improvements Agreement, the Commencement Date shall be January 1,
1996 (the "Commencement Date"). The Commencement Date shall constitute the
commencement of the term of this Lease for all purposes, whether or not Lessee
has actually taken possession. If this Lease is executed before the Leased
Premises become vacant or otherwise available and ready for occupancy by
Lessee, or if any present occupant of the Leased Premises holds over and Lessor
cannot acquire possession of the Leased Premises before the Commencement Date,
then (a) Lessee's obligation to pay rent hereunder shall be waived until Lessor
tenders possession of the Leased Premises to Lessee, (b) the term shall be
extended by the time between the scheduled Commencement Date and the date on
which Lessor tenders possession of the Leased Premises to Lessee (which date
will then be defined as the Commencement Date), (c) Lessor shall not be in
default hereunder or be liable for damages therefore, and (d) Lessee shall
accept possession of the Leased Premises when Lessor tenders possession thereof
to Lessee. By occupying the Leased Premises, Lessee shall be deemed to have
accepted the Leased Premises in their condition as of the date of such
occupancy. Lessee shall execute and deliver to Lessor, within
- 1 -
<PAGE> 4
ten (10) days after Lessor has requested same, a letter confirming (i) the
Commencement Date, (ii) that Lessee has accepted the Leased Premises, and (iii)
that Lessor has performed all of its obligations with respect to the Leased
Premises (except for punch-list items specified in such letter) if applicable.
1.7 Base Rent. During the term of this Lease, Lessee hereby agrees
to pay a Base Rental (herein called "Base Rental") in the amount set out in
Exhibit "C", which Exhibit is executed by Lessor and Lessee contemporaneously
herewith and incorporated herein by reference for all purposes.
1.8 Security Deposit. Security deposit is $ 0.00.
1.9 Addresses.
Lessor's Address: Fasken Center, Ltd.
500 West Texas Avenue
Suite 500
Midland, Texas 79701
Telephone # 687-4414 - Fax # 682-4497
Lessee's Address: Titan Resources, L.P.
500 West Texas Avenue
Suite 500
Midland, Texas 79701
Telephone # 682-6612 - Fax # 687-0192
Manager's Address: Haley Properties, Inc.
500 West Texas Avenue
Suite 500
Midland, Texas 79701
Telephone # 687-4414 - Fax # 682-4497
Lessor, Lessee and Manager, by written notice to the others may change from
time to time the foregoing addresses, and Lessor, by written notice to Lessee,
may notify Lessee from time to time of the appointment of a new Manager and
such new Manager's address.
1.10 Permitted Use. The Leased Premises are to be used and occupied
by Lessee solely for the purposes of office space and for no other purpose
without Lessor's expressed written consent.
1.11 Common Areas. Such parking areas, streets, driveways, aisles,
sidewalks, curbs, delivery passages, loading areas, lighting facilities,
designated elevators, public corridors, stairwells, lobbies, restrooms, and all
other areas situated on or in the Property which are designated by Lessor from
time to time, for use by all tenants of the Property in common.
1.12 Guarantor. The guarantor of Lessee's obligations under this
Lease pursuant to a Guaranty of Lease, if any, executed for the benefit of
Lessor. Said Guarantor is, as of the date of execution hereof: N/A
1.13 Operating Expense Base. 1995 Base Year.
1.14 Parking. Lessor agrees to provide parking for at least Twenty-Nine
(29) spaces located in the attached parking garage at no additional cost per
space.
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<PAGE> 5
ARTICLE 2. - GRANTING CLAUSE AND RENT PROVISIONS
2.1 Grant of Premises. In consideration of the obligation of Lessee
to pay the rent and other charges as provided in this Lease, and in
consideration of the other terms and provisions of this Lease, Lessor hereby
leases the Leased Premises to Lessee during the Lease Term, subject to the
terms and provisions of this Lease.
2.2 Base Rent. Lessee agrees to pay monthly as base rent during the
term of this Lease the sum of money set forth in Section 1.7 of this Lease,
which amount shall be payable to Lessor at the address shown in Section 1.9
above or at such address that Lessor in writing shall notify Lessee. One (1)
monthly installment of rent shall be due and payable on the date of execution
of this Lease by Lessee for the first month's rent and a like monthly
installment shall be due and payable on or before the first day of each
calendar month succeeding the Commencement Date during the term of this Lease,
without demand offset or reduction; provided, if the Commencement Date should
be a date other than the first day of a calendar month, the monthly rental set
forth above shall be prorated to the end of that calendar month, and all
succeeding installments of rent shall be payable on or before the first day of
each succeeding calendar month during the term of this Lease. Unless otherwise
specified, Lessee shall pay, as additional rent, all other sums due under this
Lease at the same time and in the same manner as the base rent due hereunder
including Operating Expenses referred to in Section 2.3. No payment by Lessee
or receipt by Lessor of a lesser amount than the monthly installment of rents
herein stipulated shall be deemed to be other than a payment on account of the
earliest stipulated rent and/or additional rent; nor shall any endorsement of
payment on any check or any letter accompanying any check or payment as rent be
deemed an accord or satisfaction and Lessor may accept such check for payment
without prejudice to Lessor's right to recover the balance of such rent and/or
additional rent or to pursue any other remedy provided in this Lease and/or
under applicable law.
2.3 Operating Expenses. If Lessor's operating Expenses per net
rentable square foot for the Property, in any calendar year during the term of
this Lease exceeds the Operating Expense Base, Lessee agrees to pay as
additional rent Lessee's share of such excess operating expenses. As used
herein, the term "Lessee's share of such excess Operating Expenses" means the
amount by which Lessor's Operating Expenses per net rentable square foot exceed
the Operating Expense Base, multiplied by the net rentable square feet
comprising the Leased Premises. Lessor may invoice Lessee monthly for Lessee's
share of the estimated excess operating expenses for each calendar year, which
amount shall be adjusted each year based upon anticipated operating expenses.
Within one-hundred twenty (120) days following the close of each calendar year,
Lessor shall provide Lessee an accounting showing in reasonable detail all
computations of additional rent due under this section. Failure of Lessor to
give Lessee said notice within said time period shall not be a waiver of
Lessor's right to collect said additional rent. If the accounting shows that
the total of the monthly payments made by Lessee exceeds the amount of the
additional rent due by Lessee under this section, the accounting shall be
accompanied by a refund. If the accounting shows that the total of the monthly
payments made by Lessee is less than the amount of additional rent due by
Lessee under this section, the accounting shall be accompanied by an invoice
for the additional rent. Notwithstanding any other provisions in this Lease,
during the year in which the Lease terminates, Lessor, by March 31 of the
following year after the termination date, shall have the option to invoice
Lessee for Lessee's share of the excess operating expenses based upon the
previous year's operating expenses. If this Lease shall terminate on a day
other than the last day of a calendar year, the amount of any additional rent
payable by Lessee applicable to the year in which such termination shall occur
shall be prorated on the ratio that the number of days from the commencement of
the calendar year to and including the
- 3 -
<PAGE> 6
termination date bears to 365. Lessee shall have the right at its own expense
and within a reasonable time, to audit during Lessor's regular business hours
Lessor's books relevant to the additional rent payable under this Section.
Notwithstanding anything to the contrary contained in this Lease, if the
Building is not occupied to the extent of ninety-five percent (95%) of the
rentable area thereof, during any calendar year, Lessee's additional rent under
this Section and the operating expenses shall be determined as if the Building
had been occupied to the extent of ninety-five (95%) of the rentable area
during such year. Lessee agrees to pay any additional rent due under this
Section within thirty (30) days following receipt of the invoice or accounting
showing additional rent due.
2.4 Definition of Operating Expenses. The term "operating expenses"
includes all expenses incurred by Lessor with respect to the maintenance,
servicing, repairing and operation of the Property, including, but not limited
to the following: maintenance, repair and replacement costs (other than major
or substantive repair, replacement and general maintenance of the roof,
foundation and exterior walls of the Building or replacement costs of major
HVAC equipment, i.e. chiller); electricity, fuel, water, sewer, gas and other
utility charges; security, window washing and janitorial services; trash and
snow and ice removal; landscaping and pest control; management fees payable to
Lessor or third parties, but not both, in an amount not to exceed three percent
(3%) of Gross Revenues from the property; plus wages and salaries of all
employees employed by Manager or Lessor, engaged in the operation, repair,
replacement, maintenance, and security of the Building, including taxes,
insurance, and benefits relating thereto; all services, supplies, repairs,
replacement or other expenses for maintaining and operating the Property
including parking and common areas; the cost including interest, amortized over
a reasonable period, of any capital improvement made to the Property by Lessor
after the date of this Lease which is required under any governmental law or
regulation that was not applicable to the Property at the time it was
constructed (Lessor shall be responsible for any compliance improvements to the
common areas of the property and Lessee shall be responsible for any compliance
improvements required within the Leased Premises); the cost, including
interest, amortized over a reasonable period, of installation of any device or
other equipment which improves the operating efficiency of any system
applicable to the Leased Premises or the Property and thereby reduces operating
expenses such that the cost will be recovered in reduced operating expenses
over a period not to exceed five (5) years; all real property taxes and
installments of special assessments, which accrue against the Property during
the term of this Lease; governmental levies or charges of any kind or nature
assessed or imposed on the Property except for fines caused by Lessor's
negligent activities or any third parties' activities, whether by state,
county, city or any political subdivision thereof; and all insurance premiums
Lessor is required to pay or deems necessary to pay including public liability
insurance, with respect to the Property. The term operating expenses does not
include the following: expenses for repairs, restoration or other work
occasioned by fire, wind, the elements or other casualty to the extent they are
covered by insurance proceeds; income and franchise taxes of Lessor; expenses
incurred in leasing to or procuring of tenants, leasing commissions,
advertising expenses and expenses for the renovating of space for new tenants;
interest or principal payments on any mortgage or other indebtedness of Lessor;
compensation paid to any employee of Lessor above the grade of property
manager; any depreciation allowance or expense; or operating expenses which are
the responsibility of Lessee.
For the term of this Lease, Operating Expenses may not be increased by
Lessor by more than the proportion of increase in the Consumer Price Index for
Urban Wage Earners ("CPI-U") maintained by the United States Department of
Labor, with a base month of December, 1995 for Operating Expenses within
Lessor's control. That portion of the Excess Operating Expenses made up of
Operating Expenses that are not within Lessor's control, i.e., Noncontrollable
- 4 -
<PAGE> 7
Expenses (increases in real property and ad valorem taxes, insurance, utilities
[including water, sewer, electricity, natural gas fuel and trash hauling],
third party contractors such as janitorial and mechanical, and government
levies or charges of any kind or nature assessed or imposed on the property and
directly paid by Lessor, whether by state, county, city or any political
subdivision thereof, shall not be limited to the increase in the CPI as set
forth above, and Lessee shall pay its full share of any Excess Operating
Expenses for Noncontrollable Expenses.
2.5 Late Payment Charge. Other remedies for nonpayment of rent
notwithstanding, if any monthly rental payment is not received by Lessor on or
before the fifteenth (15th) day of the month for which the rent is due, or if
any other payment hereunder due Lessor by Lessee is not received by Lessor on
or before the tenth (10th) day of the month next following the month in which
Lessee was invoiced, a late payment charge of ten percent (10%) of such past
due amount shall become due and payable in addition to such amounts owed under
this Lease. Alternatively, at Lessor's election, all payments required of
Lessee hereunder shall bear interest from the date due until paid at the
maximum lawful rate. In no event, however, shall the charges permitted under
this Section 2.5 or elsewhere in this Lease, to the extent the same are
considered to be interest under applicable law, exceed the maximum lawful rate
of interest.
2.6 Increase In Insurance Premiums. In addition to the insurance
provided under the Operating Expense provision above, if an increase in any
insurance premiums paid by Lessor for the Property is caused by Lessee's use of
the Leased Premises or if Lessee vacates the Leased Premises and causes an
increase in such premiums, then Lessee shall pay as additional rent the amount
of such increase to Lessor. Lessee agrees to pay any amount due under this
Section within ten (10) days following receipt of the invoice showing the
additional rent due as documented by the carrier that the increase is due to
the conduct of Lessee.
2.7 Deleted.
2.8 Holding over. If Lessee does not vacate the Leased Premises upon
the expiration or earlier termination of this Lease, Lessee shall be a tenant
at will for the holdover period and all of the terms and provisions of this
Lease shall be applicable during that period, except that Lessee shall pay
Lessor (in addition to additional rent payable under Section 2.3 and any other
sums payable under this Lease) as base rental for the period of such holdover
an amount equal to two times the base rent which would have been payable by
Lessee had the holdover period been a part of the original term of this Lease
(without waiver of Lessor's right to recover damages as permitted by law). Upon
the expiration or earlier termination of this Lease, Lessee agrees to vacate
and deliver the Leased Premises, and all keys thereto, to Lessor upon delivery
to Lessee of notice from Lessor to vacate. The rental payable during the
holdover period shall be payable to Lessor on demand. No holding over by
Lessee, whether with or without the consent of Lessor, shall operate to extend
the term of this Lease.
2.9 Parking. The parking spaces set forth in Section 1.14 shall be
for Lessee and/or Lessee's employees and Lessor shall have the right to assign
parking space as conditions permit. However, Lessor shall not be required to
police the use of these spaces. Lessor may make, modify and enforce rules and
regulations relating to the parking of automobiles in the parking area(s), and
Lessee shall abide thereby. Lessor shall not be liable to Lessee or Lessee's
agents, servants, employees, customers, or invitees for damage to person or
property caused by any act omission or neglect of Lessee.
- 5 -
<PAGE> 8
ARTICLE 3. - OCCUPANCY, USE AND OPERATIONS
3.1 Use. Lessee warrants and represents to Lessor that the Leased
Premises shall be used and occupied only for the purpose as set forth in
Section 1.10. Lessee shall occupy the Leased Premises, conduct its business
and control its agents, employees, invitees and visitors in such a manner as is
lawful, reputable and will not create a nuisance to other tenants in the
Property. Lessee shall not solicit business, distribute handbills or display
merchandise within the Common Areas, or take any action which would interfere
with the rights of other persons to use the Common Areas. Lessee shall not
permit any operation which emits any odor or matter which intrudes into other
portions of the Property, use any apparatus or machine which makes undue noise
or causes vibration in any portion of the Property or otherwise interfere with,
annoy or disturb any other tenant in its normal business operations or Lessor
in its management of the Property. Lessee shall neither permit any waste on
the Leased Premises nor allow the Leased Premises to be used in any way which
would, in the opinion of Lessor, be extra hazardous on account of fire or which
would in any way increase or render void the fire insurance on the Property, or
permit the storage of any hazardous materials or substances.
3.2 Signs. No signs of any type or description shall be erected,
placed or painted in or about the Leased Premises except those signs submitted
to Lessor in writing and approved by Lessor in writing, and which signs are in
conformity with Lessor's sign criteria established for the Property. Lessor
reserves the right to remove, at Lessee's expense, all signs other than signs
approved in writing by Lessor under this Section 3.2 without notice to Lessee
and without liability to Lessee for any damages sustained by Lessee as a result
thereof.
3.3 Compliance with Laws, Rules and Regulations. Lessee, at Lessee's
sole cost and expense, shall comply with all laws, ordinances, orders rules and
regulations of state, federal, municipal or other agencies or bodies having
jurisdiction over the use, condition or occupancy of the Leased Premises.
Lessee shall procure at its own expense all permits and licenses required for
the transaction of its business in the Leased Premises. Lessee will comply
with the rules and regulations of the Property adopted by Lessor which are set
forth on a schedule attached to this Lease. If Lessee is not complying with
such rules and regulations, or if Lessee is in any way not complying with this
Article 3, then notwithstanding anything to the contrary contained herein,
Lessor, may upon three (3) business days written notice, at its election, enter
the Leased Premises without liability therefor and fulfill Lessee's
obligations. Lessee shall reimburse Lessor on demand for any reasonable
expenses which Lessor may incur in effecting compliance with Lessee's
obligations and agrees that Lessor shall not be liable for any damages
resulting to Lessee from such action. Lessor shall have the right at all times
to change and amend the rules and regulations in any reasonable manner as it
may deem advisable for the safety, care, cleanliness, preservation of good
order and operation or use of the Property or the Leased Premises.
3.4 Quiet Enjoyment. Lessor and Lessee each respectfully warrant
that it has the right and authority to execute this Lease, Lessee shall
peaceably and quietly hold and enjoy the Leased Premises for the term, without
hindrance from Lessor or any party claiming by, through, or under Lessor,
subject to the terms and conditions of this Lease and subject to all mortgages,
deeds of trust, leases and agreements of record as of the date of this Lease
and to all laws, ordinances, orders, rules and regulations of any governmental
authority.
3.5 Inspection. Lessor or its authorized agents shall at any and all
reasonable times have the right to enter the Leased Premises to inspect the
same, to supply janitorial service or any other service to be provided by
Lessor, to show the Leased Premises to prospective mortgagees, purchasers or
- 6 -
<PAGE> 9
prospective tenants, and to alter, improve or repair the Leased Premises or any
other portion of the Property. Subject to section 4.6 and in connection with
the rights granted in this paragraph only, Lessee hereby waives any claim for
abatement or reduction of rent or for any damages for injury or inconvenience
to or interference with Lessee's business, for any loss of occupancy or use of
the Leased Premises, and for any other loss occasioned thereby. Lessor shall
at all times have and retain a key with which to unlock all of the doors in,
upon and about the Leased Premises. Lessee shall not change Lessor's lock
system or in any other manner prohibit Lessor from entering the Leased
Premises. Lessor shall have the right at all times to enter the Leased
Premises by any means in the event of an emergency without liability therefor.
3.6 Security. Lessor shall provide a security service or electronic
security devices to supervise access to the Building during the weekends and
after normal working hours during the week; provided, however, Lessor shall
have no responsibility to prevent losses due to theft or burglary, or damages
done by persons gaining access to the Leased Premises or the Building and the
parking areas and Lessee accepts the present security system provided in the
building as a satisfactory security system.
3.7 Personal Property Taxes. Lessee shall be liable for all taxes
levied against leasehold improvements, merchandise, personal property, trade
fixtures and all other taxable property located in the Leased Premises. If any
such uncontested or contested taxes for which Lessee is liable are levied
against Lessor or Lessor's property and if Lessor elects to pay the same or if
the assessed value of Lessor's property is increased by inclusion of personal
property and trade fixtures placed by Lessee in the Leased Premises and Lessor
elects to pay the taxes based on such increase with five (5) business days
prior written notice, Lessee shall pay to Lessor, upon demand, that part of
such taxes for which the Lessee is primarily liable pursuant to the terms of
this Section. Lessee shall pay when due any and all taxes related to Lessee's
use and operation of its business in the Leased Premises.
ARTICLE 4. - UTILITIES AND SERVICE
4.1 Building Services. Lessor shall provide water and electricity
for Lessee during the term of this Lease. Lessee shall pay all telephone
charges. Lessor shall furnish Lessee water at those points of supply provided
for general use by other tenants in the Building, and central heating and air
conditioning in season on business days during regular hours as are considered
normal in Midland, Texas (7:00 a.m. to 6:00 p.m., Monday through Friday, 7:00
a.m. to 1:00 p.m. Saturday except for legal holidays will be furnished only
upon request of Lessee, who shall bear the additional costs thereof) and at
temperatures and in amounts as are considered by Lessor to be standard or in
compliance with any governmental regulations, such service at times other than
regular hours to be furnished upon request with not less than twenty-four (24)
hours advance notice from Lessee, who shall bear the entire cost thereof (which
cost shall include but not be limited to an amount that will fairly compensate
Lessor for additional services, depreciation and replacement of capital items
and any other costs attributable thereto) at the rate of $25.00 per hour.
Lessor shall credit the base operating expense account for that portion of
after hours charges specifically attributable to increased utility costs as
calculated by Lessor. Lessor shall also provide routine maintenance, painting
and electric lighting service for all public areas and special service areas of
the Property in the manner and to the extent deemed by Lessor to be standard.
Lessor may, in its sole discretion, provide additional services not enumerated
herein. Subject to Section 4.6 herein, failure by Lessor to any extent to
provide these defined services or any other services not enumerated, or any
cessation thereof, shall not render Lessor liable in any respect for damages to
either person or property, be construed as an
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eviction of Lessee, work an abatement of rent or relieve Lessee from
fulfillment of any covenant in this Lease. If any of the equipment or machinery
useful or necessary for provision of utility services, and for which Lessor is
responsible, breaks down, or for any cause ceases to function properly, Lessor
shall use reasonable diligence to repair the same promptly, but Lessee shall
have no claim for rebate of rent or damages on account of any interruption in
service occasioned from the repairs. Lessor reserves the right from time to
time to make changes in the utilities and services provided by Lessor to the
Property.
4.2 Deleted.
4.3 Janitorial Service. Lessor shall furnish janitorial services to
the Leased Premises and public areas of the Building five (5) times per week
during the term of this Lease, excluding holidays. Lessor shall not provide
janitorial service to storage areas included in the Leased Premises.
4.4 Excessive Utility Consumption. Lessee shall pay all utility
costs occasioned by electronic data processing equipment telephone equipment,
special lighting and other equipment of high electrical consumption as
determined by Lessor, whose electrical consumption exceeds normal office usage
including (without limitation) the cast of installing, servicing and
maintaining any special or additional inside or outside wiring or lines, meters
or submeters, transformers, poles, air conditioning costs, or the cost of any
other equipment necessary to increase the amount or type of electricity or
power available to the Leased Premises and such Excess Utility Costs shall be
subject to the additional rent provisions of Section 2.2.
4.5 Window Coverings. Lessor may (but shall not be obligated to)
furnish and install window coverings on all exterior windows to maintain a
uniform exterior appearance. Lessee shall not remove or replace these window
coverings or install any other window covering which would affect the exterior
appearance of the Building. Lessee may install lined or unlined over draperies
on the interior sides of the Lessor furnished window coverings for interior
appearance or to reduce light transmission, provided such over draperies do not
(in Lessor's determination) affect the exterior appearance of the Building or
affect the operation of the Building's heating, ventilating and air
conditioning systems.
4.6 Restoration of Services; Abatement. Lessor shall use reasonable
efforts to restore any service that becomes unavailable; however, such
unavailability shall not render Lessor liable for any damages caused thereby,
be a constructive eviction of Lessee, constitute a breach of any implied
warranty, or, except as provided in the next sentence, entitle Lessee to any
abatement of Lessee's obligations hereunder. However, if Lessee is prevented
from making reasonable use of the Leased Premises for more than five (5)
consecutive business days because of the unavailability of any such service,
Lessee shall, as its exclusive remedy therefor, be entitled to a reasonable
abatement of rent for each consecutive day (after such five (5) day period)
that Lessee is so prevented from making reasonable use of the Leased Premises.
4.7 Deleted.
ARTICLE 5. - REPAIRS AND MAINTENANCE
5.1 Lessor Repairs. Unless otherwise expressly stipulated herein,
Lessor shall not be required to make any improvements to or repairs of any kind
or character on the Leased Premises during the term of this Lease, except such
repairs as may be for normal maintenance of the Common Areas which shall
include the painting of and repairs to walls, floors, corridors, windows, and
other structures and equipment within the Common Areas only, and such
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additional maintenance of the Common Areas as may be necessary because of
damages by persons other than Lessee, its agents, employees, invitees, or
visitors. Lessor shall have no obligation to maintain or repair the Leased
Premises except for plumbing and electrical fixtures (unless such damage is
caused by Lessee) except as set forth herein. Lessee will promptly give Lessor
notice of any damage in the Leased Premises requiring repairs by Lessor. If
the Building or the equipment used to provide the services referred to in
Section 4.1 are damaged by acts or omissions of Lessee, its agents, customers,
employees or invitees, then Lessee will bear the cost of such repairs. Lessor
shall not be liable to Lessee, except as expressly provided in this Lease, for
any damage or inconvenience, and Lessee shall not be entitled to any damages
nor to any abatement or reduction of rent by reason of any repairs, alterations
or additions made by Lessor under this Lease. Lessor's cost of maintaining and
repairing the items set forth in this section are subject to the operating
expense provisions in Section 2.3.
5.2 Lessee Repairs. Lessee, at its own cost and expense, shall
maintain the Leased Premises in a good working condition (except for those
items that are the responsibility of Lessor under Section 5.1) and shall repair
or replace any damage or injury to all or any part of the Leased Premises
and/or the Property, caused by any act or omission of Lessee or Lessee's agents
or employees.
5.3 Request for Repairs. All requests for repairs or maintenance
that are the responsibility of Lessor pursuant to any provision of this Lease
may be made by telephone and followed in writing to Lessor and Manager at the
addresses in Section 1.9.
5.4 Lessee Damages. Lessee shall not cause any damage to be
committed on any portion of the Leased Premises or Property, and at the
termination of this Lease, by lapse of time or otherwise, Lessee shall deliver
the Leased Premises to Lessor in as good a condition as existed at the
Commencement Date of this Lease, ordinary wear and tear excepted. Except for
ordinary wear and tear, the cost and expense of any repairs necessary to
restore the condition of the Leased Premises shall be borne by Lessee.
ARTICLE 6. - ALTERATIONS AND IMPROVEMENTS
6.1 Construction. If any construction of tenant improvements is
necessary for the initial occupancy of the Leased Premises, such construction
shall be accomplished and the cost of such construction shall be borne by
Lessor and/or Lessee in accordance with a separate "Leasehold Improvements
Agreement" (herein so called and made a part hereof as Exhibit "D") between
Lessor and Lessee. Except as expressly provided in this Lease or in the
Leasehold Improvements Agreement (if any) and except for new demising
partitions shown on Exhibit "B", Lessee acknowledges and agrees that Lessor has
not undertaken to perform any modification, alteration or improvements to the
Leased Premises, and Lessee further waives any defects in the Leased Premises
(except in accordance with Section 6.2 below) and acknowledges and accepts (l)
the Leased Premises as suitable for the purpose for which they are leased and
(2) the Property and every part and appurtenance thereof as being in good and
satisfactory condition. Upon the request of Lessor, Lessee shall deliver to
Lessor a completed acceptance of premises memorandum in Lessor's standard form.
6.2 Lessee Improvements. Lessee shall not make or allow to be made
any alterations, physical additions or improvements in or to the Leased
Premises without first obtaining the written consent of Lessor, which consent
may in the sole and absolute discretion of Lessor be denied. Any alterations,
physical additions or improvements to the Leased Premises made by or installed
by either party hereto shall remain upon and be surrendered with the Leased
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<PAGE> 12
Premises and become the property of Lessor upon the expiration or earlier
termination of this Lease without credit to Lessee; provided, however, Lessor,
at its option, may require Lessee to remove any physical improvements or
additions and/or repair any alterations in order to restore the Leased Premises
to the condition existing at the time Lessee took possession, normal wear and
tear excepted, all costs of removal and/or alterations to be borne by Lessee.
This clause shall not apply to moveable equipment, furniture or moveable trade
fixtures owned by Lessee including the grid filing systems and built-ins, which
may be removed by Lessee at the end of the term of this Lease if Lessee is not
then in default and if such equipment and furniture are not then subject to any
other rights, liens and interests of Lessor. Lessee shall have no authority or
power, express or implied, to create or cause any mechanic's or materialmen's
lien, charge or encumbrance of any kind against the Leased Premises, the
Property or any portion thereof. Lessee shall promptly cause any such liens
that have arisen by reason of any work claimed to have been undertaken by or
through Lessee to be released by payment, bonding or otherwise within thirty
(30) days after request by Lessor or provide written notice to Lessor that such
claim is contested. Lessee shall indemnify Lessor against losses arising out
of any such claim (including, without limitation, legal fees and court costs).
If Lessee fails to timely take either such action, then Lessor may pay any
uncontested lien claim without inquiry as to the validity thereof, and any
amounts so paid, including expenses and interest, shall be paid by Lessee to
Lessor within ten (10) days after Lessor has delivered to Lessee an invoice
therefor.
6.3 Common and Service Area Alterations. Lessor shall have the right
to decorate and to make repairs, alterations, additions, changes or
improvements, whether structural or otherwise, in, about or on the Property or
any part thereof, and to change, alter, relocate, remove or replace service
areas and/or Common Areas, to place, inspect, repair and replace in the Leased
Premises (below floors, above ceilings or next to columns) utility lines, pipes
and the like to serve other areas of the Property outside the Leased Premises
and to otherwise alter or modify the Property, and for such purposes to enter
upon the Leased Premises and, during the continuance of any such work, to take
such measures for safety or for the expediting of such work as may be required,
in Lessor's judgment, all without affecting any of Lessee's obligations
hereunder.
ARTICLE 7. - CASUALTY; WAIVERS; SUBROGATION AND INDEMNITY
7.1 Repair Estimate. If the Leased Premises or the Building are
damaged by fire or other casualty (a "Casualty"), Lessor shall, within twenty
(20) days after such Casualty, deliver to Lessee a good faith estimate (the
"Damage Notice") of the time needed to repair the damage caused by such
Casualty.
7.2 Lessor's and Lessee's Rights. If a material portion of the
Leased Premises or the Building is damaged by Casualty such that Lessee is
prevented from conducting its business in the Leased Premises in a manner
reasonably comparable to that conducted immediately before such Casualty and
Lessor estimates that the damage caused thereby cannot be repaired within
ninety (90) days after the commencement of repair, then Lessor may with
Lessee's approval, at Lessor's expense, relocate Lessee to office space
reasonably comparably to the Leased Premises, provided that Lessor notifies
Lessee of its intention to do so in the Damage Notice. Such relocation may be
for a portion of the remaining term or the entire term. Lessor shall complete
any such relocation within ninety (90) days after Lessor has delivered the
Damage Notice to Lessee. If Lessor and Lessee do not elect to relocate Lessee
following such Casualty, then Lessee may terminate this Lease by delivering
written notice to Lessor of its election to terminate within thirty (30) days
after the Damage Notice has been delivered to Lessee. If Lessor does not
relocate Lessee and
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Lessee does not terminate this Lease, then (subject to Lessor's rights under
Section 7.3) Lessor shall repair the Building or the Leased Premises, as the
case may be, as provided below, and Basic Rental for the portion of the Leased
Premises rendered untenantable by the damage shall be abated on a reasonable
basis from the date of damage until the completion of the repair, unless Lessee
caused such damage, in which case, Lessee shall continue to pay rent without
abatement.
7.3 Lessor's Rights. Notwithstanding anything herein to the
contrary, if a Casualty damages a material portion of the Building, and Lessor
makes (in its sole discretion) a determination that restoring the Leased
Premises would not be in Lessor's best interests, or if Lessor is required to
pay any insurance proceeds arising out of the Casualty to Lessor's Mortgagee,
then Lessor may terminate this Lease by giving written notice of its election
to terminate within thirty (30) days after the Damage Notice has been delivered
to Lessee, and all Rental hereunder shall be abated as of the date of the
Casualty.
7.4 Repair Obligation. If neither party elects to terminate this
Lease following a Casualty, then Lessor shall, within a reasonable time after
such Casualty, commence to repair the Building and the Leased Premises and
shall proceed with reasonable diligence to restore the Building and Leased
Premises to substantially the same condition as they existed immediately before
such Casualty; however, Lessor shall not be required to repair or replace any
part of the furniture, equipment, fixtures, and other improvements which may
have been placed by, or at the request of, Lessee or other occupants in the
Building or the Leased Premises, and the Lessor's obligation to repair or
restore the Building or Leased Premises shall be limited to the extent of the
insurance proceeds actually received by Lessor for the Casualty in question.
7.5 Property Insurance. Lessor shall at all times during the term of
this Lease insure the Property against all risk of direct physical loss with
such deductibles as Lessor considers appropriate; provided, Lessor shall not be
obligated in any way or manner to insure any personal property (including, but
not limited to, any furniture, machinery, goods or supplies) of Lessee upon or
within the Leased Premises, any fixtures installed or paid for by Lessee upon
or within the Leased Premises, or any improvements which Lessee may construct
on the Leased Premises. Lessee shall have no right in or claim to the proceeds
of any policy of insurance maintained by Lessor even if the cost of such
insurance is borne by Lessee as set forth in Article 2. Lessee at all times
during the term of the Lease shall, at its own expense, keep in full force and
effect insurance against fire and such other risks as are from time to time
included in standard all-risk insurance (including coverage against vandalism
and malicious mischief) for the full insurable value of Lessee's trade
fixtures, furniture, supplies and all items of personal property of Lessee
located on or within the Leased Premises.
7.6 Waiver: No Subrogation. Neither Lessor nor Lessee shall be
liable to the other party or those claiming by, through, or under each party
for any injury to or death of any person or persons or the damage to or theft,
destruction, loss, or loss of use of any property (a "Loss") caused by
casualty, theft, fire, third parties, or any other matter beyond the control of
Lessor or Lessee, or for any injury or damage or inconvenience which may arise
through repair or alteration of any part of the Building, or failure to make
repairs, or from any other cause, except if such Loss is caused by Lessor's or
Lessee's gross negligence or willful misconduct. Lessor and Lessee each waives
any claim it might have against the other for any damage to or theft,
destruction, loss, or loss of use of any property, to the extent the same is
insured against under any insurance policy that covers the Building, the Leased
Premises, Lessor's or Lessee's fixtures, personal property, leasehold
improvements, or business, or is required to be insured against
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<PAGE> 14
under the terms hereof, regardless of whether the negligence or fault of the
other party caused such loss. Each party shall cause its insurance carrier to
endorse all applicable policies waiving the carrier's rights of recovery under
subrogation or otherwise against the other party.
7.7 Deleted.
7.8 Insurance. Lessee shall at its expense procure and maintain
throughout the term the following insurance policies: (i) comprehensive general
liability insurance in amounts of not less than $ 500,000, insuring Lessee,
Lessor and Lessor's agents against all liability for injury to or death of a
person or persons or damage to property arising from the use and occupancy of
the Leased Premises, (ii) insurance covering the full value of Lessee's
property and improvements, and other property (including property of others),
in the Leased Premises, and (iii) business interruption insurance. Lessee's
insurance shall provide primary coverage to Lessor when any policy issued to
Lessor provides duplicate or similar coverage, and in such circumstance
Lessor's policy will be excess over Lessee's policy. Lessee shall furnish
certificates of such insurance and such ether evidence satisfactory to Lessor
of the maintenance of all insurance coverage required hereunder, and Lessee
shall obtain a written obligation on the part of each insurance company to
notify Lessor at least thirty (30) days before cancellation or a material
change of any such insurance. All such insurance policies shall be in form,
and issued by companies, reasonably satisfactory to Lessor.
ARTICLE 8. - CONDEMNATION
8.1 Taking - Lessor's and Lessee's Rights. If any part of the
Building is taken by right of eminent domain or conveyed in lieu thereof (a
"Taking"), and such Taking prevents Lessee from conducting its business in the
Leased Premises in a manner reasonably comparable to that conducted immediately
before such Taking, then Lessor may, with Lessee's consent and at Lessor's
expense, relocate Lessee to office space reasonably comparable to the Leased
Premises, provided that Lessor notifies Lessee of its intention to do so within
thirty (30) days after the Taking. Such relocation may be for a portion of the
remaining term or the entire term. Lessor shall complete any such relocation
within 180 day after Lessor has notified Lessee of its intention to relocate
Lessee. If Lessor does not elect to relocate Lessee following such Taking,
then Lessee may terminate this Lease as of the date of such Taking by giving
written notice to Lessor within sixty (60) days after the Taking, and rent
shall be apportioned as of the date of such Taking. If Lessor does not
relocate Lessee and Lessee does not terminate this Lease, then all Base Rental
shall be abated on a reasonable basis as to that portion of the Leased Premises
rendered untenantable by the Taking.
8.2 Taking - Lessor's Rights. If any material portion, but less than
all, of the Building becomes subject to a Taking, or if Lessor is required to
pay any of the proceeds received for a Taking to Lessor's Mortgagee, then this
Lease, at the option of Lessor, exercised by written notice to Lessee within
thirty (30) days after such Taking, shall terminate and rent shall be
apportioned as of the date of such Taking. If Lessor does not so terminate
this Lease and does not elect to relocate Lessee, then this Lease will
continue, but if any portion of the Leased Premises has been taken, Base Rental
shall abate as provided in the last sentence of Section 8.1.
8.3 Award. If any Taking occurs, then Lessor shall receive the
entire award or other compensation for the Land, the Building, and other
improvements taken, and Lessee may separately pursue a claim against the
condemnor for the value of Lessee's personal property which Lessee is entitled
to remove under this Lease, moving costs, loss of business, and other claims it
may have.
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ARTICLE 9. - ASSIGNMENT OR SUBLEASE: SUBORDINATION AND NOTICE
9.1 Sublease: Consent. Lessee shall not, without the prior written
consent of Lessor, (which shall not be unreasonably withheld), (i) advertise
that any portion of the Leased Premises is available for lease, (ii) assign,
sublease, or encumber this Lease or any estate or interest herein, whether
directly or by operation of law. (iii) permit any other entity to become
Lessee hereunder by merger, consolidation, or other reorganization, (iv) if
Lessee is an entity other than a corporation whose stock is publicly traded,
permit the transfer of an ownership interest in Lessee so as to result in a
change in the current control of Lessee, (v) sublet any portion of the Leased
Premises, (vi) grant any license, concession, or other right of occupancy of
any portion of the Leased Premises, or (vii) permit the use of the Leased
Premises by any parties other than Lessee (any of the events listed in clauses
(ii) through (vii) being a "Sublease"). If Lessee requests Lessor's consent to
a Sublease, then Lessee shall provide Lessor with a written description of all
terms and conditions of the proposed Sublease, copies of the proposed
documentation, and the following information about the proposed sublease: name
and address; reasonably satisfactory information about its business and
business history; its proposed use of the Leased Premises; banking, financial,
and other credit information; and general references sufficient to enable
Lessor to determine the proposed sublessee's credit worthiness and character.
If Lessor consents to a proposed Sublease, then the proposed sublessee shall
deliver to Lessor a written agreement whereby it expressly assumes the Lessee's
obligations hereunder; however, any sublessee of less than all of the space in
the Leased Premises shall be liable only for obligations under this Lease that
are properly allocable to the space subject to the Sublease, and only to the
extent of the rent it has agreed to pay Lessee therefor. Lessor's consent to a
Sublease shall not release Lessee from performing its obligations under this
Lease, but rather Lessee and its sublessee shall be jointly and severally
liable therefor. Lessor's consent to any Sublease shall not waive Lessor's
rights as to any subsequent Subleases. If an Event of Default occurs while the
Leased Premises or any part thereof are subject to a Sublease, then Lessor, in
addition to its other remedies, may collect directly from such sublessee all
rents becoming due to Lessee and apply such rents against rent. Lessee
authorizes its sublessees to make payments of rent directly to Lessor upon
receipt of notice from Lessor to do so.
9.2 Deleted.
9.3 Additional Compensation. Lessee shall pay to Lessor, immediately
upon receipt thereof, seventy-five percent (75%) of all compensation received
by Lessee for a Sublease that exceeds the rent allocable to the portion of the
Leased Premises covered thereby.
9.4 Lessor Assignment. Lessor shall have the right to sell, transfer
or assign, in whole or in part, its rights and obligations under this Lease and
in the Property. Any such sale, sublease or assignment shall operate to
release Lessor from any and all liabilities under this Lease for any actions or
operations arising after the date of such sale, assignment or transfer.
9.5 Rights of Mortgagee. Lessee accepts this Lease subject and
subordinate to any recorded lease, mortgage or deed of trust lien presently
existing, if any, or hereafter encumbering the Property, except to companies
affiliated with Lessor, and to all existing ordinances and recorded
restrictions, covenants, easements, and agreements with respect to the
Property, Lessor hereby is irrevocably vested with full power and authority to
subordinate Lessee's interest under this Lease to any mortgage or deed of trust
lien hereafter placed on the Property. Upon any foreclosure, judicially or
non-judicially, of any such mortgage, or the sale of the Property in lieu of
foreclosure, or any other transfer of Lessor's interest in the Property,
whether or not in connection with a mortgage, Lessee hereby does, and
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hereafter agrees to attorn to the purchaser at such foreclosure sale or to the
grantee under any deed in lieu of foreclosure or to any other transferee of
Lessor's interest, and shall recognize such purchaser, grantee, or other
transferee as Lessor under this Lease, and no further attornment or other
agreement shall be required to effect or evidence Lessee's attornment to and
recognition of such purchaser or grantee as Lessor hereunder. Such agreement
of Lessee to attorn shall survive any such foreclosure sale, trustee's sale,
conveyance in lieu thereof, or any other transfer of Lessor's interest in the
Property. Lessee, upon demand, at any time, before or after any such
foreclosure sale, trustee's sale, conveyance in lieu thereof, or other transfer
shall execute, acknowledge, and deliver to the prospective transferee and/or
mortgagee the Lease Subordination, Non-disturbance and Attornment Agreement and
any such instruments or certificates evidencing such attornment as the
mortgagee or other prospective transferee may reasonably require.
Notwithstanding anything to the contrary implied in this Section, any mortgagee
under any mortgage shall have the right at any time to subordinate any such
mortgage to this Lease on such terms and subject to such conditions as the
mortgagee in its discretion may consider appropriate.
9.6 Estoppel Certificates. Lessee agrees to furnish, from time to
time, within ten (10) business days after receipt of a request from Lessor's or
Lessor's Mortgagee, a statement certifying, if applicable and within Lessee's
knowledge, all or some of the following with exceptions noted that: Lessee is
in possession of the Leased Premises; the Lease is in full force and effect;
the Lease is unmodified (except as disclosed in such statement); Lessee claims
no present charge, lien, or claim of offset against rent; the rent is paid for
the current month, but is not prepaid for more than one (1) month and will not
be prepaid for more than one (1) month in advance; there is no existing default
by reason of some act or omission by Lessor; that Lessor has performed all
inducements required of Lessor, in connection with this Lease, including
construction obligations, and Lessee accepts the Leased Premises as
constructed; an acknowledgment of the assignment of rentals and other sums due
hereunder to the mortgage and agreement to be bound thereby; an agreement
requiring Lessee to advise the mortgagee of damage to or destruction of the
Leased Premises by fire or other casualty requiring reconstruction; an
agreement by Lessee to give the mortgagee written notice of Lessor's default
hereunder and to permit mortgagee to cure such default within a reasonable time
after such notice before exercising any remedy Lessee might possess as a result
of such default; and such other matters as may be reasonably required by Lessor
or Lessor's Mortgagee. Lessee's failure to deliver such statement, in addition
to being a default under this Lease, shall be deemed to establish conclusively
that this Lease is in full force and effect except as declared by Lessor, that
Lessor is not in default of any of its obligations under this Lease, and that
Lessor has not received more than one (1) month's rent in advance. Lessee
shall not be required to provide more than two (2) Estoppel Certificates per
year.
9.7 Notice to Lessor's Mortgagee. Lessee shall not seek to enforce
any remedy it may have for any default on the part of the Lessor without first
giving written notice by certified mail, return receipt requested, specifying
the default in reasonable detail, to any Lessor's Mortgagee whose address has
been given to Lessee and affording such Lessor's Mortgagee a reasonable
opportunity to perform Lessor's obligations hereunder. Any such request shall
be deemed not to be an interference with contractual relations between Lessor
and any mortgagee.
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ARTICLE 10. - LIENS
10.1 Deleted.
ARTICLE 11. - DEFAULT AND REMEDIES
11.1 Events of Default. Each of the following occurrences shall
constitute an "Event of Default":
a. Lessee's failure to pay rent after five (5) days written notice
to Lessee, or any other sums due from Lessee to Lessor under the Lease (or any
other lease executed by Lessee for space in the Building), when due;
b. Lessee's failure to perform, comply with, or observe any other
agreement or material obligation of Lessee under this Lease (or any other Lease
executed by Lessee for space in the Building) after thirty (30) days written
notice;
c. Deleted.
d. Deleted.
e. Deleted.
f. Lessee's failure to deliver such statement described under
Section 9.6 Estoppel Certificates after thirty (30) days written notice.
11.2 Remedies. Upon any Event of Default, Lessor may, in addition to
all other rights and remedies afforded Lessor hereunder or by law or equity,
take any of the following actions:
a. Terminate this Lease by giving Lessee written notice thereof, in
which event, Lessee shall pay to Lessor the sum of (i) all rent accrued
hereunder through the date of termination, (ii) all amounts due under Section
11.3., and (iii) an amount equal to (A) the total rent that Lessee would have
been required to pay for the remainder of the term discounted to present value
at a per annum rate equal to the "Prime Rate" as published (on the date this
Lease is terminated) by The Wall Street Journal, Southwest Edition, in its
listing of "Money Rates", minus (B) the then present fair rental value of the
Leased Premises for such period, similarly discounted; or
b. Terminate Lessee's right to possession of the Leased Premises
without terminating this Lease by giving written notice thereof to Lessee, in
which event Lessee shall pay to Lessor (i) all rent and other amounts accrued
hereunder to the date of termination of possession, (ii) all amounts due from
time to time under Section 11.3., and (iii) all rent and other sums required
hereunder to be paid by Lessee during the remainder of the term, diminished by
any net sums thereafter received by Lessor through reletting the Leased
Premises during such period. Lessor shall use reasonable efforts to relet the
Leased Premises on such terms and conditions as Lessor in its sole discretion
may determine (including a term different from the term, rental concessions,
and alterations to, and improvement of, the Leased Premises); however, Lessor
shall not be obligated to relet the Leased Premises before leasing other
portions of the Building. Lessor shall not be liable for, nor shall Lessee's
obligations hereunder be diminished because of, Lessor's failure to relet the
Leased Premises or to collect rent due for such reletting. Lessee shall not be
entitled to the excess of any consideration obtained by reletting over the rent
due hereunder. Re-entry by Lessor in the Leased Premises shall not affect
Lessee's obligations hereunder for the unexpired term; rather, Lessor may, from
time to time, bring action against Lessee to collect amounts due by Lessee,
without the necessity of Lessor's waiting until the expiration of the
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<PAGE> 18
term. Unless Lessor delivers written notice to Lessee expressly stating that
it has elected to terminate this Lease, all actions taken by Lessor to exclude
or dispossess Lessee of the Leased Premises shall be deemed to be taken under
this Section 11.2b. If Lessor elects to proceed under this Section 11.2b., it
may at any time elect to terminate this Lease under Section 11.2a.
c. In addition to its rights under 11.2(a) and (b) above, Lessor,
(subject to the notice provision of Section 11.1), may alter locks or other
security devices at the Leased Premises to deprive Lessee of access thereto,
and Lessor shall not be required to provide a new key or right of access to
Lessee.
11.3 Payment by Lessee. Upon any Event of Default, Lessee shall pay
to Lessor all costs incurred by Lessor (including court costs and reasonable
attorneys' fees and expenses) in (i) obtaining possession of the Leased
Premises, (ii) removing and storing Lessee's or any other occupant's property,
(including the cost of altering any locks or security devices), (iii) the
reasonable cost of repairing or restoring the Leased Premises to its original
condition, normal wear and tear excepted, (iv) if Lessee is dispossessed of the
Leased Premises and this Lease is not terminated, reletting all or any part of
the Leased Premises (including brokerage commissions, cost of tenant finish
work, and other costs incidental to such reletting), (v) performing Lessee's
obligations which Lessee failed to perform, and (vi) enforcing, or advising
Lessor of, its rights, remedies, and recourses arising out of the Event of
Default.
ARTICLE 12. - RELOCATION
12.1 Deleted.
12.2 Deleted.
ARTICLE 13. - DEFINITIONS
13.1 Deleted.
13.2 Act of God or Force Majeure. An "act of God" or "force majeure"
is defined for purposes of this Lease as strikes, lockouts, sitdowns, material
or labor restrictions by any governmental authority, unusual transportation
delays, riots, floods, washouts, explosions, earthquakes, fire storms, weather
(including wet grounds or inclement weather which prevents construction), acts
of the public enemy, wars, insurrections, and/or any other cause not reasonably
within the control of Lessor or Lessee or which by the exercise of due
diligence either party is unable wholly or in part, to prevent or overcome.
13.3 Deleted.
ARTICLE 14. - MISCELLANEOUS
14.1 Waiver. Failure of either Lessor or Lessee to declare an event
of default immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of the
default, but Lessor shall have the right to declare the default at any time and
take such action as is lawful or authorized under this Lease. Pursuit of any
remedy hereunder or at law shall not constitute forfeiture or waiver of any
rent or damages accruing to Lessor by reason of the violation of any of the
terms, provisions or covenants of this Lease. Failure by Lessor or Lessee to
enforce one or more of the remedies provided hereunder or at law upon any
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<PAGE> 19
event of default shall not be deemed or construed to constitute a waiver of the
default or of any other violation or breach of any of the terms provisions and
covenants contained in this Lease. Lessor may collect and receive rent due
from Lessee without waiving or affecting any rights or remedies that Lessor may
have at law or in equity or by virtue of this Lease at the time of such
payment. Subject to the provisions of Section 11.2, institution of a forcible
detainer action to re-enter the Leased Premises shall not be construed to be an
election by Lessor to terminate this Lease.
14.2 Act of God. Neither Lessor nor Lessee shall be required to
perform any covenant or obligation in this Lease, or be liable in damages to
Lessee, so long as the performance or non-performance of the covenant or
obligation is delayed, caused or prevented by an act of God or force majeure.
14.3 Attorney's Fees. If either Lessor or Lessee defaults in the
performance of any of the terms, covenants, agreements or conditions contained
in this Lease and either party places in the hands of any attorney the
enforcement of all or any part of this Lease, the collection of any rent or
other sums due or to become due or recovery of the possession of the Leased
Premises, the defaulting party agrees to pay reasonable attorney's fees.
14.4 Successors. This Lease shall be binding upon and inure to the
benefit of Lessor and Lessee and their respective heirs, personal
representatives, successors and assigns.
14.5 Rent Tax. If applicable in the jurisdiction where the Leased
Premises are situated, Lessee shall pay and be liable for all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payments to be in
addition to all other payments required to be paid to Lessor by Lessee under
the terms of this Lease. Any such payment shall be paid concurrently with the
payment of the rent, additional rent, operating expenses or other charge upon
which the tax is based as set forth above and which shall be paid in the same
time and manner as operating expenses set forth herein.
14.6 Interpretation. The captions appearing in this Lease are for
convenience only and in no way define, limit, construe or describe the scope or
intent of any Section. Grammatical changes required to make the provisions of
this Lease apply (1) in the plural sense where there is more than one tenant
and (2) to either corporations, associations, partnerships or individuals,
males or females, shall in all instances be assumed as though in each case
fully expressed. The laws of the State of Texas shall govern the validity,
performance and enforcement of this Lease. This Lease shall not be construed
more or less favorably with respect to either party as a consequence of the
Lease or various provisions hereof having been drafted by one of the parties
hereto.
14.7 Notices. All rent and other payments required to be made by
Lessee shall be payable to Lessor, in care of Manager, at Manager's address set
forth on page 2 (or if no address be set forth for Manager to Lessor at
Lessor's address set forth on page 2). All payments required to be made by
Lessor to Lessee shall be payable to Lessee at Lessee's address set forth on
page 2. Any notice or document (other than rent) required or permitted to be
delivered by the terms of this Lease shall be deemed to be delivered (whether
or not actually received) when deposited in the United States Mail, postage
prepaid, certified mail, return receipt requested, addressed to the parties at
the respective addresses set forth on page 2 (or, in the case of Lessee, at the
Leased Premises), or to such other addresses as the parties may have designated
by written notice to each other, with copies of notices to Lessor being sent to
Lessor's address as shown on page 2. Manager shall be a co-addressee with
Lessor on all notices sent to Lessor by Lessee hereunder,
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<PAGE> 20
and any notice sent to Lessor and not to Manager, also, in accordance with this
section shall be deemed ineffective.
14.8 Submission of Lease. Submission of this Lease to Lessee for
signature does not constitute a reservation of space or an option to Lease.
This Lease is not effective until execution by and delivery to both Lessor and
Lessee.
14.9 Corporate Authority. If Lessee executes this Lease as a
corporation or a partnership (general or limited), each person executing this
Lease on behalf of Lessee hereby personally represents and warrants that:
Lessee is a duly authorized and existing corporation or partnership (general or
limited), Lessee is qualified to do business in the state in which the Leased
Premises are located, the corporation or partnership (general or limited) has
full right and authority to enter into this Lease, each person signing on
behalf of the corporation or partnership (general or limited) is authorized to
do so, and the execution and delivery of the Lease by Lessee will not result in
any breach of, or constitute a default under any mortgage, deed of trust,
lease, loan, credit agreement, partnership agreement, or other contract or
instrument to which Lessee is a party or by which Lessee may be bound.
14.10 Deleted.
14.11 Deleted.
14.12 Severability. If any provision of this Lease or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14.13 Lessor's Liability. If Lessor shall be in default under this
Lease and, if as a consequence of such default, Lessee shall recover a money
judgment against Lessor, such judgment shall be first satisfied out of the
right, title and interest of Lessor in the property. Should Lessor's
unencumbered right, title and interest in the property not be sufficient to
satisfy Lessee's money judgment, then such deficiency may be satisfied from
other property of the Lessor to the maximum extent of $500,000.
14.14 Sale of Property. Upon any conveyance, sale or exchange of the
Leased Premises or assignment of this Lease, Lessor shall be and is hereby
entirely free and relieved of all liability under any and all of its covenants
and obligations contained in or derived from this Lease arising out of any act,
occurrence, or omission relating to the Leased Premises or this Lease occurring
after the consummation of such sale or exchange and assignment.
14.15 Time is of the Essence. The time of the performance of all of
the covenants, conditions and agreements of this Lease is of the essence of
this Lease.
14.16 Subtenancies. At Lessor's option, the voluntary or other
surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not
work a merger of estates and shall operate as an assignment of any or all
permitted subleases or subtenancies.
ARTICLE 15. - SPECIAL PROVISIONS
15.1 Renewal Option. Provided no Event of Default exists and Lessee
is occupying the entire Premises at the time of such election, Lessee may renew
this Lease for Two (2) additional periods of Three (3) years on the same terms
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<PAGE> 21
provided in this Lease (except as set forth below), by delivering written
notice of the exercise thereof to Lessor not later than 180 days before the
expiration of the Term. On or before the commencement date of the extended
Term in question, Lessor and Lessee shall execute an amendment to this Lease
extending the Term on the same terms provided in this Lease, except as follows:
(a) The Basic Rental Rate payable for each month during the extended
Term shall be at the then prevailing market rate.
(b) Lessee shall have no further renewal options unless expressly
granted by Lessor in writing: and
(c) Lessor shall lease to Lessee the Leased Premises in their then
current condition, and Lessor shall not provide to Lessee any allowances (e.g.,
moving allowance, construction allowance, and the like) or other tenant
inducements.
Lessee's rights under this clause shall terminate if (i) this Lease or
Lessee's right to possession of the Premises is terminated, (ii) Lessee assigns
any of its interest in this Lease or sublets any portion of the Premises, or
(iii) Lessee fails to timely exercise its option under this Exhibit, time being
of the essence with respect to Lessee's exercise thereof.
ARTICLE 16. - AMENDMENT AND LIMITATION OF WARRANTIES
16.1 Entire Agreement. IT IS EXPRESSLY AGREED BY THE PARTIES, AS A
MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH
THE SPECIFIC REFERENCES TO EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE
PARTIES: THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENT OR PROMISES PERTAINING TO THE SUBJECT
MATTER OF THIS LEASE OR OF ANY EXPRESSLY MENTIONED EXTRINSIC DOCUMENTS THAT ARE
NOT INCORPORATED IN WRITING IN THIS LEASE.
16.2 Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
16.3 Limitation of Warranties. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS OF A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE,
AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN
THIS LEASE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSEE EXPRESSLY
ACKNOWLEDGES THAT LESSOR HAS MADE NO WARRANTIES OR REPRESENTATIONS CONCERNING
ANY HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL MATTERS AFFECTING ANY PART OF
THE PROPERTY, AND LESSOR HEREBY EXPRESSLY DISCLAIMS AND LESSOR WAIVES ANY
EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO ANY SUCH MATTER.
16.4 Waiver and Releases. LESSEE SHALL NOT HAVE THE RIGHT TO WITHHOLD
OR TO OFFSET RENT OR TO TERMINATE THIS LEASE EXCEPT AS EXPRESSLY PROVIDED
HEREIN. LESSEE WAIVES AND RELEASES ANY AND ALL STATUTORY LIENS.
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<PAGE> 22
EXECUTED by Lessee on the _____ day of ________________________, 19___ and by
Lessor on the _____ day of ________________________, 19___, to be effective as
of the first day written herein.
LESSOR
Fasken Center, LTD.
- -----------------------------------
a Texas Limited Partnership
---------------------------------
By: 550 Texas, Inc., General Partner, a Texas Corporation
By: /s/ WENDELL L. BROWN, JR.
------------------------------------
Name: WENDELL L. BROWN, JR.
-----------------------------
Title: VICE PRESIDENT
-----------------------------
LESSEE
Titan Resources, L.P.
- -------------------------------------------
By: /s/ JACK D. HIGHTOWER
------------------------------------
Name: JACK D. HIGHTOWER
-----------------------------
Title: PRESIDENT
-----------------------------
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<PAGE> 1
EXHIBIT 10.19
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement") is between ANADARKO
PETROLEUM CORPORATION, a Delaware corporation, with offices located at 17001
Northchase Drive, Houston, Texas 77060 ("Seller") and TITAN RESOURCES, L.P., a
Texas limited partnership acting herein by and through Titan Resources I, Inc.,
its sole general partner with offices located at 500 W. Texas, Suite 500,
Midland, Texas 79701 ("Buyer").
In consideration of the mutual covenants and promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Buyer and Seller agree as follows:
ARTICLE I. PURCHASE AND SALE
Section 1.01 Property. Subject to the terms and conditions hereof,
Seller agrees to sell and assign or cause to sell and assign to Buyer and Buyer
agrees to purchase and acquire from Seller at the Closing Date (but effective
as of the Effective Date), all right, title and interest of Seller in and to:
(a) The oil, gas and mineral leases described in Exhibit A attached
hereto and incorporated herein, the leasehold estates or other
interests in oil and gas created thereby, including working
interests, operating rights, overriding royalty interests, net
profits interests, mineral interests and similar interests and
all rights and privileges appurtenant thereto or that may arise
by operation of law or otherwise INSOFAR AND INSOFAR ONLY AS such
leases cover and include the lands and depths described on
Exhibit A (such leases, limited as shown on Exhibit A, shall be
referred to hereinafter as the "Leases"), it being Seller's
intent to sell and convey to Buyer all of Seller's right, title
and interest therein unless specifically excluded hereunder;
(b) All rights in any unit including, but not limited to, all rights
derived from any unitization, pooling, operating, communitization
or other agreement or from any declaration or order of any
governmental authority affecting the Leases;
(c) All oil, condensate or gas wells (whether or not currently
producing), water source, and water and other injection or
disposal wells located on the Leases or lands unitized or pooled
therewith to which Seller has right, title, and interest as of
the Effective Date; and
<PAGE> 2
all fixtures, equipment and facilities, and other personal
property used in connection with the production, gathering,
storing, measuring, treating, operation, or maintenance of the
properties described herein, whether or not located on the
Leases;
(d) Except as reserved by Seller in Section 1.02, all contracts and
contractual rights, claims, causes of action, obligations and
interests pertaining to the Leases and the personal property
described herein, including, but not limited to, unit agreements,
farmout agreements, farm-in agreements, operating agreements and
production sales contracts;
(e) Except as reserved by Seller in Section 1.02, all easements,
rights-of-way, rights of ingress and egress, licenses, permits,
and similar interests applicable to, or used in connection with
the Leases or the personal property described herein;
(f) All oil, condensate, natural gas, natural gas liquids and other
minerals produced on or after the Effective Date, together with
all inventories, oil, gas and production in tanks, in storage,
"line fill" and inventory below the pipeline connection in tanks
attributable to the Leases (collectively, the "Production");
(g) All files (originals or copies), records, documentation and data
of Seller relating to (or evidencing) Seller's ownership or
rights in the Leases, Production, Rights-ofWay or other rights
and interests described herein, including but not limited to
lease files, land files, well files, accounting files, production
sales agreements files, division order files, title opinions and
abstracts, legal records, governmental filings, geological data,
seismic data, information and analysis, production reports,
production logs, core sample reports and maps as such data is
assembled in the normal course of business (collectively "the
Data").
The entire right, title, interest, and estate assigned is hereinafter
collectively referred to as "Property".
Section 1.02 Interests Reserved by Seller. All trade credits, accounts
receivable, notes receivable and other receivables attributable to the Property
with respect to any period or time prior to the Effective Date of the purchase
and sale shall remain the property of Seller and be excluded from this sale.
All claims and causes of action arising from or which are attributable to any
time period prior to the Effective Date shall remain the property of Seller and
be excluded from this sale, to the extent Seller gives written notice of such
claims and causes of action prior to
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<PAGE> 3
one year from Closing and furnishes Buyer with sufficient detail to confirm the
validity of such claims or causes of action. To the extent that Seller has
reserved or continues to own an interest (including overriding-royalty
interests, mineral-fee or leasehold interests, deep rights, or facilities,
equipment, or pipelines) after the Effective Date for which Seller requires
access across the land associated with the Property in order to exercise its
rights, Seller reserves concurrent interest in all applicable easements,
rights-of-way, contracts, and other rights relating to the reserved interests
and necessary as reasonably required for exploring, drilling, producing,
storing, or marketing oil, gas and other hydrocarbons from the respective zones
or interests of the parties, including rights to lay pipelines, water lines,
and power lines, dig pits, erect structures, and perform any other act
reasonably necessary to Seller's interests provided such reservation does not
unreasonably interfere with the rights to be assigned by Seller to Buyer in the
Leases or the rights granted Buyer pursuant to the terms of any instrument
creating such rights. Seller agrees to participate as to its proportionate
share of maintenance costs for those jointly used roads, easements,
rightsof-way, or other facilities hereunder based upon its actual and
proportionate use of same.
Section 1.03 Stock Tank Oil. Buyer agrees to reimburse Seller for the
value, less taxes other than taxes on net income, of the merchantable oil
and/or distillate above pipeline connections in the lease stock tanks as of the
Effective Date of the purchase and sale that is attributable to the Property,
at the prevailing market value in the area adjusted for grade and gravity. For
purposes of this Section 1.03, Seller and Buyer agree to accept the operator's
tank gauge readings.
Section 1.04 Costs and Expenses and Income. Except as otherwise
specifically provided in this Agreement, all costs, expenses and income related
to the Property which accrue prior to the Effective Date shall belong to
Seller; and all normal and customary costs, expenses and income (other than
those specifically assumed by each party in other provisions in this Agreement)
relating to the Property which accrue on or after the Effective Date shall
belong to Buyer.
Section 1.05 Suspended Funds. As soon as practicable after the Closing,
Seller shall provide to Buyer a listing showing all proceeds from production
attributable to the Properties that are held in suspense and shall transfer to
Buyer all such suspended proceeds. Buyer shall be responsible for the proper
distribution of all suspended proceeds to the parties lawfully entitled to
them, and hereby agrees to indemnify, defend, and hold harmless Seller from and
against any and all claims, liabilities, losses, costs and expenses (including
without limitation, court cost and reasonable attorney fees) arising out of or
relating to Buyer's erroneous distribution of such suspended proceeds.
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<PAGE> 4
ARTICLE II. PURCHASE PRICE
Section 2.01 Purchase Price. The purchase price for the Property is
$58,065,000 (the "Purchase Price"). Upon execution hereof, Buyer shall tender
to Texas Commerce Bank, Midland, Texas, as escrow agent hereunder, by wire
transfer or certified check, 10` of the above stated Purchase Price as a
performance deposit (the "Deposit"). The Deposit shall be invested in Texas
Commerce Bank's Hannover Fund with any interest earned thereon accruing to the
account of Buyer. At Closing, the Deposit (less any interest earned thereon)
shall be paid to Seller and Buyer shall pay and deliver to Seller, or to an
account designated by Seller, by wire transfer or certified check the remaining
unpaid portion of the Purchase Price after any applicable price adjustment as
provided for herein below.
If the Closing does not occur under this Agreement as a result of any
breach of this Agreement, failure or other fault of Buyer, then Seller shall
receive the Deposit (without interest), as its sole remedy and measure of
damages (including, but not limited to punitive, consequential, and/or other
special damages or awards). If the Closing does not occur as a result of any
breach of this Agreement, failure or other fault of Seller, the Deposit will be
refunded, with all interest earned thereon, to Buyer. Buyer shall, as its sole
and exclusive remedy and measure of damages (including, but not limited to
punitive, consequential and/or other special damages or awards), be entitled to
seek specific performance of this Agreement and recovery of any reasonable
transaction fees, attorney's fees, court costs, and administrative- fees
associated therewith.
Section 2.02 Allocation of Final Purchase Price. Prior to Closing,
Buyer and Seller shall mutually agree in writing to the allocation of the Final
Purchase Price to interests relating to capital assets, to leasehold other than
tangible equipment (leasehold) and to tangible equipment and facilities
(tangible).
Section 2.03 Non-Simultaneous Tax-Free Like-Kind Exchange. Seller and
Buyer hereby agree that Seller, in lieu of the sale of the Assets to Buyer for
the cash consideration provided herein, shall have the right at any time prior
to Closing to assign all or a portion of its rights under this Agreement to a
qualified intermediary in order to accomplish the transaction in a manner that
will comply, either in whole or in part, with the requirements of a like-kind
exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended. In the event Seller assigns its rights under this Agreement pursuant
to this Section 2.03, Seller agrees to notify Buyer in writing of such
assignment at or before Closing. If Seller assigns its rights under this
Agreement, Buyer agrees to (i) consent to Seller's assignment of its rights in
this Agreement by executing the form attached hereto as Exhibit 2.03 and
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<PAGE> 5
(ii) deposit the full Purchase Price less adjustments permitted herein into the
qualified escrow account at Closing. If Seller makes an election under this
Section 2.03, Buyer shall not be obligated to pay any additional costs or incur
any additional obligations or liabilities in the acquisition of the Property.
Seller hereby acknowledges that any assignment of its rights pursuant to this
Section 2.03 shall in no way relieve Seller from any of its obligations under
this Agreement.
ARTICLE III. CLOSING DATE AND EFFECTIVE DATE
Section 3.01 Closing Date. Subject to the satisfaction of conditions to
Closing, the closing of the purchase and sale provided for in this Agreement
("Closing") shall take place on or before December 1, 1995, (the "Closing
Date") in Seller's office in Houston, Texas or on such other date or in such
other place as the parties may mutually agree; provided, however, if any
matters have been submitted for resolution pursuant to Article XIV hereof, the
Closing shall take place within five (5) days following receipt by the parties
of the arbitrator's decision thereunder.
Section 3.02 Effective Date. The effective date of the purchase and
sale shall be 7:00 a.m., local time, where the Property is located, on July 1,
1995 (the"Effective Date").
Section 3.03 Change of Operation Date. Change of Operation Date shall
be 7:00 a.m. local time on the first day of the month following the Closing
Date or other such date as the parties hereto may mutually agree.
ARTICLE IV. REPRESENTATIONS OF SELLER
Seller represents and warrants to Buyer that on and as of the Effective
Date and/or on the Closing Date the following representations and warranties
will be true and correct:
Section 4.01 Corporate Authority. Seller is a corporation duly
organized and in good standing under the laws of the State of Delaware, duly
qualified to carry on its business in the states where the Property is located,
and has all the requisite power and authority to enter into and perform this
Agreement and carry out the transactions contemplated under this Agreement.
Section 4.02 Requisite Approvals. Seller has taken all requisite and
necessary actions pursuant to Seller's Articles of Incorporation, By-laws and
other governing documents to fully authorize Seller to sell the Property in
accordance with the terms and conditions of this Agreement.
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<PAGE> 6
Section 4.03 Validity of Obligation. This Agreement and each of the
documents to be executed and delivered by Seller to Buyer on, before or after
the Closing Date have been duly executed by the appropriate officials of Seller
and constitute the valid and legally binding obligations of Seller, enforceable
against Seller in accordance with the terms of this Agreement and such
documents 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 principles of
general applicability.
Section 4.04 Impediments to Consummation of Agreement. Seller's
execution, delivery and performance of this Agreement will not conflict with or
violate any agreement or instrument to which Seller is a party or any law,
rule, regulation, ordinance, judgment, decree or order to which Seller is
subject.
Section 4.05 Litigation and Claims. Except as disclosed in Exhibit
4.05, no suit, action, or other proceeding is pending or, to Seller's
knowledge, threatened against Seller or any other purported title holder of the
Leases before any court or governmental agency which might have a material
adverse effect on the ownership of the Leases or any part thereof or which
could now or hereafter result in impairment of or loss of value as to Seller's
title to any part of the Property or the value thereof or which might hinder or
impede the operation of the Property and Seller shall promptly notify Buyer of
any such proceedings arising or threatened prior to Closing.
Section 4.06 Compliance with Laws. To the best of Seller's knowledge,
Seller has complied with and shall continue to comply in all material respects
with all valid laws, regulations and orders of all governmental agencies having
jurisdiction over the Property.
Section 4.07 Liens. There are no liens or security interests on the
Property as of the date hereof except for (i) liens for taxes or assessments
not due or not delinquent as of the time of Closing or (ii) liens of operators
relating to obligations not yet due or pursuant to which Seller is not
delinquent.
Section 4.08 Taxes. All taxes which are due and payable by Seller on or
before the Effective Date that relate to, arise out of, or impact upon the
Property, including, without limitation, property, use, severance and ad
valorem taxes imposed by the United States or the States of Texas or New
Mexico, or by any other taxing authority having jurisdiction over Seller or the
Property, and interest and penalties thereon have been or will be paid in full
prior to the Closing hereunder, unless such taxes are being contested in good
faith by Seller and disclosed to Buyer in writing. Ad valorem taxes for tax
year 1995 shall be prorated between Seller and Buyer as provided in this
Agreement.
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<PAGE> 7
Section 4.09 Consents. Seller, on or before Closing, shall have used
its reasonable efforts to obtain consents, except those which by their nature
cannot be requested or obtained until after Closing, or which Buyer and Seller
shall~have mutually waived or which have resulted in an adjustment to the
Purchase Price.
Section 4.10 Expenses. To the best of Seller's knowledge, all expenses
payable under the terms of any contracts applicable to the Property have been
properly paid, except for such expenses as are being currently paid prior to
delinquency in the ordinary course of business or which are being contested in
good faith and as disclosed to Buyer in writing.
Section 4.11 Compliance. To the best of Seller's knowledge, the Leases
have been operated and hydrocarbons have been produced from the Property in
substantial compliance with all of the applicable contracts and all applicable
state and federal laws, rules and regulations. Seller will take no action
conflicting with placing Buyer in the position to assume the operating control
and possession of the Property as of the Change of Operation Date.
Section 4.12 Environmental. To the best of Seller's knowledge, Seller
has all material permits, licenses and other authorizations (collectively, the
"Environmental Permits") that it is required to hold under the Environmental
Laws as herein defined. Except to the extent the same have been remedied,
Seller has not received any notifications from any governmental authority,
surface owner, or tenant nor has Seller otherwise learned that the Leases or
the operation thereof are in violation of any applicable Environmental Laws or
that there are Environmental Claims (as hereafter defined).
Section 4.13 Disclosure. Without affecting Seller's disclaimer of
certain warranties under Section 6.03 hereof, and to the best of Seller's
knowledge, as of the date hereof and until Closing, Seller will make a good
faith effort to disclose to Buyer, as an accommodation to Buyer, all knowledge
in Seller's possession regarding any and all reasonable material matters
affecting the Property which a reasonably prudent purchaser of the Property
would want to know.
ARTICLE V. REPRESENTATIONS OF BUYER
Buyer represents and warrants to Seller that on and as of the Effective
Date and/or on the Closing Date the following representations and warranties
will be true and correct:
Section 5.01 Authority. Buyer is a limited partnership duly organized
and in good standing under the laws of the State of Texas, duly qualified to
carry on its business in the states where the Property is located, and has all
the requisite power and
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<PAGE> 8
authority to enter into and perform this Agreement and carry out the
transactions contemplated under this Agreement.
Section 5.02 Requisite Approvals. Buyer has taken all requisite and
necessary actions pursuant to Buyer's agreement of limited partnership and
other governing documents to fully authorize Buyer to buy the Property in
accordance with the terms and conditions of this Agreement.
Section 5.03 Validity of Obligation. This Agreement and each of the
documents to be executed and delivered by Buyer to Seller on or before the
Closing Date, once duly executed by the appropriate officials of Buyer, shall
constitute the valid and legally binding obligations of Buyer, enforceable
against Buyer in accordance with the terms of this Agreement and such documents
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 principles of general
applicability.
Section 5.04 Impediments to Consummation of Agreement. Buyer's
execution, delivery and performance of this Agreement will not conflict with or
violate any agreement, instrument to which Buyer is a party or any law, rule,
regulation, ordinance, judgment, decree or order to which Buyer is subject.
Section 5.05 Knowledgeable Investor. Buyer is an experienced and
knowledgeable investor and operator in the oil and gas business. Prior to
entering into this Agreement, Buyer was advised by and has relied solely on its
own expertise and legal, tax, reservoir engineering, and other professional
counsel and on the Seller's representations as set forth herein concerning this
Agreement, the Property and the value thereof.
Section 5.06 Own Account. Buyer is acquiring the Property for its own
account, not with a view toward, or for the sale in connection with, any
distribution thereof, nor with any intention of distributing or selling any
interests in the Property in violation of the Securities Act of 1933 or any
other applicable federal or state securities laws and regulations. Except for
traditional mortgage financing from reputable financial institutions, Buyer has
not sought or solicited, nor is Buyer participating with, investors, partners,
or other third parties (except as the same may be done in compliance with
applicable laws and regulations), in order to fund the Purchase Price or the
Deposit and to close this transaction, and all funds used by Buyer in
connection with this transaction are Buyer's own funds.
Section 5.07 Purchase Price. Buyer has arranged or will arrange to have
available by the Closing Date sufficient funds to enable the Buyer to pay in
full the Purchase Price as herein
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provided and otherwise to perform its obligations under this Agreement.
Section 5.08 Compliance with Laws. Buyer shall comply with all
applicable laws, ordinances, rules, and regulations and shall promptly obtain
and maintain all permits required by governmental agencies or other
jurisdictional authorities in connection with the Property.
ARTICLE VI. DISCLAIMER OF WARRANTIES
Section 6.01 Title Warranty. SELLER SHALL CONVEY SELLER'S INTERESTS IN
AND TO THE PROPERTY TO BUYER SUBJECT TO ALL ROYALTIES, OVERRIDING ROYALTIES,
BURDENS, AND ENCUMBRANCES, AS PROVIDED IN THE FORM OF ASSIGNMENT AND BILL OF
SALE ATTACHED AS EXHIBIT B HERETO. SELLER SHALL WARRANT AND DEFEND TITLE TO
THE PROPERTY BY, THROUGH, AND UNDER SELLER AND NOT OTHERWISE. IF, AS OF THE
EFFECTIVE DATE, THERE ARE OVER OR UNDER IMBALANCES WITH RESPECT TO GAS
PRODUCTION OR PROCESSING ATTRIBUTABLE TO THE PROPERTY, OR WITH RESPECT TO STATE
ALLOWABLES, THE PROPERTY WILL BE CONVEYED SPECIFICALLY SUBJECT TO SUCH
IMBALANCES WHICH EXIST AS OF THE EFFECTIVE DATE, WITH BUYER BEARING AND
ASSUMING ALL OBLIGATIONS ON ACCOUNT OF OVERPRODUCTION FROM THE PROPERTY BEING
ACQUIRED, AND BUYER RECEIVING THE BENEFIT OF AND BEING CREDITED WITH ANY AMOUNT
OR CREDIT BECAUSE OF UNDERPRODUCTION FROM THE PROPERTY BEING ACQUIRED. THE
PARTIES AGREE THAT THE EXISTENCE OF ANY SUCH IMBALANCES SHALL NOT BE DEEMED A
TITLE DEFECT EXCEPT AS PROVIDED IN SECTION 7.01(c) 2 HEREOF.
Section 6.02 Limitations. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF
SELLER CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING
WITHOUT LIMITATION ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE QUALITY,
QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER HYDROCARBONS
IN OR UNDER THE LEASES, OR THE ENVIRONMENTAL CONDITION OF THE PROPERTY. THE
ITEMS OF PERSONAL PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND APPURTENANCES
CONVEYED AS PART OF THE PROPERTY ARE SOLD HEREUNDER "AS IS, WHERE IS, AND WITH
ALL FAULTS" AND NO WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER,
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR CONDITION, ARE GIVEN BY OR ON BEHALF OF SELLER. IT
IS UNDERSTOOD AND AGREED THAT PRIOR TO CLOSING BUYER SHALL HAVE INSPECTED THE
PROPERTY FOR ALL PURPOSES AND SHALL HAVE SATISFIED ITSELF AS TO THEIR PHYSICAL
AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, AND THAT BUYER
ACCEPTS SAME IN ITS "AS IS, WHERE IS AND WITH ALL FAULTS" CONDITION, SUBJECT TO
THE PROVISIONS OF SECTION 13.18.
Section 6.03 Other Property. SELLER AND ITS CONSULTANT (RANDALL &
DEWEY, INC.) MAKE NO WARRANTY OR REPRESENTATION, EXPRESS
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OR IMPLIED, AS TO (i) THE ACCURACY OR COMPLETENESS OF ANY DATA, INFORMATION OR
MATERIAL FURNISHED TO BUYER IN CONNECTION WITH THE PROPERTY; (ii) THE QUALITY
AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTY; OR
(iii) THE ABILITY OF THE PROPERTY TO PRODUCE HYDROCARBONS. ANY AND ALL SUCH
DATA, INFORMATION AND OTHER MATERIALS FURNISHED BY SELLER (DIRECTLY OR THROUGH
RANDALL & DEWEY, INC.) IS PROVIDED TO BUYER AS A CONVENIENCE AND BUYER'S
RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK.
Section 6.04 Crude Oil Spills, NORM. Etc. Buyer acknowledges that the
Property has been utilized for the purpose of production and development of oil
and gas and that there may have been spills of crude oil, produced waters, or
other materials on the Property. In addition, Buyer acknowledges that oil and
gas producing formations can contain naturally occurring radioactive material
(NORM) and that some oil field production equipment and/or facilities may
contain asbestos and/or NORM. Buyer expressly understands that special
procedures may be required for the removal and disposal of asbestos or NORM.
From and after Closing and subject to the other provisions of this Agreement,
Buyer assumes all liability for and in connection with the assessment,
remediation, removal, transportation and disposal of any such materials and
will conduct these and any other associated activities in accordance with all
rules, regulations and requirements of government agencies.
ARTICLE VII. TITLE
Section 7.01 Definitions. For this Article VII the following
definitions shall apply:
(a) "Defensible Title" shall mean, as to the Property, such title,
whether held by Seller or by a third party for the benefit of
Seller, that, except for and subject to the Permitted
Encumbrances (as defined herein): (i) entitles Seller to receive
as of the Effective Date, not less than the "Net Revenue
Interest" set forth in Exhibit C in the oil, gas and associated
liquid and gaseous hydrocarbons produced, saved and marketed from
any well located on the Leases as to the presently producing
formations; (ii) obligates Seller as of the Effective Date to
bear costs and expenses relating to the maintenance, development
and operation of any well located on the Leases in an amount not
greater than the "Working Interest" set forth in Exhibit C, and
(iii) is free and clear of liens, encumbrances and defects.
(b) The term "Permitted Encumbrances," as used herein, shall mean,
only to the extent that the net cumulative effect of such
encumbrances does not operate to reduce the Net
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Revenue Interest as to any well to less than the Net Revenue
Interest set forth in Exhibit C for such well and does not
operate to increase the costs and expenses relating to the
maintenance, development and operation of any well in an amount
greater than the Working Interest set forth in Exhibit C for such
well, as follows:
1. Lessors' royalties, overriding royalties,
unitization and pooling designations and
agreements, reversionary interests and similar
burdens;
2. Required third party consents to assignments and
similar agreements with respect to which (i)
waivers or consents are obtained from the
appropriate parties, or (ii) the appropriate time
period for asserting such rights has expired
without an exercise of such rights;
3. All rights to consent by, required notices to,
filings with, or other actions by governmental
entities in connection with the sale or conveyance
of oil and gas leases or interests therein if the
same are customarily obtained subsequent to such
sale or conveyance; and
4. Easements, rights-of-way, servitudes, permits,
surface leases and other rights with respect to
surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like;
conditions, covenants or other restrictions; and
easements for streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other
easements and rights-of-way, on over or in respect
of any of the Property.
(c) The term "Title Defect" as used herein shall mean any material
encumbrance, encroachment, irregularity, defect in or objection
to Seller's title to the Property (expressly excluding Permitted
Encumbrances), that alone or in combination with other Title
Defects renders Seller's title to the Property less than
Defensible Title. Additionally, Title Defect includes the
following:
1. If Buyer determines reasonably and in good faith
that there has been substantial non compliance with
the material laws, rules, regulations, ordinances
or orders of any governmental agency or authority
having jurisdiction over the Property, resulting in
substantial risk of loss of the Property or
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value thereof, then Buyer may elect to treat such
non-compliance as a Title Defect.
2. Except as provided in Section 12.03, if Seller is
obligated by virtue of a prepayment arrangement
under any contract or other arrangement to deliver
hydrocarbons produced from the Property at some
future time without then or thereafter receiving
full payment therefor, or if the actual imbalances
in aggregate exceed those set forth on Exhibit
12.03 by 50% or more then Buyer may elect to treat
the same as a Title Defect.
3. Except for matters disclosed in Exhibit 4.05, if
Buyer becomes aware of any suit, action or other
proceeding before any court or government agency
that Buyer determines reasonably and in good faith
would result in loss or impairment of Seller's
title to any portion of the Property or a portion
of the value thereof, Buyer may elect to treat such
action as a Title Defect.
4. If any necessary third party consent to assignment
is not obtained prior to the Closing Date, Buyer
may elect to treat such consent requirement as a
Title Defect. For purposes hereof necessary third
party consents shall not include (i) consents
customarily obtained subsequent to such assignment
including, without limitation, consent to the
assignment of federal or Indian leases, or (ii)
consents contractually permitted to be obtained
subsequent to such assignments.
Section 7.02 Title Defect Adjustment. Upon execution of and pursuant to
the terms or this Agreement, Buyer shall have the right, at reasonable times
during normal business hours, to conduct its investigation into the status of
the title of the Property. If, in the course of conducting such investigation,
Buyer discovers Title Defects, Buyer may, no later than five days prior to the
Closing Date, notify Seller in writing specifying such Title Defects, the
Property affected thereby, and Buyer's estimate of the net reduction in value
of the Property affected by such Title Defects. A Title Defect shall not be
considered for adjustment unless the collective aggregate value of such defects
exceeds $250,000.
If Buyer fails to notify Seller no later than five days prior to Closing
of any such defects, the defects will be deemed waived, Seller shall be
released from any liability therefor, the Parties
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shall proceed with Closing, Seller shall be under no obligation to correct the
defects, and Buyer shall assume the risks, liability and obligations associated
with such defects. If Buyer notifies Seller of the defects no later than five
days before Closing and if such defects are in Seller's opinion capable of
being corrected prior to the Closing Date, Seller may, but shall be under no
obligation to, correct at its own cost and expense such defects on or before
the Closing Date.
With respect to such defect(s) that Seller elects not to cure, or that
Seller has not cured to the reasonable satisfaction of Buyer, Buyer may waive
the defect(s). However, with respect to those defects that Buyer does not
elect to waive or that have not been cured to the reasonable satisfaction of
Buyer, Buyer and Seller will agree to either (i) adjust the Purchase Price by
an amount agreed upon by Buyer and Seller to be the value of such defect(s) but
in no event shall such adjustment exceed the applicable allocated value as set
forth in Exhibit C attached hereto ("Allocated Value") in which event the
Property subject to the Title Defect will be sold hereunder, or (ii) exclude
the Property subject to the uncured Title Defect from the sale and reduce the
Purchase Price by the applicable Allocated Value. If the parties are unable to
agree to a course of action with respect to such Title Defects, the matter
shall be resolved pursuant to the provisions of Article XIV hereof.
ARTICLE VIII. PRE-CLOSING OBLIGATIONS
Section 8.01 Third Party Preferential Rights. After execution hereof,
if any Property is subject to preferential purchase rights, rights of first
refusal, or similar rights (collectively, "Preferential Rights"), Seller shall
notify the holders thereof of its intention to sell such Property, and of the
value attributed thereto. Buyer and Seller shall assign a value to each
separately designated Property or portion of a Property as may be required by
the instruments creating a Preferential Right, using, where applicable, the
Allocated Values for such portion of the Property. If any Property is subject
to consents to assign, approvals or similar rights (collectively, "Consents"),
Seller shall notify the holders thereof of its intention to sell such Property
and request their consent to the assignment to Buyer. Seller shall promptly
(and in any event by November 20, 1995) notify Buyer if the Preferential Rights
are exercised, waived or deemed waived, or if any Consents are denied. Seller
will not be liable to Buyer if any Preferential Rights are exercised, or any
Consents are denied. However, if Seller is unable to obtain the required
waivers of Preferential Rights or Consents prior to the Closing Date (other
than Consents from governmental agencies ordinarily obtained after Closing),
the portion of the Property affected will, at the option of Buyer (a) be
deleted from this sale and the Purchase Price decreased by the corresponding
Allocated Value or (b) be sold to Buyer, in which event Buyer shall be entitled
to receive any
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amounts paid upon exercise of the Preferential Rights applicable thereto with
Buyer indemnifying and holding Seller harmless for all associated claims and/or
litigation brought by third parties unable to fully exercise a preferential
right to purchase due to Seller's sale of the subject property hereunder. If
the holder of a Preferential Right on a Property that has been deleted from the
sale to Buyer fails to consummate the purchase of the Property covered by such
right within the time required, then Seller shall so notify Buyer and within
thirty (30) days after Buyer's receipt of such notice from Seller, Seller shall
sell to Buyer and Buyer shall purchase from Seller for the Allocated Value, and
upon other terms of this Agreement, the interest to which the Preferential
Right applied provided no material adverse change has occurred in the Property.
Section 8.02 Access to the Property. After execution of this Agreement
and prior to Closing, subject to the consent and cooperation of operators and
other third parties, Buyer and its representatives shall have access to the
Property and the right to observe operations and inspect any and all of the
Property, equipment, improvements and fixtures included in the Property to the
extent that Seller has the legal right to such access. Buyer agrees to protect
defend, indemnify and hold harmless Seller and its co-owners and joint
venturers, their contractors and subcontractors, and their directors, officers,
employees and agents from any damage, suit, claim, loss or liability
(collectively "Claim") that may arise in connection with such access provided
to Buyer pursuant to this Section 8.02, including Claims arising out of
injuries (including death), or damages to any person or property, resulting
from any act or omission of Buyer or its representatives.
Section 8.03 Casualty Loss. If, prior to Closing, all or any material
portion of the Property is destroyed by fire or other casualty, is taken in
condemnation or under the right of eminent domain, or proceedings for such
purposes are pending or threatened, Seller shall notify Buyer of such fact and
Buyer may elect either (i) to treat the Property affected by such destruction,
taking, or pending or threatened taking as a Property with a Title Defect (ii)
to purchase such Property notwithstanding any such destruction, taking, or
pending or threatened taking (without reduction of the Purchase Price
therefor), in which case Seller shall, at Closing, pay to Buyer all sums
received by Seller from third parties by reason of the destruction or taking of
such Property and shall assign, transfer and set over unto Buyer all of
Seller's right title and interest in and to any unpaid awards or other payments
from third parties arising out of the destruction, taking or pending or
threatened taking, of such Property.
Section 8.04 Risk of Loss. Except as otherwise stated in this
Agreement, Buyer shall assume the risk of any change in the condition of the
Property from and after the Effective Date until
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the Closing, except to the extent any change is attributable to the gross
negligence or willful misconduct of Seller. Seller agrees that it will add
Buyer as a loss payee under all policies of insurance applicable to the
Property and that Buyer shall be entitled to receive any insurance proceeds
payable as a result of damage to or destruction of the Property from and after
the Effective Date.
Section 8.05 Hart Scott Rodino Filing. If the parties determine that
the Hart Scott Rodino Antitrust Improvements Act of 1976 (the "Act") applies to
this transaction, Buyer and Seller will, within ten (10) business days
following the execution hereof, file with the Federal Trade Commission and the
Department of Justice the required notifications, reports, and supplemental
information to comply, in all respects, with the requirements of the Act.
Buyer will promptly pay to the appropriate government agency all filing fees
required of "acquiring persons" under the Act.
ARTICLE IX. CLOSING
Section 9.01 Conditions to Closing. The obligations of Buyer and Seller
at the Closing are subject to the satisfaction of the following conditions:
(a) All representations and warranties of each party herein shall be
true, correct, and not misleading in all material respects, and
each party shall have performed and satisfied all obligations,
agreements and covenants required by this Agreement to be
performed and satisfied by such party.
(b) No suit or other proceeding shall be pending or threatened before
any court or governmental agency seeking to restrain, prohibit,
or declare illegal, or seeking substantial damages in connection
with the transaction contemplated hereby, and there shall be no
reasonable basis for any such suit or other proceeding.
(c) All necessary waivers of Preferential Rights and Consents to
assignment (other than consents to assignment from governmental
agencies typically obtained after Closing) shall have been
secured.
(d) All applicable waiting periods under the Hart Scott Rodino Act,
if applicable, shall have expired or been terminated and all
other requisite governmental approvals shall have been obtained.
(e) Neither party shall have elected to terminate this Agreement
pursuant to Section 13.08.
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Section 9.02 Closing. At Closing:
(a) Seller and Buyer shall execute and deliver a settlement statement
(the "Preliminary Settlement Statement',), prepared by Seller and
approved by Buyer, that shall set forth the amount payable by
Buyer to Seller at Closing and each adjustment and the
calculation of such adjustments used to determine such amount.
(b) Seller shall deliver to Buyer:
(i) An executed and acknowledged Assignment and Bill of
Sale (in sufficient counterparts for recording) in
the form of Exhibit B (the "Assignment"), Seller
will also deliver separate Assignments as may be
required by state and federal regulatory
authorities, and shall cooperate with Buyer in
obtaining approvals of such Assignments as may be
required by a state or federal government authority
to effect an assignment thereof;
(ii) A duly executed Nonforeign Affidavit in the form of
Exhibit D;
(iii) Any other appropriate instruments necessary to
effect or support the transaction contemplated
herein, including, without limitation, letters in
lieu, Texas Railroad Commission and other
regulatory agency forms, any lease assignment forms
or other forms or filings required by federal or
state agencies to transfer ownership of the
Property; and
(iv) While Seller makes no representation or warranty
that Buyer will become operator of any portion of
the Property, Seller shall execute, acknowledge and
deliver such documents and take such other actions
as may be necessary or desirable to secure the
appointment of Buyer as successor operator on wells
or Leases for which Seller is the operator.
(c) Buyer shall execute a release to Seller of the Deposit, and Buyer
shall pay the remaining unpaid portion of the Purchase Price
adjusted as provided herein for (i) proceeds from and expenses
(including Buyer's portion of overhead) relating to production
from and after the Effective Date through the Closing Date (based
on estimates where necessary), (ii) Title Defects, (iii)
Preferential Rights, (iv) Environmental Defects and (v)
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such other adjustments as are called for under this Agreement (as
shown by the Preliminary Settlement Statement) which have arisen
as of the Closing Date. At Seller's option, Buyer shall make
payment either by cashier's check or wire transfer of immediately
available funds into an account designated by Seller.
(d) Buyer shall join in the execution and acknowledgment of the
Assignment (in sufficient counterparts for recording) to evidence
its agreement to all the terms, covenants and conditions of the
Assignment.
(e) Buyer shall offer Seller adequate proof that it has obtained all
required lease and operating bonds.
(f) Seller shall deliver to Buyer the originals or legible copies of
all lease, contract or well files (excluding any internal
valuation or interpretive data or documentation) current files,
including computer-generated files, relating to joint interest
billings, revenue distribution, leasehold ownership, and similar
information relating to the Property in Seller's possession, at
such location as the parties agree. Seller shall have no
obligation to furnish Buyer any data or information which Seller
cannot provide Buyer because of third party restrictions on
Seller.
ARTICLE X. TAXES AND EXPENSES
Section 10.01 Property Taxes. All ad valorem taxes, real property
taxes, personal property taxes and similar obligations ("Property Taxes")
attributable to the Property accruing in tax periods ending prior to the
Effective Date shall be the obligation of the Seller. All Property Taxes
attributable to the Property with respect to the tax period in which the
Effective Date occurs shall be apportioned as of the Effective Date between
Seller and Buyer. The owner of record on the assessment date shall file or
cause to be filed all required reports and returns incident to the Property
Taxes. The Buyer shall pay or cause to be paid all Property Taxes relating to
the tax period in which the Effective Date occurs provided such taxes have not
been paid by Seller prior to Closing. As to any such taxes that have not been
paid by Seller prior to Closing, the Seller shall pay to Buyer Seller's pro
rata portion of the Property Taxes as a Purchase Price adjustment at Closing
(based on actual taxes if available and estimates if necessary). As to any
such taxes that Seller has paid prior to Closing, Buyer shall pay Seller
Buyer's pro rata portion of the Property Taxes as a Purchase Price adjustment
at Closing. To the extent estimates are used in calculating the Purchase Price
adjustment at Closing, the Final Settlement Statement will make
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further adjustments as necessary to reflect the actual taxes on the Property.
Section 10.02 Sales Taxes. The Purchase Price provided for hereunder
excludes any sales taxes or other taxes in connection with the sale of Property
pursuant to this Agreement. If a determination is ever made that a sales tax
or other transfer tax applies, Buyer shall be liable for such tax as well as
any applicable conveyance, transfer and recording fees, and real estate
transfer stamps or taxes imposed on any transfer of property pursuant to this
Agreement. Buyer shall defend and hold Seller harmless with respect to the
reporting and payment of all such taxes, if any, including any interest or
penalties assessed thereon. Seller will determine what sales tax, if any, is
due in connection with the sale of Property and, subject to Buyer's agreement
with such determination, will charge Buyer such tax in the Final Settlement
Statement. Seller will be responsible for remitting such tax to the applicable
tax authorities.
Section 10.03 Other Taxes. All taxes (other than property taxes and
sales taxes) attributable to the Property that are imposed on or with respect
to the production of oil, natural gas or other hydrocarbons or minerals or the
receipt of proceeds therefrom (including but not limited to severance,
production and excise taxes) shall be apportioned between the parties based
upon the respective shares of production taken by the parties. All such taxes
that have accrued with respect to the period prior to the Closing Date have
been or will be properly paid by Seller and all statements, returns and
documents pertinent thereto have been or will be properly filed. Buyer shall
be responsible for paying, withholding or causing to be paid or withheld all
such taxes which have accrued after the Closing Date and for filing all
statements, returns and documents incident thereto.
Section 10.04 IRS Reporting. Seller and Buyer agree that this
transaction is subject to the reporting requirements of Section 1060 of the
Internal Revenue Code of 1986 as amended. Therefore, IRS Form 8594, Asset
Acquisition Statement, is required to be and will be filed for this
transaction. The parties will confer and cooperate in the preparation and
filing of their respective forms to reflect a consistent reporting of the
agreed upon allocation.
Section 10.05 Cooperation. Each party to this Agreement shall provide
the other party with reasonable access to all relevant documents, data and
other information (including but not limited to providing Buyer, upon Buyer's
request, copies of such documents, data and other information but excluding
that which is subject to an attorney-client privilege) which may be required by
the other party for the purpose of preparing tax reports and returns, making
tax payments, filing refund claims and responding to any audit by any taxing
jurisdiction. Each party to this Agreement shall
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cooperate with all reasonable requests of the other party made in connection
with contesting the imposition of taxes.
ARTICLE XI. OPERATIONS PRIOR TO CLOSING
Section 11.01 Seller's Obligations. On and after the Effective Date
until the Change of Operation Date, Seller shall continue to operate that
portion of the Property operated by Seller prior to the Effective Date in a
prudent manner consistent with generally accepted industry practices and
standards, applicable laws and regulations, and all applicable lease and other
agreement terms and shall continue to administer the portion of the Property
not operated by Seller. Seller shall be entitled to retain any overhead
payments received from third parties as provided for in the COPAS accounting
procedures attached to relevant operating agreements and which are received and
attributable to operations between the Effective Date and the Change of
Operation Date. Seller shall invoice Buyer at the rate of $40,000 per month
for Buyer's share of the overhead attributable to the Property operated and
administered by Seller on behalf of Buyer during the period between the
Effective Date and the change of Operation Date. In addition, Seller will
continue to provide such operational and administrative services as Buyer may
request for a period of not more than two calendar months following the Change
of Operations Date at a price per month agreed upon between Buyer and Seller
not to exceed $40,000 per month. Seller makes no representation or warranty
that Buyer will become operator of any portion of the Property, as that matter
is controlled by the applicable operating agreement. Following the execution
of this Agreement and prior to termination of operation of the Property by
Seller, Seller shall not remove or cause to be removed any equipment used as
part of its normal production operations without first obtaining the written
consent of Buyer nor shall Seller transfer, sell or hypothecate, encumber or
otherwise dispose of the Property. Seller further agrees not to make any
commitments to expend capital funds in connection with the ownership or
operation of the Property (other than as required by law of governmental order
or regulation or in connection with an emergency) in an amount in excess of
$25,000 (net to Seller's interest) per individual authorization for expenditure
without the approval of Buyer. If Buyer fails to respond within a period of
time (which period shall be equal to one-half of any time limitations imposed
upon Seller with respect to such matter) following delivery by Seller of a
request for approval with respect to any proposed commitment for expenditures,
then Buyer shall be deemed to have consented to such commitment.
Section 11.02 Accounting for Interim Operation. Seller shall have the
right to hold all production prior to the Effective Date attributable to the
Property for Seller's account and all production thereafter shall be for the
account of Buyer. In accounting to Buyer for interim operations Seller shall
deduct
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from revenues accruing to the Property from the sale of production the
following:
(i) All royalties and overriding royalties;
(ii) All lease operating expenses and capital costs
(excluding overhead applicable to Seller's
interest);
(iii) Any severance, production, windfall profits, and
other taxes (except federal and state income tax);
(iv) Other payments out of or with respect to production
with which the Property is burdened or encumbered;
and
(v) The monthly operations and administrative overhead
fee payable by Buyer as provided above.
During any such extended period of operations by Seller, Seller shall account
for and distribute to Buyer any net revenues received by Seller with such
distribution to occur within thirty (30) days of Seller's receipt of the same.
Section 11.03 Indemnity as to Seller's Interim Operations. Except as
otherwise stated in this Agreement, and subject to Seller's continuation of
insurance coverage now applicable to the Property, Buyer hereby releases, and
agrees to indemnify, defend and hold Seller harmless from all uninsured claims,
losses, damages, costs, expenses, causes or action and judgments of any kind
(but excluding claims arising from third party injuries or deaths) with respect
to continued operations by Seller under this Article, whether or not caused in
whole or in part by and including any sole or concurrent negligence or strict
liability of Seller, unless caused by Seller's gross negligence or willful
misconduct.
ARTICLE XII. POST-CLOSING ADJUSTMENTS
Section 12.01 Final Settlement Statement. Within 60 calendar days after
Closing, Seller shall prepare and deliver to Buyer a statement (the "Final
Settlement Statement") which shall be subject to verification and audit by
Buyer setting forth each adjustment (which shall include Title Defect
adjustments, Preferential Right adjustments, Environmental Defects adjustments
and all other adjustments which arise from the Effective Date through the
Closing Date) and showing the calculation of such adjustments and the resulting
final purchase price (the "Final Purchase Price"). Within 30 calendar days
after receipt of the Final Settlement Statement, Buyer shall deliver to Seller
a written report which shall be subject to verification and audit by Seller
containing any
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changes that Buyer proposes to be made to the Final Settlement Statement. The
parties undertake to agree with respect to the amounts due pursuant to such
post-closing adjustments no later than 120 days after the Closing Date. If the
parties are unable to agree to such post-closing adjustments, the matter shall
be resolved pursuant to the provisions of Article XIV hereof. The date upon
which such agreement is reached, or upon which the Final Purchase Price is
established, shall be herein called the "Final Settlement Date". If (1) the
Final Purchase Price is more than the Purchase Price paid by Buyer at Closing,
Buyer shall pay to Seller the amount of such difference, or (2) the Final
Purchase Price is less than the Purchase Price paid by Buyer at Closing, Seller
shall pay to Buyer the amount of such difference, in either event by check
within 30 days of the Final Settlement Date. Buyer reserves the right to audit
Seller's accounting and financial data pertaining to the Property purchased
within 120 days after the Final Settlement Date.
Section 12.02 Receipts and Credits. Subject to the terms hereof and
except to the extent same have already been taken into account as an adjustment
to the Purchase Price as provided in Section 12.01, all monies, proceeds,
receipts, credits and income attributable to the Property (a) for all periods
of time subsequent to the Effective Date, shall be the sole property and
entitlement of Buyer, and, to the extent received by Seller, Seller shall fully
disclose, account for and transmit same to Buyer promptly and (b) for all
periods of time prior to the Effective Date, shall be the sole property and
entitlement of Seller and, to the extent received by Buyer, Buyer shall fully
disclose, account for and transmit same to Seller promptly. Subject to the
terms hereof and except to the extent same have already been taken into account
as an adjustment to the Purchase Price, all costs, expenses, disbursements,
obligations and liabilities attributable to the Property, (i) for periods of
time prior to the Effective Date, regardless of when due or payable, shall be
the sole obligation of Seller and Seller shall promptly pay, or if paid by
Buyer, promptly reimburse Buyer for and hold Buyer harmless from and against
same and (ii) for periods of time subsequent to the Effective Date, regardless
of when due or payable, shall be the sole obligation of Buyer and Buyer shall
promptly pay, or if paid by Seller, promptly reimburse Seller for and hold
Seller harmless from and against same. Except to the extent same have already
been taken into account as an adjustment to the Purchase Price all uncollected
accounts receivable as of the Closing Date attributable to the Property after
the Effective Date shall be assigned to Buyer and all uncollected accounts
receivable as of the Closing Date attributable to the Property prior to the
Effective Date shall be retained by Seller.
Section 12.03 Imbalances. Exhibit 12.03, contains Seller's good faith
estimate of imbalances (overproduction and/or underproduction) relating to the
Property as of the Effective Date. The Purchase Price shall be adjusted upward
or downward (as the
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case may be) at Closing and at the Final Settlement Date as follows:
(i) If the actual overproduction is less than 337,000
MCF, then the Purchase Price will be increased by
$1.00 per MCF multiplied by the amount by which the
actual overproduction is less than 337,000 MCF;
(ii) If the actual overproduction is greater than
600,000 MCF, then the Purchase Price will be
decreased by $1.00 per MCF multiplied by the amount
by which the actual overproduction exceeds 600,000
MCF;
(iii) If the actual overproduction is greater than 337,000
MCF and less than 600,000 MCF, then no adjustment
to the Purchase Price will be made.
ARTICLE XIII. MISCELLANEOUS PROVISIONS
Section 13.01 Broker's Fees. Each party represents that it has not
incurred any obligation for brokers, finders or similar fees for which the
other party would be liable.
Section 13.02 Press Releases. Neither party shall make press releases
or other public announcements concerning this transaction, without the prior
written approval of the other party and agreement to the form of the
announcement, except as may be required by applicable laws or rules and
regulation of any governmental agency or stock exchange.
Section 13.03 Notices. All notices hereunder shall be in writing and
any communication or delivery hereunder shall be deemed to have been duly made
when personally, delivered to the individual indicated below, or if mailed,
when received by the party charged with such notice and addressed as follows:
SELLER: ANADARKO PETROLEUM CORPORATION
17001 Northchase Drive
Houston, Texas 77060
Attn: David J. Santley
Fax: (713) 874-8853
BUYER: TITAN RESOURCES, L.P.
500 W. Texas, Suite 500
Midland, Texas 79701
Attn: Jack D. Hightower
Fax: (915) 687-3863
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<PAGE> 23
Any party may, by written notice so delivered to the other, change the address
of the individual to which or to whom delivery shall thereafter be made.
Section 13.04 Use of Seller's Name. Buyer agrees that, as soon as
practicable after the Closing Date, it will remove or cause to be removed the
names and marks used by Seller and all variations and derivatives thereof and
logos relating thereto from the Property and will not thereafter make any use
whatsoever of such names, marks and logos, and will hold them for pick-up by
Seller.
Section 13.05 Assignment. Except as otherwise stated herein, this
Agreement and the rights and obligations hereunder shall not be assignable by
either party without the prior written consent of the other party, which may be
withheld for any reason including convenience, unless the assignment occurs by
merger, reorganization or sale of all of a party's assets.
Section 13.06 Entirety of Agreement; Amendment. This Agreement,
together with all Exhibits which are attached hereto and incorporated herein,
constitutes the entire understanding between the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions,
representations, and prior agreements and understandings relating to such
subject matter. This Agreement may be amended, modified, and supplemented only
in a writing duly executed by Buyer and Seller.
Section 13.07 Severability. If any term or other provision of this
Agreement is held invalid, illegal or incapable of being enforced under any
rule of law, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in a
materially adverse manner with respect to either party.
Section 13.08 Right of Termination; Right of Enjoyment. For purposes of
this Section 13.08, the term "Aggregate Defects and Exclusions" shall mean the
sum of (i) Purchase Price adjustments agreed on between Buyer and Seller
pursuant to Section 7.02 and Section 13.17; plus (ii) Purchase Price
adjustments with respect to portions of the Property excluded from the purchase
and sale (other than those adjustments made as a result of the exercise of
Preferential Rights); plus (iii) the value of Title Defects and Environmental
Defects that the Seller has not agreed to cure to Buyer's reasonable
satisfaction. Either Buyer or Seller may terminate this Agreement by written
notice to the other party at any time prior to Closing if the Aggregate Defects
and Exclusions exceed ten percent (10%) of the Purchase Price or if the
Aggregate Defects and Exclusions relating to the Puckett Field exceed ten
percent (10%) of the Purchase Price applicable to the Puckett Field. In
addition, this Agreement and the transactions contemplated hereby may be
terminated by either party due to the
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<PAGE> 24
failure of the other party to meet a material condition to Closing. Upon any
such termination of this Agreement, Seller shall be free immediately to enjoy
all rights of ownership of the Property and to sell, transfer, encumber or
otherwise dispose of the Property to any party without any restriction under
this Agreement; and Buyer shall be liable for all actual, incidental and
consequential damages (including, without limitation, lost profits) if it
attempts to interfere in anyway with any such enjoyment of action by Seller.
Section 13.09 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, and except as
otherwise prohibited, their respective successors and assigns, and nothing
contained in this Agreement, express or implied, is intended to confer upon any
other person or entity any benefits, rights, or remedies.
Section 13.10 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY
CONFLICTS-OF-LAW RULE OR PRINCIPLE THAT MIGHT APPLY THE LAW OF ANOTHER
JURISDICTION. THE PARTIES WAIVE THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE
PRACTICES ACT, OTHER THAN SECTION 17.555 THEREOF WHICH IS NOT WAIVED.
Section 13.11 Survivability. Except as expressly provided herein, all
of the representations, warranties, and agreements contained herein of or by
the parties hereto shall survive the execution and delivery of the Assignment.
Section 13.12 Further Assurances and Records.
(a) At and after the Closing, each of the Parties will promptly
execute, acknowledge and deliver to the other such further
instruments, and take such other action, as may be reasonably
requested in order to more effectively assure to said party all
of the respective properties, rights, titles, interests, estates,
and privileges intended to be assigned, delivered or inuring to
the benefit of such party in consummation of the transactions
contemplated hereby including any lease identified in bid
information provided by Seller and omitted from Exhibit A.
(b) Buyer agrees to maintain the files and records of Seller that are
acquired pursuant to this Agreement in the same manner it
maintains its own files. Buyer shall provide Seller and its
representatives reasonable access to and the right to copy such
files and records for the purposes of (i) preparing and
delivering any accounting provided for under this Agreement and
adjusting, prorating and settling the charges and credits
provided for in this Agreement; (ii) complying with any law, rule
or
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<PAGE> 25
regulation affecting Seller's interest in the Property prior to
the Closing Date; (iii) preparing any audit of the books and
records of any third party relating to Seller's interest in the
Property prior to the Closing Date, or responding to any audit
prepared by such third parties; (iv) preparing tax returns; (v)
responding to or disputing any tax audit; or (vi) asserting,
defending or otherwise dealing with any claim or dispute under
this Agreement.
(c) To the extent not obtained or satisfied as of Closing, Seller
agrees to continue to use all reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith,
and to cooperate with Buyer's efforts to obtain for Buyer (i)
access to files, records and data relating to the Property in the
possession of third parties; and (ii) access to wells
constituting a part of the Property operated by third parties for
purposes of inspecting same.
(d) After the Closing, Buyer shall comply with all current and
subsequently amended applicable laws, ordinances, rules, and
regulations applicable to the Property and shall promptly obtain
and maintain all permits required by governmental authorities in
connection with the Property.
Section 13.13 Proceeds of Production. Seller shall be responsible for
any and all liabilities, claims, causes of action, damages, and punitive
damages arising out of the receipt of proceeds from production from purchasers
or other parties receiving production from the Leases and/or units comprising a
part of the Property or arising out of the accounting or payment to royalty
owners and working interest owners in the Leases and/or units comprising a part
of the Property, insofar as such liabilities, claims, causes of action, and
damages relate to or arise out of actions of Seller or events prior to the
Effective Date and further shall defend, indemnify, and hold Buyer harmless
from and against all such claims within a period of four (4) years from the
Effective Date. Buyer shall be responsible for all of said types of claims
insofar as they relate to periods of time from and after the Effective Date and
shall defend, indemnify, and hold Seller harmless therefrom.
Section 13.14 Buyer's General Indemnity. Subject to the other express
provisions of this Agreement, Buyer, for actions attributable to any and all
periods not specifically covered by Seller under Section 13.15 hereunder agrees
to indemnify, defend and hold Seller harmless from and against any and all
claims, demands, losses, damages, punitive damages, costs, expenses, causes of
action or judgments of any kind or character with respect to all liabilities
and obligations or alleged or threatened liabilities
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<PAGE> 26
and obligations, including claims for personal injury, illness, disease,
wrongful death, damage to property, liability based on strict liability or
condition of the Property attributable to or arising out of (i) Buyer's
plugging, replugging, abandonment, removal, disposal, and restoration
obligations described in the Assignment and Bill of Sale, (ii) Buyer's acts or
omissions, and (iii) the ownership or operation of the Property by Buyer or
Seller at any time, including, without limitation, any interest, penalty,
reasonable attorney's fees and other costs and expenses incurred in connection
therewith or the defense thereof, whether or not caused in whole or in part by
(and including) any sole or concurrent negligence or strict liability of Seller
(but not Seller's gross negligence or willful misconduct), or the condition of
the Property.
Section 13.15 Seller's General Indemnity. Subject to the other express
provisions of this Agreement, Seller, for a period of two years from Closing,
and only as to such actions attributable to it for periods prior to the
Effective Date where Seller has been the record owner, agrees to indemnify,
defend and hold Buyer harmless from and against any and all claims, demands,
losses, damages, punitive damages, costs, expenses, causes of action or
judgements of any kind or character with respect to all liabilities and
obligations or alleged or threatened liabilities and obligations, including
claims for personal injury, illness, disease, wrongful death, damage to
property, liability based on strict liability or condition of the Property and
which are attributable to or arising out of (i) Seller's acts or omissions, and
(ii) the ownership or operation of the Property by Seller prior to the
Effective Date, including, without limitation, any interest, penalty,
reasonable attorney's fees and other costs and expenses incurred in connection
therewith or the defense thereof, if the aggregate claims, damages, etc.
exceed $100,000.
Section 13.16 Physical and Environmental Conditions. Buyer agrees and
acknowledges that (a) it.has had, or prior to the Environmental Notice Deadline
(as defined below) will have, access to and the opportunity to inspect the
Property for all purposes, including without limitation, for the purposes of
detecting the presence of hazardous substances, environmental hazards or
naturally occurring radioactive material (NORM) and produced water
contamination of the surface and/or subsurface, (b) it has, or prior to the
Environmental Notice Deadline will have, satisfied itself as to the physical
and environmental condition of the Property, both surface and subsurface, and
their method of operation and except as set forth herein, agrees to accept an
assignment of the Property at closing, subject to the provisions of Sections
13.17 and 13.18 hereof, on an "AS IS, WHERE IS" basis, "WITH ALL FAULTS" and (c
) in making the decision to enter in this Agreement and consummate the
transactions contemplated hereby, Buyer has relied solely on its own
independent investigation of the Property and records related thereto and the
representations,
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<PAGE> 27
warranties and covenants in this Agreement. Seller acknowledges and agrees that
it has (or will have within fifteen (15) days following the execution hereof)
furnished Buyer, on a confidential basis, with copies of all environmental
studies, reports, evaluations and tests conducted on the Property or any part
thereof which are in Seller's possession or control. Buyer further
acknowledges that with respect to any tests, evaluations or reports that have
been conducted or prepared by or on behalf of Seller pertaining to the
environmental condition or operation of the Property and that are delivered to
Buyer prior to the Environmental Notice Deadline (the "Environmental Reports"),
Seller EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY
RESPECTING THE ACCURACY OR THOROUGHNESS THEREOF AND DISCLAIMS ANY LIABILITY IN
CONNECTION THEREWITH.
Section 13.17 Environmental Defects. If Buyer notifies Seller no later
than five days before Closing (the "Environmental Notice Deadline") of the
existence of any environmental conditions on the real property interests
comprising a part of the Property that constitutes an actually cited violation
of Environmental Laws or a condition, that if discovered by the appropriate
governmental authority, would reasonably be found to be a violation of
Environmental Laws as in effect on the date hereof and which Buyer in its
reasonable judgement and good faith has determined as of the date hereof could
cause Buyer to incur expenses to remediate or settle, the cost of which to
remediate or settle shall not be considered for the adjustments outlined below
unless the collective aggregate value of such defects exceeds $250,000
utilizing the most cost effective method of remediation available (any such
condition being herein referred to as "Environmental Defect"), then:
(a) Seller may agree to undertake such remedial action as may be
required to cause such Property to be brought into compliance
with Environmental Laws as in effect on the date hereof, and to
Buyer's reasonable satisfaction in which event the affected
Property will be purchased by Buyer at Closing and the Purchase
Price will not be reduced on account of such Environmental
Defect, or
(b) Buyer and Seller will agree to either (i) adjust the Purchase
Price by an amount agreed upon by Buyer and Seller to be the
value of such Environmental Defect in which case the Property
subject to the Environmental Defect will be sold hereunder to
Buyer and Buyer, irrespective of any indemnities contained herein
(whether environmental or otherwise) but without affecting
Buyer's rights under Section 13.18 with respect~to matters not
covered by such Purchase Price adjustments, shall assume all
liabilities associated with the Environmental Defect asserted
herein; or (ii) exclude the Property subject to
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<PAGE> 28
the uncured Environmental Defect from the sale and reduce the
Purchase Price by the applicable Allocated Value.
If the parties are unable to agree to a course of action with respect to such
Environmental Defects the matter shall be resolved pursuant to the provisions
of Article XIV. If Seller elects to undertake remedial action pursuant to the
foregoing provisions, Buyer agrees, to the full extent that it has the right to
do so, to grant Seller such access as may be necessary to permit Seller to
complete such remedial action.
Section 13.18 General Environmental Indemnity. If the Closing occurs,
(a) Buyer shall be responsible for and agrees to indemnify, defend and hold
harmless the Seller from and against any and all losses attributable to damage
to property, injury to or death of persons or other living things, natural
resource damages, CERCLA response costs, environmental remediation and
restoration costs, or fines or penalties (collectively, "Claims") arising out
of or attributable to, in whole or in part, either directly or indirectly, the
condition or operation of the Property at any time for such periods referenced
hereinbelow not specifically covered by Seller that is determined to be a
result of or caused in whole or in part by Buyer's violation of, failure to
fulfill duties imposed by or incurrence of liability under, any Environmental
Laws (as defined below and as in effect on the date hereof) or under any
principle of common law relating to duties to protect or not unduly disturb
human health or environmental quality (any-such Claim being referred to herein
as an "Environmental Claim") and (b) Seller, for a one year period following
Closing, shall be responsible for and agrees to indemnify defend and hold
harmless the Buyer from and against all Claims (including Environmental Claims)
asserted in writing to Seller which arise out of or are attributable to in
whole or in part, either directly or indirectly, the condition or operation of
the Property at any time prior to the Effective Date and relating only to the
period during which the Seller owned the Property, including any Claims that
are determined to be a result of or caused in whole or in part by Seller's
violation of, failure to fulfill duties imposed by or incurrence of liability
under any Environmental Laws or any Environmental Claim. Buyer's indemnity of
Seller, as set forth in this section, shall not cover any claims, including
Environmental Claims, resulting directly or indirectly from a breach by Seller
of any of its representations, warranties and covenants set forth herein,
including, but not limited to, Seller's obligations under Section 13.17.
Section 13.19 Environmental Laws. As used herein, the term
"Environmental Laws" shall mean any and all laws, statutes, regulations, rules,
orders, ordinances, permits or-determinations of any governmental authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Property is located, including, without limitation, the Clean Air
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<PAGE> 29
Act, as amended, the Federal Water Pollution Control Act, as amended, the
Rivers and Harbors Act of 1899, as amended, the Safe Drinking Water Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), as amended, the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), as amended, the Resource Conservation and Recovery Act ("RCRA"),
as amended, The Hazardous and Solid Waste Amendments Act of 1984, as amended,
the Toxic Substances Control Act, as amended, the Occupational Safety and
Health Act ("OSHA"), as amended, the Hazardous Materials Transportation Act, as
amended, and other federal, state and local laws whose purpose is to conserve
or protect health, the environment, wildlife or natural resources. The terms
"hazardous substance,'' "release", and "threatened release" shall have the
meanings specified in CERCLA, and the terms shall have the meanings specified
in RCRA; provided, however, that (a) to the extent the laws of the state in
which the Property is located are applicable and have established a meaning for
"hazardous substance," "release," "threatened release", "solid waste",
"hazardous waste", and "disposal" that is broader than that specified in CERCLA
or RCRA, such broader meaning shall apply with respect to the matters covered
by such laws, and (b) the term "solid waste" shall include all oil and gas
exploration, development, and production wastes, even if such wastes are
specifically exempt from classification as hazardous substances or hazardous
wastes pursuant to CERCLA or RCRA, or the state analogues to those statutes.
ARTICLE XIV. ARBITRATION
Section 14.01 Any controversy between the Parties hereto arising under
this Agreement and not resolved by agreement shall be determined by a board of
arbitration upon notice of submission given by either party to the other, which
notice shall name one arbitrator. Within ten (10) days after the receipt of
such notice, the other party shall name the second arbitrator, or failing to do
so, the party giving notice shall name the second. The two arbitrators so
appointed shall name the third, or failing to do so, the third arbitrator may
be appointed by the Senior Judge (in service) of the United States District
Court for the Southern District of Texas.
Section 14.02 The arbitrators selected to act hereunder shall be
qualified by education and experience to pass on the particular question in
dispute. The arbitrators shall promptly hear and determine (after due notice
of hearing and giving the Parties a reasonable opportunity to be heard) the
questions submitted, and shall render their decision within sixty (60) days
after appointment of the third arbitrator. If within said period, a decision
is not rendered by the board, or majority thereof, new arbitrators may be named
and shall act hereunder at the election of either Buyer or Seller in like
manner as if none had been previously named.
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<PAGE> 30
Section 14.03 The decision of the arbitrators, or the majority thereof,
made in writing shall be final and binding upon the Parties hereto as to the
questions submitted, and Buyer and Seller will abide by and comply with such
decision. The expenses of arbitration, including reasonable compensation to
the arbitrators, shall be borne equally by the Parties hereto, except that each
party shall bear the compensation and expenses of its own counsel, witnesses
and employees.
EXECUTED on the dates set forth below, but effective as of the Effective Date.
BUYER: SELLER:
TITAN RESOURCES, L.P. ANADARKO PETROLEUM CORPORATION
By: Titan Resources I, Inc.,
Its Sole General Partner
By: /s/ JACK D. HIGHTOWER By: /s/ BRUCE H. STOVER
------------------------------ ----------------------------------------
Jack D. Hightower, President Bruce H. Stover
Vice President, Acquisitions
DATE: October 12, 1995 DATE: October 12, 1995
---------------------------- --------------------------------------
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<PAGE> 1
EXHIBIT 10.20
AMENDMENT NO. 1 TO PURCHASE AND SALE AGREEMENT
This Amendment No. 1 to Purchase and Sale Agreement (Amendment No. 1")
is entered into by and between Anadarko Petroleum Corporation, a Delaware
corporation with offices located at 17001 Northchase Drive, Houston, Texas
77060 ("Seller") and Titan Resources, L.P., a Texas limited partnership acting
herein by and through Titan Resources I, Inc., its sole general partner with
offices located at 500 West Texas, Suite 500, Midland, Texas 79701 ("Buyer").
RECITATIONS
Terms defined in the Agreement and delineated herein by initial capital
letters shall have the same meaning ascribed thereto in the Agreement, except
to the extent that the meaning of such term is specifically modified by the
provisions hereof. In addition, other terms not defined in the Agreement but
defined herein will, when delineated with initial capital letters, have the
meanings ascribed thereto in this Amendment No. 1. Terms and phrases which are
not delineated by initial capital letters shall have the meanings commonly
ascribed thereto.
Buyer and Seller have heretofore entered into that certain Purchase and
Sale Agreement (the "Agreement") dated October 12, 1995 pursuant to which Buyer
has contracted to purchase and Seller has contracted to sell certain oil and
gas leases covering lands in the Permian Basin of Texas and New Mexico, all as
more fully described in the Agreement.
Buyer and Seller have agreed to certain changes to the terms and
conditions of the Agreement to reflect the results of Buyer's pre-acquisition
environmental review of the property.
Buyer and Seller, to reflect such changes in environmental terms and
conditions and to accommodate the sale of certain properties directly to Cross
Timbers Oil Company and Apache Corporation by Seller, have agreed to the
following amendments to the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller agree as
follows:
1. Exhibit A, Exhibit C, and Exhibit 12.03 to the Agreement are
amended in their entirety and substituted in lieu thereof as attached hereto.
2. Section 2.01 of the Agreement shall be amended to reflect that
the Purchase Price payable by Buyer to Seller at Closing shall be
$42,315,000.00, subject to adjustments as provided in the Agreement (but
excluding adjustments for any and all Environmental Defects which have been
taken into account in the Purchase Price referenced above.
3. Section 11.01 of the Agreement shall be amended in its entirety
to read in its entirety as follows:
"Section 11.10 Seller's Obligations. On and after the Effective
date until the change of Operation Date, Seller shall continue to operate that
portion of the Property operated by Seller prior to the Effective Date in a
prudent manner consistent with generally accepted industry practices and
standards, applicable laws and regulations, and all applicable lease and
<PAGE> 2
other agreement terms and shall continue to administer the portion of the
Property not operated by Seller. Seller shall be entitled to retain any
overhead payments received from third parties as provided for in the COPAS
accounting procedures attached to relevant operating agreements and which are
received and attributable to operations between the Effective Date and the
Change of Operation Date. Seller shall invoice Buyer at the rate of $30,000
per month for Buyer's share of the overhead attributable to the Property
operated and administered by Seller on behalf of Buyer during the period
between the Effective Date and the Change of Operation Date. In addition,
Seller will continue to provide such operational and administrative services as
Buyer may request for a period of not more than two calendar months following
the Change of Operations Date at a price per month agreed upon between Buyer
and Seller not to exceed $30,000 per month. Seller makes no representation or
warranty that Buyer will become operator of any portion of the Property, as
that matter is controlled by the applicable operating agreement. Following the
execution of this Agreement and prior to termination of operation of the
Property by Seller, Seller shall not remove or cause to be removed any
equipment used as part of its normal production operations without first
obtaining the written consent of Buyer nor shall Seller transfer, sell or
hypothecate, encumber or otherwise dispose of the Property. Seller further
agrees not to make any commitments to expend capital funds in connection with
the ownership or operation of the Property (other than as required by law of
governmental order or regulation or in connection with an emergency) in an
amount in excess of $25,000 (net to Seller's interest) per individual
authorization for expenditure without the approval of Buyer. If Buyer fails to
respond within a period of time (which period shall be equal to one-half of any
time limitations imposed upon Seller with respect to such matter) following
delivery by Seller of a request for approval with respect to any proposed
commitment for expenditures, then Buyer shall be deemed to have consented to
such commitment."
4. Section 12.03 of the Agreement shall be amended in its entirety
to read as follows:
"Section 12.03 Imbalances. Exhibit 12.03, contains Seller's good faith
estimate of imbalances (overproduction and/or under production) relating to the
Property as of the Effective Date. The Purchase Price shall be adjusted upward
or downward (as the case may be) at Closing and at the Final Settlement Date as
follows:
(i) If the actual overproduction is less than 289,500
MCF, then the Purchase Price will be increased by
$1.00 per MCF multiplied by the amount by which the
actual overproduction is less than 289,500 MCF;
(ii) If the actual overproduction is greater than
552,500 MCF, then the Purchase Price will be
decreased by $1.00 MCF multiplied by the amount by
which the actual overproduction exceeds 552,500
MCF;
(iii) If the actual overproduction is greater than
289,500 MCF and less than 552,500 MCF, then no
adjustment to the Purchase Price will be made."
<PAGE> 3
5. Section 13.15 of the Agreement shall be amended in its entirety
to read as follows:
"Section 13.15 Seller's General Indemnity. Subject to the other
express provisions of this Agreement, Seller, for a period of two years from
Closing, and only as to such actions attributable to it for periods prior to
the Effective Date where Seller has been the record owner, agrees to indemnify,
defend and hold Buyer harmless from and against any and all claims, demands,
losses, damages, punitive damages, costs, expenses, causes of action or
judgements of any kind or character with respect to all liabilities and
obligations or alleged or threatened liabilities and obligations, including
claims for personal injury, illness, disease, wrongful death, damage to
property, liability based on strict liability or condition of the Property and
which are attributable to or arising out of (i) Seller's acts or omissions, and
(ii) the ownership or operation of the Property by Seller prior to the
Effective Date, including, without limitation, any interest, penalty,
reasonable attorney's fees and other costs and expenses incurred in connection
therewith or the defense thereof, if the aggregate claims, damages, etc. exceed
$100,000. The indemnities in this Section 13.15 specifically exclude any and
all Environmental Claims for which Buyer has indemnified Seller under Section
13.18 hereof."
6. Section 13.18 of the Agreement shall be amended in its entirety
to read as follows:
"Section 13.18 General Environmental Indemnity. If the Closing
occurs, Buyer shall be responsible for and agrees to indemnify, defend and hold
harmless the Seller from and against any and all losses attributable to damage
to property, injury to or death of persons or other living things, natural
resource damages, CERCLA response costs, environmental remediation and
restoration costs, or fines or penalties (collectively, "Claims") arising out
of or attributable to, in whole or in part, either directly or indirectly, the
condition or operation of the Property at any time (past, present, or future)
that is determined to be a result of or caused in whole or in part by Buyer's
and/or Seller's violation of, failure to fulfill duties imposed by or
incurrence of liability under, any Environmental Laws (as defined below and is
in effect on the date hereof) or under any principle of common law relating to
duties to protect or not unduly disturb human health or environmental quality
(any such claim being referred to herein as an "Environmental Claim"). Buyer's
indemnity of Seller, as set forth in this section, shall not, however, cover
any claims, including Environmental Claims, resulting directly or indirectly
from a breach by Seller of any of its representations, warranties and covenants
set forth herein, including, but not limited to, Seller's obligations under
Section 13.17."
Executed this 11th day of December, 1995.
ANADARKO PETROLEUM CORPORATION
By: /s/ BRUCE H. STOVER
----------------------------
BRUCE H. STOVER,
VICE PRESIDENT ACQUISITIONS
<PAGE> 4
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its Sole
General Partner
By: /s/ DAN P. COLWELL
----------------------------------
DAN P. COLWELL,
VICE PRESIDENT
<PAGE> 5
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc., its Sole
General Partner
By: /s/ JACK HIGHTOWER
----------------------------------
JACK HIGHTOWER
VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.21
PURCHASE AND SALE AGREEMENT
WITNESSETH THIS PURCHASE AND SALE AGREEMENT, made as of this 12th
day of July, 1996 ("Agreement"), between MOBIL PRODUCING TEXAS & NEW MEXICO
INC., a Delaware corporation ("Seller"), with a place of business at 12450
Greenspoint Drive, Houston, Texas 77060, and TITAN RESOURCES, L.P., a Texas
Limited Partnership by and through its General Partner, Titan Resources I,
Inc., a Texas corporation ("Purchaser"), with a place of business at 500 West
Texas, Suite 500, Midland, Texas 79701.
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, on the terms and conditions set forth in this
Agreement, certain interests and operating rights in certain oil and gas
leases, agreements, contracts, real property personal property, and equipment;
and
WHEREAS, at Purchaser's request or otherwise, and in the interest
of full disclosure without any representation as to its meaning or validity,
Seller may desire to provide Purchaser and/or has heretofore provided Purchaser
with proprietary, subjective, confidential, or interpretative data, reports,
information or projections concerning the past or present production of
hydrocarbons or the quality and quantity, if any, of the hydrocarbon reserves
or the environmental condition of the Interests defined in Article 2
(collectively, referred to as "PROPRIETARY DATA"); and
WHEREAS, Seller disclaims all responsibility for the accuracy or
completeness of the Proprietary Data; and
WHEREAS, Purchaser specifically acknowledges and agrees that the
Proprietary Data is proprietary, subjective, confidential and interpretative;
that any reliance by Purchaser on the Proprietary Data for any purpose
whatsoever, including but not limited to the calculation of its own projections
concerning the quality and quantity, if any, of hydrocarbon reserves contained
in the Interests or its decision to purchase the Interests shall be at
Purchaser's sole risk AND PURCHASER SHALL NOT USE THE PROPRIETARY DATA AS THE
BASIS OF ANY CLAIM, DEMAND, LIABILITY OR CAUSE OF ACTION FOR MISREPRESENTATION,
BREACH OF WARRANTY, BREACH OF CONTRACT OR OTHERWISE.
NOW, THEREFORE, for good and valuable consideration and for the
mutual covenants herein contained, Seller and Purchaser agree as follows:
ARTICLE 1. EFFECTIVE TIME
The "EFFECTIVE TIME" of the sale and purchase provided for in this
Agreement shall be September 1, 1996, as of 7:00 a.m., local time.
ARTICLE 2. PURCHASE AND SALE
2.01 THE INTERESTS: Subject to the terms, conditions, reservations, and
exceptions specified in this Agreement, including Seller's receipt of
the requisite management approval as specified below, Seller shall sell
and Purchaser shall purchase as of the Effective Time all of Seller's
right, title and interest in and to the assets described in Subsections
2.01(a) through 2.01(f) (collectively called the "INTERESTS"):
(a) The oil, gas and other mineral leasehold interests described in
Exhibit "A", attached hereto and made a part hereof, the
leasehold estates or other interests in oil and gas
<PAGE> 2
created thereby including working interests, net profits interest
and similar interests and all rights and privileges appurtenant
thereto or that may arise by operation of law or otherwise
insofar as such cover and affect the lands and depths described
in Exhibit "A" (hereinafter called the "REAL PROPERTY"), together
with Seller's interest in any pooled, communitized, or unitized
acreage, derived by virtue of Seller's ownership of the Real
Property. It being Seller's intent to sell and convey to
Purchaser all of Seller's right, title and interest therein
unless specifically excluded hereunder;
(b) The wells, equipment and facilities located on the Real Property
and used directly and exclusively in the operation of the Real
Property (collectively called the "EQUIPMENT"), including, but
not limited to, pumps, platforms, well equipment (surface and
subsurface), saltwater disposal wells, injection wells, water
wells, lines and facilities, sulfur recovery facilities,
compressors, compressor stations, dehydration facilities,
treating facilities, pipeline gathering lines, flow lines and
transportation lines (to the extent they are not owned and/or
operated by any affiliate of Seller), valves, meters, separators,
tanks, tank batteries, buildings and other fixtures, including
items in inventory for the benefit of any joint account for
Interests subject to joint operating agreements;
(c) Oil, condensate, natural gas and natural gas liquids produced
after the Effective Time, including "line fill" and inventory
below the pipeline connector in tanks, attributable to the
Interests;
(d) To the extent transferable, all contracts and agreements
concerning the Interests, including, but not limited to, unit
agreements, pooling agreements, transportation agreements, gas
contracts, areas of mutual interest, farmout agreements, farmin
agreements, saltwater disposal agreements, water injection
agreements, line well injection agreements, road use agreements,
operating agreements and gas balancing agreements;
(e) To the extent transferable and except as reserved by Seller in
Section 2.03, all surface use agreements, easements,
rights-of-way, licenses, authorizations, permits, and similar
rights and interests applicable to, or used or useful in
connector with, any or all of the Interests and Seller will use
reasonable efforts to keep same in force and effect from the
execution of this Agreement until the Closing; and
(f) All interest of Seller in Dollarhide Ltd. and any surface estate
owned by such entity.
2.02 EXCLUDED ASSETS: The following are expressly excluded from the
Agreement (collectively, the "EXCLUDED ASSETS"):
(a) All mineral fee, overriding royalty and royalty interests in, on
and under the Real Property, that are expressly described in
Exhibit "A" as being excluded, provided such Excluded Asset does
not decrease the net revenue interest shown for a property on
Exhibit "B" hereto;
(b) Tools, vehicles or other rolling stock, boats, communication
equipment, leased equipment, office equipment, computer equipment
and software;
(c) Spot sales contracts, storage or warehouse agreements, supplier
contracts, service contracts, insurance contracts and constructor
agreements; and
(d) All pipelines, equipment and rights-of-way owned and operated by
any affiliate of Seller as of the date of this Agreement.
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<PAGE> 3
2.03 RESERVATION OF RIGHTS: If Seller reserves any interests, including the
deep rights in any Interests conveyed pursuant to this Agreement where
not prohibited, Seller shall also retain the right to use any and all
applicable easements, rights-of-way, licenses, authorizations, permits,
contracts or other rights relating to the reserved interests provided
such use by Seller does not unreasonably interfere with or impede
Purchaser's right to use or dispose of the same. Seller agrees that it
will pay its proportionate share of maintenance costs on any easements,
right-of-way or other facilities, based on Seller's actual use of same.
2.04 MANAGEMENT/BOARD APPROVAL: THE PARTIES UNDERSTAND AND AGREE THAT THIS
AGREEMENT MAY REQUIRE THE APPROVAL OF SEVERAL MEMBERS OF SELLER'S
MANAGEMENT AND ITS BOARD OF DIRECTORS OR EXECUTIVE Committee. IF ANY
MEMBER OF SELLER'S MANAGEMENT FAILS TO APPROVE THIS AGREEMENT, SELLER
SHALL HAVE NO OBLIGATION TO SUBMIT THIS AGREEMENT TO ANY OTHER MEMBER OF
ITS MANAGEMENT, ITS BOARD OF DIRECTORS OR EXECUTIVE COMMITTEE. SELLER'S
MANAGEMENT DECISION OR ITS BOARD OF DIRECTORS' OR EXECUTIVE COMMITTEE'S
DECISION WHETHER OR NOT TO APPROVE THIS AGREEMENT SHALL BE IN THE SOLE
AND ABSOLUTE DISCRETION OF THE APPLICABLE MANAGER, BOARD OF DIRECTORS OR
EXECUTIVE COMMITTEE, NONE OF WHICH SHALL HAVE ANY OBLIGATION TO BE
REASONABLE OR NOT BE ARBITRARY. SELLER'S FAILURE TO SECURE THE REQUISITE
MANAGEMENT APPROVAL BY SEPTEMBER 1,1996 SHALL ENTITLE PURCHASER TO
TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO SELLER WHEREUPON
PURCHASER'S PERFORMANCE DEPOSIT (AS HEREINAFTER DEFINED) SHALL BE
PROMPTLY REFUNDED TO PURCHASER.
2.05 EXCLUDED DATA AND INTERPRETATIONS: EXCEPT AS OTHERWISE PROVIDED HEREIN,
ANY AND ALL GEOPHYSICAL, SEISMIC AND OTHER TECHNICAL DATA AND
INTERPRETATIONS THEREOF AND ANY CONFIDENTIAL OR PROPRIETARY DATA SHALL
BE EXCLUDED FROM THIS PURCHASE AND SALE TRANSACTION.
2.06 EXCLUSION OF PRIOR EXISTING RIGHTS OR CLAIMS: THERE IS ALSO SPECIFICALLY
EXCEPTED, EXCLUDED AND RESERVED FROM THE TRANSACTION CONTEMPLATED
HEREBY, ALL RIGHTS AND CLAIMS ARISING, OCCURRING, OR EXISTING IN SELLER
PRIOR TO THE EFFECTIVE TIME INCLUDING, BUT NOT LIMITED TO, ANY AND ALL
CONTRACT RIGHTS, CLAIMS, PENALTIES, RECEIVABLES, REVENUES, RECOUPMENT
RIGHTS, RECOVERY RIGHTS (EXCEPTING GAS IMBALANCES), ACCOUNTING
ADJUSTMENTS, MISPAYMENTS, ERRONEOUS PAYMENTS OR OTHER CLAIMS OF ANY
NATURE RELATING TO ANY TIME PERIOD PRIOR TO THE EFFECTIVE TIME, EXCEPT
FOR ANY WARRANTY CLAIMS FOR MATERIALS OR WORKMANSHIP OR ENVIRONMENTAL
CLAIMS SELLER MAY HAVE AGAINST THIRD PARTIES WHICH SELLER SHALL
SUBROGATE TO PURCHASER.
ARTICLE 3. SALE PRICE
3.01 MANNER OF PAYMENT: The sale price for the Interests shall be ONE HUNDRED
SIXTY-NINE MILLION EIGHT HUNDRED SEVEN THOUSAND AND NINE HUNDRED SEVENTY
SIX DOLLARS ($169,807,976.00), hereinafter called the "SALE PRICE," and
shall be paid as follows:
(a) Upon the execution of this Agreement, Purchaser shall pay or
cause to be paid into escrow the sum of EIGHT MILLION FOUR
HUNDRED NINETY THOUSAND THREE HUNDRED NINETY NINE DOLLARS
($8,490,399.00), as a performance deposit, hereinafter, together
with any interest earned thereon through the date of transfer of
same out of escrow into Seller's account called the "PERFORMANCE
DEPOSIT". The Performance Deposit shall be held by an escrow
agent until such time as it is transferred to Seller's account
pursuant to the provisions of the Escrow Agreement attached
hereto as Exhibit "C".
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<PAGE> 4
(b) At the Closing (as defined in Article 4), Purchaser shall pay
Seller or Seller's designee the Sale Price less the Performance
Deposit, plus or minus any adjustments as hereinafter provided
in this Agreement (the "ADJUSTED SALE PRICE"). The Adjusted Sale
Price will reflect adjustments for the following:
(i) Casualty Defects as provided in Section 6.06
(ii) Preferential Rights as provided in Article 7.
(iii) Consents to Assign as provided in Article 7.
(iv) Title Defects as provided in Section 6.05.
(v) Adjustments for Adverse Environmental Conditions as
provided in Article 20.
(vi) Other adjustments required under the terms of this
Agreement or otherwise agreed to by Purchaser and Seller.
(vii) Lease Maintenance Conditions as provided in Article 23.
If the total dollar amount of the adjustments to the Sale Price
provided in 3.01 (b)(i)(iv) and (v) above aggregates to
$5,000,000, or more, then Seller may elect to terminate this
Agreement by written notice to Purchaser.
If the total dollar amount of the adjustments to the Sale Price
provided in 3.01 (b)(i), (iv) and (v) above aggregates to
$10,000,000, or more, then Purchaser may elect to terminate this
Agreement by written notice to Seller. Notwithstanding anything
contained herein to the contrary, if the total dollar amount of
adjustments to the Sale Price of any individual property listed
on Exhibit "D" exceeds 30% of the dollar amount allocated
thereto, then Purchaser may elect to terminate this Agreement by
written notice to Purchaser.
(c) Except as provided in Subsection 3.01(A) and Article 8, Seller
shall not be obligated to segregate the Performance Deposit in a
separate account, but may commingle the Performance Deposit with
other funds in Seller's accounts, and the Performance Deposit
shall not accrue interest for the benefit of Purchaser after the
same is transferred out of escrow into Seller's account.
Likewise, if the Performance Deposit is refunded to Purchaser
pursuant to this Agreement, Purchaser shall not be entitled to
any interest earned on the Performance Deposit after it is
transferred to Seller's account.
(d) The Adjusted Sale Price shall be paid to Seller by wire transfer
of immediately available funds to Seller's account at Citibank,
N.A. 111 Wall St., New York, N.Y., ABA #021000089, Mobil Oil
Corporation, Acct. #4064-0942, unless Seller shall give written
notice to Purchaser not less than two (2) business days prior to
the Closing that it prefers payment of the Adjusted Sale Price
to be made by another method or to another account or payee in
which cases such payment shall be made in that manner.
3.02 ALLOCATION OF SALE PRICE: Purchaser shall allocate the Sale Price among
the interests and operating rights in the Interests. Said allocation
shall be incorporated in this Agreement as Exhibit "B". References
herein to a "property" or "properties" refer to the wells, units and
other subdivisions of the Real Property listed on Exhibit "A" which
have an allocation of the Sale Price. Notwithstanding the foregoing,
the Purchaser shall reallocate the Sale Price among the properties and
the equipment and other personal property being purchased by Purchaser
hereunder prior to Closing and attach the reallocated Sale Price as
amended Exhibit "B" to this Agreement. However, any adjustment in the
Sale Price for Title Defects, Adverse Environmental Conditions, or Lease
Maintenance Conditions shall be based on the original allocation of the
Sale Price, unless the Seller and Purchaser agree otherwise. No
adjustments may be made by Purchaser in the allocation of the Sale
Price to properties subject to
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<PAGE> 5
preferential rights to purchase after notice has been forwarded to the
holder of such preferential rights, without the consent of Seller.
ARTICLE 4. THE CLOSING
The sale and purchase described in Article 2 shall take place at a
Closing (the "CLOSING"), at which the Purchaser shall pay or cause to
be paid to Seller the Adjusted Sale Price and any applicable closing
charges and Seller shall deliver, or cause to be delivered, the
conveyancing instruments referred to in Article 13 to Purchaser. The
Closing shall occur at Seller's office located at 12450 Greenspoint
Drive, Houston, Texas 77060-1991 at 10:00 a.m., local time on the later
of (a) August 30, 1996, (b) September 30, 1996 if either Seller or
Purchaser elects to postpone Closing to such date (c) October 31, 1996
if Purchaser elects to postpone Closing to such date for purposes of
completing its due diligence review or (d) such other time and place to
which the parties may agree in writing (the "CLOSING DATE").
ARTICLE 5. TERMINATION
5.01 PURCHASER'S BREACH OR DEFAULT: IF THE PURCHASE AND SALE OF THE
INTERESTS IS NOT COMPLETED AS CONTEMPLATED HEREIN BY REASON OF ANY
BREACH OR DEFAULT BY PURCHASER, THEN SELLER SHALL, IN CONSIDERATION OF
HAVING HELD THE INTERESTS OFF THE MARKET AND HAVING REFRAINED FROM
DEALING WITH OTHERS CONCERNING THE INTERESTS AND AS LIQUIDATED DAMAGES
IN LIEU OF ALL OTHER DAMAGES (AND AS SELLER'S SOLE REMEDY), RETAIN THE
PERFORMANCE DEPOSIT. THE PARTIES HEREBY ACKNOWLEDGE THAT THE EXTENT OF
DAMAGES TO SELLER OCCASIONED BY SUCH BREACH OR DEFAULT BY PURCHASER
WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE
AMOUNT OF THE PERFORMANCE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE OF
SUCH DAMAGES UNDER THE CIRCUMSTANCES.
5.02 Other Termination: IF THE PURCHASE AND SALE OF THE INTERESTS IS NOT
COMPLETED BECAUSE OF A DEFAULT OR BREACH BY SELLER OR BECAUSE SELLER
FAILED TO OBTAIN THE REQUISITE MANAGEMENT APPROVAL AS REQUIRED IN
SECTION 2.04 ABOVE, OR IF THE PURCHASE AND SALE OF THE INTERESTS IS NOT
COMPLETED BECAUSE OF ANY TERMINATION ELECTION AS PROVIDED IN THIS
AGREEMENT, PURCHASER SHALL BE ENTITLED TO THE PROMPT RETURN OF THE
PERFORMANCE DEPOSIT (WITHOUT INTEREST EARNED AFTER THE PERFORMANCE
DEPOSIT IS TRANSFERRED TO SELLER'S ACCOUNT), THE RECOVERY OF WHICH SHALL
BE PURCHASER'S SOLE REMEDY AGAINST SELLER.
ARTICLE 6. DUE DILIGENCE AND TITLE AND CASUALTY DEFECTS
6.01 ACCESS TO SELLER'S PROPRIETARY AND NON-PROPRIETARY INFORMATION: Subject
to Purchaser's confidentiality obligations described in Section 27.15
below and in addition to the Proprietary Data which Seller may provide
to Purchaser as described in the recitals above, Seller shall make
available to Purchaser during normal business hours at Seller's offices
all material non-proprietary accounting records, gas balancing records,
payout status records, files, records, documents and non-interpretive
geophysical, seismic and technical data in Seller's possession or under
its control relating to the Interests, including but not limited to,
lease, land, title and division order files (including any available
abstracts of title, title opinions and title curative documents),
contracts, correspondence, permitting files, contract files, regulatory
files, maps, engineering, production and well files and well logs.
Seller shall not be obligated to perform any additional title work and
Seller shall not be obligated to make any existing abstracts and title
opinions current. NO WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE
INFORMATION SO SUPPLIED OR WITH RESPECT TO INTERESTS TO WHICH
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<PAGE> 6
THE INFORMATION RELATES, AND PURCHASER EXPRESSLY AGREES THAT ANY
CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF ITS OWN INDEPENDENT
REVIEW AND JUDGMENT.
6.02 Access to Seller's Property: Seller shall make a good faith effort to
give Purchaser or Purchaser's authorized representatives, at any
reasonable time(s) before the Closing and upon adequate notice to
Seller, physical access to the Real Property and Equipment included in
the Interests, for the purpose of inspecting same. Such access shall be
at Purchaser's sole risk, cost and expense and Purchaser shall
indemnify, defend, save, discharge, release and hold harmless Seller
from, and pay or reimburse Seller on a current basis for, any and all
losses, liabilities, liens or encumbrances for labor or materials,
claims and causes of action arising out of or in any way connected with
or related to any personal injury to or death of any persons or damage
to property occurring to or on the Interests as a result of Purchaser's
exercise of its rights under this Section 6.02, whether latent or patent
or whether or not such personal injury, death or property damage is
caused by SELLER'S (OR ITS AGENTS, EMPLOYEES OR CONTRACTORS) (I) ACTIVE
NEGLIGENCE, PASSIVE NEGLIGENCE, JOINT NEGLIGENCE, CONCURRENT NEGLIGENCE
OR GROSS NEGLIGENCE; OR (II) STRICT LIABILITY; BUT NOT SELLER'S WILLFUL
MISCONDUCT. Purchaser agrees to comply fully with the rules, regulations
and instructions issued by Seller regarding the actions of Purchaser
while upon, entering or leaving the Interests. Seller shall have the
right at all times to participate in the preparation for and conducting
of any hearing or trial related to the indemnity set forth in this
Section, as well as the right to appear on its own behalf or to retain
separate counsel to represent it at any such hearing or trial.
6.03 TITLE DEFECT: For the purpose of this Agreement, the
non-transferability requirement in any license, permit, right-of-way,
pipeline franchise or easement affecting the Interests or a requirement
that it be renegotiated upon a transfer of ownership, shall not
constitute a Title Defect. A "TITLE DEFECT" shall mean an encumbrance,
encroachment, irregularity, defect in or objection to Seller's title to
a property that alone or in conjunction with other Title Defects renders
Seller's title to the Interests unacceptable to Purchaser, including
specifically one or more of the following:
(a) Seller's title at the Effective Time, as to one or more of the
Interests, is subject to an outstanding mortgage, deed of trust,
lien or encumbrance or other adverse claim not shown on
Exhibit"A";
(b) Seller's net revenue interest in any of the properties is less
than the net revenue interest which is set forth in Exhibit "B"
for such property, or Seller's working interest in any of the
properties is greater than the working interest shown in Exhibit
"B" for such property without a corresponding increase in the net
revenue interest for such property;
(c) Seller is in default under some material provision of a lease,
agreement or other contract affecting the Interests; or
(d) Seller's rights and interests are subject to being reduced by
virtue of the exercise by a third party of a reversionary,
back-in or similar right not reflected in Exhibit "B".
6.04 NOTICE OF TITLE DEFECT: Purchaser shall notify Seller in writing of the
nature of any Title Defect discovered by Purchaser and furnish Seller
Purchaser's basis for the assertion of such Title Defect and data in
support thereof as soon as practical after such discovery. Seller may
request an increase in the Sale Price by delivery to Purchaser of
written notice that the net revenue interest actually owned by Seller in
any of the Interests is greater than that shown on Exhibit "B". Any
Title Defect which is not disclosed to Seller within ten (10) business
days prior to the Closing shall conclusively be deemed waived by
Purchaser for all purposes, provided,
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<PAGE> 7
however, such waiver shall not be deemed to lessen Seller's obligations
under its Special Warranty of Title to the properties conveyed to
Purchaser pursuant hereto.
6.05 REMEDIES FOR TITLE DEFECTS: Upon timely delivery of notice, either by
Purchaser of a Title Defect or by Seller of an increase in net revenue
interest, Purchaser and Seller shall meet and use their best efforts to
agree on the validity of the claim and the amount of any required
adjustment to the Sale Price, provided that in no event shall any Sale
Price reduction for an affected property exceed the amount allocated to
the affected property on Exhibit "B". If Purchaser and Seller cannot
agree on the amount of such a Sale Price adjustment, said amount shall
be determined in accordance with the following guidelines:
(a) If the Title Defect is based upon Purchaser's notice that Seller
owns a lesser net revenue interest, or the notice is from Seller
to the effect that Seller owns a greater net revenue interest
than that shown on Exhibit "B", then the portion of the Sale
Price allocated on Exhibit "B" to the affected property shall be
reduced or increased (as the case may be) in the same proportion
that the actual net revenue interest bears to the net revenue
interest shown on Exhibit "B" for such property.
(b) If the Title Defect is a lien, encumbrance or other charge upon a
property which is liquidated in amount, then the adjustment shall
be the sum necessary to be paid to the obligee to remove the
Title Defect from the affected properly. If the Title Defect
represents an obligation or burden upon the affected property for
which the economic detriment to Seller is not liquidated but can
be estimated with reasonable certainty as agreed to by the
parties, the adjustment shall be the sum necessary to compensate
Purchaser at the Closing for the adverse economic effect which
the Title Defect will have on the affected property.
(c) Subject to Subsection 6.05(e), if the Title Defect cannot be
accommodated pursuant to Subsections 6.05(a) or 6.05(b) and the
parties cannot otherwise agree on the amount of such an
adjustment to the Sale Price or Seller cannot cure the Title
Defect to the reasonable satisfaction of Purchaser prior to the
Closing, the property affected by the Title Defect shall be
excluded from the Interests conveyed to Purchaser at the Closing
and the Sale Price shall be reduced by the amount allocated by
Purchaser to the affected property on Exhibit "B".
(d) Purchaser may only adjust the Sale Price for Title Defects at the
Closing if the cumulative amount of such adjustments in its favor
exceeds $250,000.00. Similarly, Seller may only adjust the Sale
Price by reason of it owning a greater net revenue interest at
the Closing if the cumulative amount of such adjustments in its
favor exceeds $250,000.00.
(e) If Purchaser shall receive an adjustment at the Closing on
account of a Title Defect, Seller shall have until a date that is
ninety (90) days after the Closing Date to cure the Title Defect
at its cost. If by such date Seller can demonstrate to
Purchaser's reasonable satisfaction the Title Defect has been
cured, then Seller shall be entitled to reimbursement by
Purchaser for the amount of the adjustment received by Purchaser
at the Closing as a result of the Title Defect and the property
shall be conveyed to Purchaser (if not conveyed at Closing).
Purchaser shall pay such amount to Seller within ten (10)
business days from the date that the parties agree the Title
Defect has been cured.
6.06 CASUALTY DEFECT: If prior to the Closing any of the Interests are
substantially damaged or destroyed by fire or other casualty ("CASUALTY
DEFECT"), Seller shall notify Purchaser promptly after Seller learns of
such event. Seller shall have the right, but not the obligation, to cure
the
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<PAGE> 8
Casualty Defect by repairing such damage or, in the case of personal
property or fixtures, replacing them with equivalent items, no later
than the Closing Date, all to Purchaser's reasonable satisfaction. If
any uncured Casualty Defects exist at the Closing, Purchaser shall
proceed to purchase the Interests affected thereby, and the Sale Price
shall be reduced by the aggregate reduction in the value of the
Interests on account of such Casualty Defects, as determined by the
mutual agreement of the parties. If the parties fail for any reason to
agree prior to the Closing on the amount of any Sale Price adjustments
on account of Casualty Defects, Purchaser shall accept the affected
Interests and the Sale Price shall be reduced by an amount determined by
a mutually acceptable independent appraiser, to be equal to the value of
all Casualty Defects not accounted for at the Closing.
ARTICLE 7. THIRD PARTY RIGHTS AND CONSENTS
It is understood by Purchaser that certain of the Interests are or may
be subject to (1) preferential purchase rights, rights of first refusal and
similar option rights in third parties to purchase a part of the Interests
(collectively, "Preferential Rights') or (2) lessors' approvals or other
consents to transfer any part of the Interests (other then governmental
approvals and other consents routinely acquired after a transfer) including the
non-transferability requirement of any license, permit, right-of-way, pipeline
franchise or easement, or a requirement for renegotiation upon transfer of
ownership (collectively, "Consents to Assigns"). This Agreement shall be
subject to the terms and conditions of such Preferential Rights and Consents to
Assign. Seller shall use its best efforts to notify the holders of such
Preferential Rights of the proposed transfer of the affected properties and the
amount of the Sale Price allocated to such properties. if any third party
exercises a valid Preferential Right, the affected properties shall be excluded
from the Interests and the Sale Price reduced by the amount allocated to the
affected properties. Seller shall promptly notify Purchaser of the exercise of
any Preferenffal Right and of the lapse of any applicable period of time within
which a Preferential Right must be exercised. Seller shall attempt to satisfy
all Consents to Assign prior to the Closing Date. If a Consent to Assign is not
obtained (and Purchaser does not waive the obligation to secure such consent),
then the affected properties shall be excluded from the Interests and the Sale
Price reduced by (i) the amount allocated to the affected properties, if the
Consent to Assign prohibits the transfer of an oil and gas lease, interest in a
unit, or other property, or (ii) in any other case, an amount mutually agreed
to by Purchaser and Seller required to replace any material part of the
Interests necessary for the continued production and sale of hydrocarbons from
the Interests, or in the event the parties cannot agree to such amount, then
the affected properties shall be excluded from the Interests and the Sale Price
reduced by the amount allocated to the affected properties.
ARTICLE 8. TAX-DEFERRED EXCHANGE ELECTION
Seller may, at or before the Closing, designate in writing one or more
properties which Purchaser will acquire and trade to Seller for the Interests
(herein collectively called the "Exchange Property"). If Seller has not found a
suitable Exchange Property prior to the Closing, Seller may elect, by notice to
Purchaser delivered on or before the Closing Date, to have the Adjusted Sale
Price paid to a trustee until Seller has designated the Exchange Property. The
Exchange Property shall be designated by Seller and acquired by the trustee
within the time periods prescribed in Section 1031 (a)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), and shall thereupon be conveyed
to Seller. If Seller fails to designate and the agent or trustee fails to
acquire the Exchange Property within such time periods, the agency or trust
shall terminate and the proceeds then held by the trustee shall be paid
immediately to Seller. The rights and responsibilities of Seller, Purchaser and
the trustee shall be documented with such agreements containing such terms and
provisions as shall be determined by Seller to be necessary to accomplish a tax
free exchange under Section 1031 of the Code, subject, however, to the
limitations on costs and liabilities of Purchaser set forth hereinafter. If
Seller makes a tax deferred exchange election, Purchaser shall not be obligated
to pay any additional costs or incur any additional obligations in the
acquisition of the Interests and Seller shall indemnify, save, discharge,
release and hold Purchaser and its affiliates harmless from and against all
claims,
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expense (including reasonable attorneys' fees), loss and liability resulting
from Purchaser's participation in such an exchange.
ARTICLE 9. HART-SCOTT-RODINO ACT
This Agreement is subject in all respects to and conditioned upon
compliance by the parties with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, and rules and regulations promulgated pursuant thereto, to the extent
that said Act, rules and regulations are applicable to the transactions
contemplated by this Agreement. The parties shall make such filings with and
provide such information to the Federal Trade Commission as are required in
connection with the Act as soon as practicable after the date hereof, and the
Closing shall take place as soon as practicable after the expiration of any
applicable waiting period under the Act.
ARTICLE 10. REPRESENTATIONS
10.01 EXCLUSIVITY OF REPRESENTATIONS: THE EXPRESS REPRESENTATIONS OF SELLER
CONTAINED IN THIS ARTICLE 10 OR OTHERWISE STATED IN THIS AGREEMENT ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS, EXPRESS,
IMPLIED, STATUTORY, OR OTHERWISE. FURTHERMORE, THE REPRESENTATIONS
CONTAINED IN SECTIONS 10.01, 10.02 AND 10.03 SHALL SURVIVE THE CLOSING,
BUT ALL OTHER REPRESENTATIONS IN THIS AGREEMENT SHALL TERMINATE AT, AND
SHALL NOT SURVIVE, THE CLOSING.
10.02 MUTUAL REPRESENTATIONS: Each party represents to the other that:
(a) it is a corporation (or limited partnership in the case of
Purchaser) duly organized, validly existing and in good standing
under the laws of the State of its incorporation or formation,
and is duly qualified to do business in the States in which the
Interests are located;
(b) it has all authority necessary to enter into this Agreement and
to perform all its obligations hereunder;
(c) its execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not: (1) violate or
conflict with any provision of its Certificate of Incorporation,
ByLaws, limited partnership agreement or other governing
documents; (ii) result in the breach of any term or condition of,
or constitute a default or cause the acceleration of any
obligation under, any agreement or instrument to which it is a
party or by which it is bound; or (iii) violate or conflict with
any applicable judgment, decree, order, permit, law, rule or
regulation;
(d) this Agreement has been duly executed and delivered on its
behalf, and at the Closing all documents and instruments required
hereunder will have been duly executed and delivered. This
Agreement, and all such documents and instruments shall
constitute legal, valid and binding obligations enforceable in
accordance with their respective terms, except to the extent
enforceability may be affected by bankruptcy, reorganization,
insolvency or similar laws affecting creditors' rights generally;
and
(e) it has been represented by legal counsel of its own selection who
has reviewed this Agreement.
10.03 BROKERS: Neither party has incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in connection
with this Agreement in respect of which the other party
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may have any responsibility; and any such obligation or liability that
might exist shall be the sole obligation of the party whose action gave
rise thereto.
10.04 FURTHER DISTRIBUTION: Purchaser is acquiring the Interests for its own
account and not with the intent to make a distribution thereof within
the meaning of the Securities Act of 1933, as amended, and the rules and
regulations thereunder or distribution thereof in violation of any other
applicable securities laws.
10.05 SELLER'S REPRESENTATIONS: For the purpose of this Agreement, references
to the "best of its knowledge and belief" of Seller means the actual and
current knowledge of Seller's officers and employees, without any duty
of investigation by such officers and employees. Except as expressly
disclaimed in Article 11 hereof, Seller represents the following:
(a) Seller owns the Interests and has the full power and right to
sell and convey the same, subject to any Preferential Rights or
Consents to Assign that may exist with respect thereto; and
(b) To the best of its knowledge and belief, Seller has complied in
all material respects with the provisions and requirements of all
orders, regulations and rules issued or promulgated by
governmental authorities having jurisdiction with respect to the
Interests operated by Seller and has filed for and obtained all
governmental certificates, permits and other authorizations
necessary for Seller's current operation of the Interests other
than permits, consents and authorizations required for the sale
and transfer of the Interests to Purchaser which shall be the
responsibility of Purchaser.
(c) To the best of its knowledge and belief, Seller has not defaulted
or violated any agreement to which Seller is a party or any
obligation to which Seller is bound affecting or pertaining to
the Interests other than as disclosed hereunder or on any Exhibit
attached hereto.
(d) There are no liens or security interests on the properties
subject hereto except for liens for taxes not yet due or
delinquent or liens relating to obligations not yet due or
pursuant to which Seller is not delinquent.
(e) There are no suits, actions, claims, investigations or any legal,
administrative or arbitration proceedings pending or to the best
of Seller's knowledge and belief asserted against Seller which,
affect or pertain to the Interests, other than as disclosed
hereunder or on any Exhibit attached hereto.
(f) The oil and gas leases included within the Interests are in full
force and effect.
(g) Without affecting Seller's disclaimers of certain warranties and
representations under Article 11 hereof, and to the best of
Seller's knowledge and belief, between the date hereof and until
Closing, Seller will make a good faith effort to disclose to
Purchaser all information requested by Purchaser in Seller's
possession regarding any and all material matters affecting the
property which a reasonable and prudent operator would want to
know.
(h) Seller has not and from the date of this Agreement and prior to
Closing unless this Agreement is terminated sooner, shall not
sell, encumber or agree to sell or encumber any portion of the
Interests to any party other than the Purchaser.
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ARTICLE 11. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
11.01 NO WARRANTY OR REPRESENTATION BY SELLER: SELLER SHALL WARRANT AND
DEFEND TITLE TO THE PROPERTY BY, THROUGH AND UNDER SELLER, BUT NOT
OTHERWISE. EXCEPT FOR THE FOREGOING. THE TRANSACTION CONTEMPLATED HEREBY
SHALL BE WITHOUT ANY WARRANTY OR REPRESENTATION OF TITLE, EITHER
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITHOUT ANY EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION AS TO THE CONDITION,
QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, FREEDOM FROM
REDHIBITORY VICES OR DEFECTS, CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS OR MERCHANTABILITY OF ANY OF THE EQUIPMENT OR ITS FITNESS FOR
ANY PURPOSE AND WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER
WARRANTY OR REPRESENTATION WHATSOEVER. PURCHASER SHALL HAVE INSPECTED
OR WAIVED ITS RIGHT TO INSPECT THE INTERESTS FOR ALL PURPOSES AND
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH
SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO CONDITIONS
SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF HAZARDOUS
SUBSTANCES, AND THE CONDITION OF ANY WELL CASING, TUBING OR DOWNHOLE
EQUIPMENT. PURCHASER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE
INTERESTS, AND PURCHASER SHALL ACCEPT ALL OF THE SAME IN THEIR "AS IS,
WHERE IS" CONDITION. THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE FACE
OF THIS AGREEMENT. IN ADDITION, SELLER MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE
ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO PURCHASER IN CONNECTION WITH THIS AGREEMENT INCLUDING,
WITHOUT LIMITATION, ANY DESCRIPTION OF THE INTERESTS, PRICING
ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY)
ATTRIBUTABLE TO THE INTERESTS OR THE ABILITY OR POTENTIAL OF THE
INTERESTS TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE
INTERESTS OR ANY OTHER MATTERS CONTAINED IN THE PROPRIETARY DATA OR ANY
OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO PURCHASER BY SELLER OR BY
SELLER'S AGENTS OR REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS,
REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS FURNISHED BY
SELLER OR OTHERWISE MADE AVAILABLE TO PURCHASER ARE PROVIDED PURCHASER
AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF
OR AGAINST SELLER. ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT
PURCHASER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
11.02 EXPRESS DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES: THE ASSIGNMENTS
AND BILLS OF SALE, LEASES, DEEDS OR OTHER CONVEYANCES TO BE DELIVERED BY
SELLER AT CLOSING SHALL EXPRESSLY SET FORTH THE DISCLAIMERS OF
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 11. ALSO, ALL
SUCH ASSIGNMENTS, LEASES, DEEDS AND OTHER CONVEYANCE DOCUMENTS SHALL
EXPRESSLY STATE THAT THE INTERESTS HAVE BEEN USED FOR OIL AND GAS
DRILLING AND PRODUCING OPERATIONS, RELATED OIL FIELD OPERATIONS, AND THE
STORAGE OF OIL, GAS AND OTHER HAZARDOUS SUBSTANCES.
ARTICLE 12. CONDITIONS OF CLOSING
Each party's obligation to consummate the transaction provided for
herein is subject to the satisfaction or waiver by the other party of the
following conditions:
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12.01 REPRESENTATIONS: The representations contained in Article 10 and
Article 12 hereof shall be true and correct in all material respects on
the Closing Date as though made on and as of the Closing Date.
12.02 PERFORMANCE: Each party shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by
it at or prior to the Closing Date.
12.03 PENDING MATTERS: Except as provided in Exhibit "A", no suit, action or
other proceeding by a third party or a governmental authority shall be
pending which seeks substantial damages, fines or other penalties from
either party in connection with the Interests, or seeks to restrain,
enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement.
12.04 GOVERNMENTAL BONDS: Upon written request by Seller, Purchaser shall
deliver or cause to be delivered to Seller proof of bonds, in form and
substance and issued by corporate sureties satisfactory to Seller,
covering the Interests required under any laws, rules or regulations of
any federal, Indian tribe, state or local government agencies having
jurisdiction over the Interests, or a commitment by a surety company,
satisfactory to Seller, to issue such bonds upon Closing.
12.05 FINANCIAL CONDITION: No material adverse change has occurred in the
financial condition of either party.
12.06 EXPIRATION OF HSR WAITING PERIOD: The parties shall have filed
Notification and Report Forms to the extent required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and received all
necessary waivers and approvals, and there shall be no legal impediment
under such Act to the Closing.
12.07 MANAGEMENT APPROVAL: Seller shall have obtained management approval of
this Agreement and the transactions contemplated hereby as required by
Section 2.04 herein and shall have notified the Purchaser in writing
that the appropriate level of management approval has been obtained.
ARTICLE 13. TRANSACTIONS ON AND AFTER CLOSING
At the Closing, the following shall occur:
13.01 ASSIGNMENT AND BILL OF SALE: Seller shall execute, acknowledge and
deliver an Assignment and Bill of Sale and other necessary conveyance
instruments in a form that is mutually acceptable to the parties in
accordance with the obligations outlined in this Agreement, covering all
of the Interests to be sold pursuant hereto.
13.02 OIL AND GAS LEASE: Any unleased mineral interests of Seller included in
this transaction shall not be conveyed to Purchaser but shall, upon and
subject to the provisions hereof, be leased to Purchaser by oil and gas
lease.
13.03 ADJUSTED SALE PRICE: Purchaser shall deliver to Seller or Seller's
designee the Adjusted Sale Price and any applicable closing charges.
13.04 REGULATORY FILINGS: Purchaser shall deliver to Seller evidence of
filing showing compliance with the appropriate regulatory authority
dealing with plugging of any dry or inactive well(s) included in the
Interests, along with evidence of the appropriate bond, surety letter or
letter of credit in a form acceptable to such authority.
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13.05 CHANGE OF OPERATOR: Seller shall provide Purchaser with executed change
of operator forms on all wells (active or inactive) operated by Seller,
as required by the applicable state regulatory body, to effect a change
of operator for the Interests, subject to any applicable operating
agreement, but only to the extent allowed or permitted by such operating
agreement.
13.06 POSSESSION OF THE INTERESTS: Seller shall (subject to the terms of
applicable operating agreements and other provisions hereof) deliver to
Purchaser exclusive possession of the Interests upon the Closing.
13.07 NOTICE OF SALE: Immediately after the Closing, Purchaser shall notify
all operators, non-operators, oil and gas purchasers, government
agencies and royalty owners that it has purchased the Interests.
13.08 COPIES OF RECORDS AND DOCUMENTS: Seller shall, at or as promptly as
reasonably possible after the Closing, provide Purchaser (by electronic
transfer where practical), with copies or originals of records and
documents in Seller's possession relating to the Interests, including,
but not limited to nonproprietary financial information relating to the
interests, land and lease files, division of interest computer
printouts, contract files, well files and well logs. SELLER MAY RETAIN
COPIES OR ORIGINAL FILES AS DEEMED APPROPRIATE AND SHALL HAVE NO
OBLIGATION TO FURNISH PURCHASER ANY DATA OR INFORMATION WHICH SELLER
CONSIDERS PROPRIETARY OR CONFIDENTIAL OR WHICH SELLER CANNOT PROVIDE
PURCHASER BECAUSE OF THIRD PARTY RESTRICTIONS ON SELLER. NOTWITHSTANDING
THE FOREGOING, SELLER SHALL DELIVER TO PURCHASER THE ORIGINAL OF ITS
FILES LOCATED IN MIDLAND, TEXAS AND IN ITS FIELD OFFICES WHICH RELATE TO
THE INTERESTS, AND COPIES OF LOGS SELLER HAS ON FILM.
ARTICLE 14. ALLOCATION OF PRODUCTION AND PROCEEDS
All production of oil, gas and other minerals from the Interests prior
to the Effective Time, and all proceeds from the sale of such production, shall
be the property of Seller. Ail such production upon and after the Effective
Time, and all proceeds from the sale thereof, shall be the property of
Purchaser. Production shall be allocated to the parties based upon the most
reliable measurement method or allocation calculation information available and
mutually acceptable to the parties. Purchaser shall pay Seller for oil in
inventory above pipeline connection at Mobil Oil Corporation's posted field
price for oil of like grade and gravity in the field at the Effective Time.
Purchaser shall assume all rights and/or liabilities of Seller arising from any
gas imbalances affecting the Interests as of the Effective Time and thereafter.
Purchaser shall indemnify, defend, save, discharge, release and hold Seller
harmless from any claims for gas imbalances which have accrued prior to the
Effective Time.
Further, as part of the final accounting provided in Article 19, Seller
shall revise the gas imbalances indicated in Exhibit "F" to reflect the actual
imbalance volumes as of the Effective Time. The difference between the gas
imbalances indicated on Exhibit "D" and the actual gas imbalances as of the
Effective Time shall be multiplied by $1.50 per MCF and the aggregate
adjustment amount shall be appropriately accounted for in the final settlement.
ARTICLE 15. RESPONSIBILITY FOR PAYMENTS AND OBLIGATIONS
Seller shall be responsible for (i) all lease rentals,
shut-in-royalties, minimum royalties, payments in lieu of production,
production royalties (including royalties paid in kind), overriding royalties,
production payments and net profits payments, and (ii) all operating costs,
vendor and contractor invoices and other liquidated monetary obligations of
Seller that in each case accrued prior to the Effective Time and are
attributable to the ownership, operation, use or maintenance of or otherwise
relate to the Interests. Purchaser shall be responsible for all of the
above-described
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payments and obligations that have accrued or may accrue on and after the
Effective Time, and shall reimburse Seller for any such payments or obligations
paid by Seller on or after the Effective Time.
Additionally, Seller shall be responsible for the settlement of all
joint billing audits which relate to accounting periods prior to the Effective
Time. Purchaser shall be responsible for the settlement of all joint billing
audits which relate to accounting periods on and after the Effective Time. Any
credits received by Purchaser after the Effective Time attributable to expenses
paid prior to the Effective Time shall be paid to Seller by Purchaser within
fifteen (15) days of Purchaser's receipt thereof.
ARTICLE 16. TAXES AND PREPAID ITEMS
16.01 APPORTIONMENT OF AD VALOREM AND PROPERTY TAXES: All ad valorem taxes,
real property taxes, personal property taxes and similar obligations
with respect to the Interests for the tax period in which the Effective
Time occurs shall be apportioned as of the Effective Time between Seller
and Purchaser. The portion of such apportioned tax liability which is
attributable to Seller shall be credited to Purchaser's account.
Purchaser shall file or cause to be filed all required reports and
returns incident to such taxes and shall pay or cause to be paid to the
taxing authorities all such taxes relating to the tax period in which
the Effective Time occurs. Purchaser shall supply Seller with copies of
the filed reports and proof of payment promptly after filing and paying
same.
16.02 PRORATION OF TAXES, ETC.: All taxes, including, but not limited to,
excise taxes, state severance taxes, ad valorem taxes, and any other
local, state, and/or federal taxes or assessments attributable to the
Interests or any part thereof prior to the Effective Time, remain
Seller's responsibility and all deductions, credits and refunds
pertaining to the aforementioned taxes, attributable to the Interests or
any part thereof prior to the Effective Time (no matter when received),
belong to Seller. All such taxes attributable to the Interests or any
part thereof on and after the Effective Time are Purchaser's
responsibility, and Purchaser shall reimburse Seller for any such taxes
previously paid by Seller, and all deductions, credits, and refunds
pertaining thereto on and after the Effective Time (no matter when
received) belong to Purchaser.
16.03 APPORTIONMENT OF PREPAID: Unearned insurance premiums (if any), paid
utility charges applicable to periods following the Effective Time,
prepaid rentals, prepaid joint interest stock accounts and any other
prepaid or accrued payables, if any, attributable to the Interests shall
be prorated as of the Effective Time and amounts owing from such
proration shall be settled with a final accounting, which shall be made
at such time as complete records are available.
ARTICLE 17. OPERATIONS
Seller, as to the portion of the Interests to be conveyed which it now
operates, shall from the date of execution of this Agreement, continue to
operate the Interests in accordance with all applicable local, state and
Federal laws, rules and regulations including all Environmental Laws and to
operate the same in a good and workmanlike manner until the Closing, when such
operations shall be turned over to and become the responsibility of Purchaser,
unless an applicable unit, pooling, communitization or operating agreement
requires otherwise or Purchaser otherwise requests that Seller continue such
operations, in which case (unless Purchaser and Seller otherwise agree) Seller
shall continue the physical operation of such portion of the Interests pursuant
to and under the terms of such applicable agreement, until such time after the
Closing as such applicable agreement may require or Purchaser assumes such
operations; provided, however, that Seller shall have no liability as operator
to Purchaser for losses or damages sustained, or liabilities incurred, WHETHER
OR NOT THE LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN
PART FROM THE ACTIVE, PASSIVE, CONCURRENT, SIMPLE OR SOLE NEGLIGENCE, OR STRICT
LIABILITY OR OTHER FAULT OF SELLER OR ANY OTHER THEORY OF LIABILITY OR FAULT,
WHETHER IN
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LAW (WHETHER COMMON OR STATUTORY) OR EQUITY, except as may result directly from
Seller's gross negligence or willful misconduct. Any operations from and after
the Effective Time shall be conducted by Seller for and on behalf of Purchaser,
and Seller shall make appropriate charges to the Purchaser for such services as
operator of the Interests (or any portions thereof) performed by Seller from
and after the Effective Time. If any of the properties that Seller continues to
operate on behalf of the Purchaser are subject to an operating agreement,
Seller shall make appropriate charges to the Purchaser in accordance with such
operating agreement which will include overhead charges attributable to
Seller's gross working interest. Purchaser shall reimburse Seller for all
reasonable and necessary expenses incurred by Seller in such operation, or in
the protection or maintenance of the Interests. Any such charges and expenses
shall be recovered by Seller as part of the final accounting described in
Article 19. Seller will market the oil and gas produced from the Interest and
disburse royalties for up to sixty (60) days after Closing, if necessary and
will remit any net proceeds of funds received from the marketing of such oil
and gas in accordance with Seller's standard practices for purchasing and/or
marketing third party oil and gas.
ARTICLE 18. SUBSEQUENT DRILLING OPERATIONS
After full execution of this Agreement and prior to delivery of
possession of the Interests to Purchaser under the applicable provisions of
this Agreement, Seller shall not, without Purchaser's prior written consent,
propose or conduct any operation for the drilling, testing, completing,
reworking, re-completing, sidetracking, deepening, plugging back or plugging
and abandoning a well with respect to the Interests (a "Drilling Operation")
under the terms of any operating agreement or other contract (except repairs or
operations made necessary by emergency conditions, after which Seller shall
promptly give Purchaser notice with full details of the work done and the costs
thereof). If any present party (other than Seller) to an operating agreement or
compulsory pooling order proposes a Drilling Operation prior to such delivery
of possession of the Interests involving an expenditure of more than
$10,000.00, Seller shall promptly notify Purchaser of such proposal and will
promptly provide Purchaser with all information, data or other material in
Seller's possession that may be relevant to a decision whether or not to
participate in such Drilling Operation. Seller shall accept or reject
participation in the proposed Drilling Operation based upon Purchaser's
election with respect thereto given in writing by Purchaser to Seller within
the period allowed in such proposal. Failure by Purchaser to make an election
within such period shall be deemed an election by Purchaser not to participate.
Any election by Purchaser hereunder, regardless of whether actually made or
deemed to be made, shall not result in any adjustment in the amount allocated
to the property affected thereby; however, all costs and expenses on account of
Purchaser's decision to participate in any such Drilling Operation where Seller
has elected not to participate shall be borne by Purchaser, notwithstanding any
termination of this Agreement or anything else herein to the contrary.
ARTICLE 19. FINAL ACCOUNTING
If a final settlement statement subsequent to the Closing is necessary,
Seller will include in its review, without limitation, all revenue received
along with royalties paid, and any operating expenses, taxes, and overhead as
provided for in Articles 14, 15, 16, 17 and 18 herein. Seller shall issue the
final settlement statement for the Interests conveyed within one hundred twenty
(120) days or such earlier date as is practicable under the circumstances after
the Closing. This statement will net revenues received against royalties,
operating expenses, taxes, and overhead (if applicable). Purchaser shall
respond with objections and proposed corrections within thirty (30) days of the
issuance of the final settlement statement. If Purchaser does not respond to
the final settlement statement by signing or objecting within thirty (30) days
of the issuance of the final settlement statement, said statement shall be
deemed approved by Purchaser. After approval by both parties, the final
settlement statement for the Interests conveyed will be summarized and a net
check or invoice will be sent to the Purchaser. Purchaser agrees to promptly
pay any such invoice within thirty (30) days after receipt by Purchaser and
shall not offset such amounts against any other obligation or claim made by
Purchaser against Seller or its affiliates. Seller will accept only written
inquiries regarding the final settlement statement.
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ARTICLE 20. ADVERSE ENVIRONMENTAL CONDITIONS
20.01 OPERATED INTERESTS: Purchaser shall advise Seller of any Adverse
Environmental Condition (as defined herein) related to the Interests
which are operated by Seller and provide evidence thereof not later than
ten (10) days prior to the Closing. If Purchaser in conducting its
environmental due diligence discovers a condition which indicates that
an Adverse Environmental Condition might exist on a property, Purchaser
shall have the option to delay the Closing for the affected property for
30 days to allow Purchaser additional time to fully substantiate the
existence of an Adverse Environmental Condition. Such extension shall
not delay the Closing for other properties in accordance with the terms
of this Agreement. Except as provided below, Seller, after the Closing,
at its sole cost, shall remedy such Adverse Environmental Condition(s),
individually or in the aggregate, to the reasonable satisfaction of
Purchaser and Seller and in accordance with applicable Environmental
Laws (as defined herein) in effect as of the Effective Time unless
Seller and Purchaser otherwise agree to either (a) adjust the Sale Price
by an amount agreed upon by Seller and Purchaser to be the value of such
Adverse Environmental Condition in which case the Interest subject to
the Adverse Environmental Condition shall be conveyed to the Purchaser
and Purchaser shall assume all liabilities associated with the Adverse
Environmental Condition asserted against such interest or (b) exclude
the Interest subject to the Adverse Environmental Condition from the
sale and reduce the Sale Price by the amount allocated to such interest
in Exhibit "B". If the Parties are unable to agree to a course of action
with respect to such Adverse Environmental Condition(s) then the
Interests subject to such Adverse Environmental Condition(s) shall be
excluded from the Sale pursuant to 20.01(b) above. As for Interests
containing Adverse Environmental Condition(s) that are conveyed to and
accepted by Purchaser that Seller undertakes to remedy, Seller shall
indemnify, save, discharge, release and hold Purchaser harmless against
all penalties, fines, cleanup or remediation liabilities, claims,
demands and causes of action, resulting from the remediation of, or the
failure to, fully and completely perform the remediation of the Adverse
Environmental Condition(s) in accordance with applicable Environmental
Laws. Seller agrees that it will exercise all reasonable efforts and
diligence to complete any required environmental cleanup and remediation
within two (2) years of the Closing; however, any failure to complete
such efforts by such time shall not relieve Seller of its duty to fully
and completely satisfy its obligations hereunder. Purchaser shall grant
Seller and its representatives such access to the Interests as may be
reasonably necessary to satisfy its obligations under this Article,
provided such access does not unreasonably interfere with Purchaser's
operations. Such access shall be at Seller's sole risk, cost and expense
and Seller shall indemnify, defend, save, discharge, release and hold
harmless Purchaser from, and pay or reimburse Purchaser on a current
basis for, any and all losses, liabilities, liens or encumbrances for
labor or materials, claims and causes of action arising out of or in any
way connected with or related to any personal injury to or death of any
persons or damage to property occurring to or on the Interests as a
result of Seller's exercise of its rights under this Section 20.01
whether latent or patent or whether or not such personal injury, death
or property damage is caused by PURCHASER'S (OR ITS AGENTS, EMPLOYEES OR
CONTRACTORS) (i) ACTIVE NEGLIGENCE, PASSIVE NEGLIGENCE, JOINT
NEGLIGENCE, CONCURRENT NEGLIGENCE OR GROSS NEGLIGENCE; OR (ii) STRICT
LIABILITY; BUT NOT PURCHASER'S WILLFUL MISCONDUCT.
20.02 NON-OPERATED INTERESTS: Purchaser shall advise Seller of any Adverse
Environmental Condition(s) (as defined herein) on the Interests which
are not operated by Seller and provide evidence thereof not later than
ten (10) days prior to the Closing. After receipt of such notice, Seller
and Purchaser shall agree, not later than five (5) days prior to the
Closing, to adjust the Sale Price in an amount mutually agreeable to the
parties. If the parties cannot agree to an adjustment amount, Purchaser
and Seller 14 shall exclude the affected Interests from the sale and
adjust the Sale Price by the value allocated thereto in Exhibit "B".
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As used herein, "Adverse Environmental Conditions" shall mean any
contamination or condition that is the result of any discharge, release,
disposal, production, storage or treatment on, in or below the Interests
or migration to or from the Interests to any other land or body of
water, wherever located, prior to the Effective Time, of any wastes,
pollutants, contaminants, hazardous materials or other materials or
substances for which and to the extent that remediation is required or
if discovered by the appropriate governmental authority, would
reasonably be required by any laws, rules, orders, regulations, permits
or judgments in effect as of the Effective Time relating to the
protector of the environment ("Environmental Laws").
ARTICLE 21. INDEMNIFICATIONS
21.01 INDEMNIFICATION: As used in this Article 21 and the Sections and
Subsections hereunder, "Claims" shall include claims, demands, causes of
action, liabilities, damages, fines, penalties and judgments of any kind
or character, whether matured or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated or known or unknown,
and whether or not resulting from third party claims, and all costs and
fees (including, without limitation, interest, reasonable attorneys'
fees, reasonable costs of experts, court costs and reasonable costs of
investigation, including those incurred in enforcing the indemnification
provisions contained in this Agreement) in connection therewith. Also,
as used in Subsection 21.01(d) herein, "Retained Environmental
Liabilities" shall mean any contamination or condition that is the
result of any disposal by Seller prior to the Effective Time of any
wastes, pollutants, contaminants, hazardous materials or other materials
or substances on, in or below any properties not included in the
Interests, wherever located, for which and to the extent that
remediation is required by any Environmental Laws.
In addition to any other indemnification or reservation provision
contained in this Agreement:
(a) Purchaser shall (i) as of the Effective Time assume, be
responsible for and comply with all duties and obligations of
Seller (except liquidated monetary obligations of Seller that
accrued prior to the Effective Time as described in Article 15),
express or implied, with respect to the Interests, including,
without limitation, those arising under or by virtue of any
lease, contract, agreement, document, permit, applicable law,
statute or rule, regulation or order of any governmental
authority (specifically including, without limitation, any
governmental request or requirement to plug, re-plug or abandon
any well of whatsoever type, status or classification, or take
any clean-up, remedial or other action with respect to the
Interests) and (ii) defend, indemnify, save, discharge, release
and hold Seller harmless from and pay or reimburse Seller on a
current basis for any and all Claims in connection therewith,
except (a) to the extent any such Claim has been asserted against
Seller prior to the Effective Time, (b) as otherwise set forth in
this Agreement, (c) any Claim expressly retained by Seller
pursuant to Section 20.01 of this Agreement, and (d) any brokers'
or finders' fees or commissions arising with respect to brokers
or finders retained or engaged by Seller and resulting from or
relating to the transactions contemplated in this Agreement. With
respect to any Claim for cleanup or remediation of the Interests,
such Claim shall be deemed asserted against Seller at the time
the Order requiring cleanup or remediation has been issued by the
appropriate regulatory agency.
(b) Except as provided for in Section 6.02, Seller shall defend,
indemnify, save, discharge, release and hold Purchaser harmless
from any and all Claims for personal injury, death or damage to
personal property arising directly or indirectly from or incident
to, the use, occupation, operation, maintenance, condition
(whether latent or patent) or abandonment of any of the Interests
prior to the Effective Time, and asserted against Purchaser
and/or Seller within two (2) years of the Closing.
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(c) Except as provided in Subsection 21.01(b), Purchaser shall
defend, indemnify, save, discharge, release and hold Seller
harmless from and pay or reimburse Seller on a current basis for
any and all Claims for personal injury, death or damage to
personal property arising directly or indirectly from or incident
to, the use, occupation, operation, maintenance, condition
(whether latent or patent) or abandonment of any of the
Interests, prior to, on or after the Effective Time.
(d) Except as provided in Article 20 and except for Retained
Environmental Liabilities, Purchaser shall defend, indemnify,
save, discharge, release and hold Seller harmless from and pay or
reimburse Seller on a current basis for any and all Claims for
damage to the environment, environmental cleanup, remediation, or
compliance, or for any other relief, arising directly or
indirectly from or incident to, the use, occupation, operation,
maintenance, condition (whether latent or patent) or abandonment
of any of the Interests, including without limitation,
contamination of the property or premises with Naturally
Occurring Radioactive Materials (NORM), whether or not any such
Claims result from conditions, actions or inactions present or
existing on or before the Closing.
(e) Except as provided in Subsections 21.01 (c) and 21.01 (d) above,
Seller shall (i) be responsible for any and all Claims arising
out of the production or sale of hydrocarbons from the Interests
(except gas imbalances) or the proper accounting or payment to
parties for their interests therein, insofar as such Claims
relate to periods of time prior to the Effective Time and (ii)
defend, indemnify, save, discharge, release and hold Purchaser
harmless from any and all such Claims. These Claims include but
are not limited to any and all valid overriding royalty, royalty
or net profit interest payments. Purchaser shall be responsible
for all Claims of these types insofar as they relate to periods
of time from and after the Effective Time and Purchaser shall
defend, indemnify, save, discharge, release and hold Seller
harmless therefrom.
(f) Any claim for indemnity under Subsections 21.01 (a) through 21.01
(e) above or under any other provision of this Agreement shall be
made by written notice from the party seeking indemnification
(the "Indemnified Party") to the party required to provide same
(the "Indemnifying Party'), together with a written description
of any third-party Claim against the Indemnified Party, stating
the nature and basis of such Claim and, if ascertainable, the
amount thereof. The Indemnifying Party shall have a period of
thirty (30) days after receipt of such notice within which to
respond thereto or, in the case of a third-party Claim which
requires a shorter time for response, then within such shorter
period as specified by the Indemnified Party in such notice (the
"Notice Period'). If the Indemnifying Party denies liability or
fails to respond to the notice within the Notice Period, the
Indemnified Party may defend or compromise the Claim as it deems
appropriate without prejudice to any of the Indemnified Party's
rights hereunder, with no further obligation to inform the
Indemnifying Party of the status of the Claim and no right of the
Indemnifying Party to approve or disapprove any actions taken in
connector therewith by the Indemnified Party. If the Indemnifying
Party accepts liability, it shall so notify the Indemnified Party
within the Notice Period and elect either (a) to undertake the
defense or compromise of such third-party Claim with counsel
selected by the Indemnifying Party and reasonably approved by the
Indemnified Party or (b) to instruct the Indemnified Party to
defend or compromise such Claim. If the Indemnifying Party
undertakes the defense or compromise of such third-party Claim,
the Indemnified Party shall be entitled, at its own expense, to
participate in such defense. No compromise or settlement of any
third party Claim shall be made without reasonable notice to the
Indemnified Party and, unless such compromise or settlement
includes a general release of the Indemnified Party in respect of
the matter with no admission of liability on the part of the
Indemnified Party and no constraints on the future conduct of its
business, without the prior written approval of the Indemnified
Party.
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21.02 EXTENSION AND APPLICATION OF INDEMNITIES: Each party's indemnity
obligations in this Agreement shall extend to the other and to the
other's parent, subsidiaries and affiliates and their present and former
directors, officers, employees, contractors and agents, and to each of
their heirs, executors, successors and assigns.
21.03 LIMITATION OF SELLER'S INDEMNITY: Seller shall not be required to
indemnify Purchaser or pay any other amount in connection with or with
respect to the transactions contemplated in this Agreement in any amount
exceeding, in the aggregate, the Sale Price.
21.04 SOLE AND EXCLUSIVE REMEDY: If the Closing occurs, the sole and
exclusive remedy of each of the Indemnified Parties with respect to the
purchase and sale of the Interests shall be pursuant to the express
provisions of this Agreement. If the Closing occurs, each of Purchaser
and Seller shall be deemed to have waived, to the fullest extent
permitted under applicable law, any right of contribution against Seller
or any of its affiliates or Purchaser or any of its affiliates,
respectively, and any and all rights, claims and causes of action it may
have against Seller or any of its affiliates or Purchaser or any of its
affiliates, respectively, arising under or based on any federal, state
or local statue, law, ordinance, rule or regulation or common law or
otherwise.
21.05 EXPRESS NEGLIGENCE APPLICABILITY: THE INDEMNIFICATION, RELEASE AND
ASSUMPTION PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE
WHETHER OR NOT THE LOSSES, COSTS, EXPENSES AND DAMAGES IN QUESTION AROSE
SOLELY OR IN PART FROM THE GROSS, ACTIVE, PASSIVE, CONCURRENT, SIMPLE OR
SOLE NEGLIGENCE, OR STRICT LIABILITY OR OTHER FAULT OF ANY INDEMNIFIED
PARTY OR ANY OTHER THEORY OF LIABILITY OR FAULT, WHETHER IN LAW (WHETHER
COMMON OR STATUTORY) OR EQUITY, (BUT NOT INCLUDING WILLFUL MISCONDUCT)
OF THE PARTY'S AGENTS, EMPLOYEES OR CONTRACTORS. PURCHASER AND SELLER
ACKNOWLEDGE THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE
RULE AND IS CONSPICUOUS.
21.06 NO LIABILITY FOR KNOWN BREACHES AND FACTS: Neither Seller nor Purchaser
shall have any obligation or liability under this Agreement or in
connection with or with respect to the transactions contemplated in this
Agreement for (i) any breach, misrepresentation or noncompliance with
respect to any representation, warranty, covenant or obligation, if such
breach, misrepresentation or noncompliance shall have been known by the
other party at or before the Closing, or (ii) any misrepresentation or
breach of warranty if such other party had knowledge of the relevant
facts at or before the Closing.
ARTICLE 22. PHYSICAL CONDITION OF THE INTERESTS:
22.01 USE OF THE INTERESTS: THE INTERESTS HAVE BEEN USED FOR OIL AND GAS
DRILLING AND PRODUCING OPERATIONS, RELATED OIL FIELD OPERATIONS AND
POSSIBLY FOR THE STORAGE AND DISPOSAL OF WASTE MATERIALS OR HAZARDOUS
SUBSTANCES. PHYSICAL CHANGES IN THE LAND MAY HAVE OCCURRED AS A RESULT
OF SUCH USES. THE INTERESTS ALSO MAY CONTAIN BURIED PIPELINES AND OTHER
EQUIPMENT, WHETHER OR NOT OF A SIMILAR NATURE, THE LOCATIONS OF WHICH
MAY NOT NOW BE KNOWN BY SELLER OR BE READILY APPARENT BY A PHYSICAL
INSPECTION OF THE PROPERTY. PURCHASER UNDERSTANDS THAT SELLER DOES NOT
HAVE THE REQUISITE INFORMATION WITH WHICH TO DETERMINE THE EXACT NATURE
OR CONDITION OF THE INTERESTS OR THE EFFECT ANY SUCH USE HAS HAD ON THE
PHYSICAL CONDITION OF THE INTERESTS.
22.02 PURCHASER'S INVESTIGATION AND LIABILITY: IN ACCORDANCE WITH SECTION 6.01
AND 6.02 OF THIS AGREEMENT, PURCHASER AGREES THAT PRIOR TO CLOSING THAT
IT WILL
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HAVE EITHER WAIVED THE OPPORTUNITY TO, OR WILL HAVE (A) EXAMINED THE
PROPERTIES AND SUCH MATERIALS AS IT HAS REQUESTED TO BE PROVIDED TO IT
BY SELLER, (B) DISCUSSED WITH REPRESENTATIVES OF SELLER SUCH MATERIALS
AND THE NATURE AND OPERATION OF THE INTERESTS AND (C) INVESTIGATED THE
CONDITION, INCLUDING SUBSURFACE CONDITION, OF THE REAL PROPERTY AND THE
CONDITION OF THE EQUIPMENT. PURCHASER WILL PROCEED TO CLOSING UNDER THIS
AGREEMENT ON THE BASIS OF ITS OWN INVESTIGATION OF THE PHYSICAL
CONDITION OF THE INTERESTS INCLUDING SUBSURFACE CONDITION AND PURCHASER
SHALL ACKNOWLEDGE THAT THE INTERESTS HAVE BEEN USED IN THE MANNER AND
FOR THE PURPOSES SET FORTH ABOVE AND THAT PHYSICAL CHANGES TO THE
INTERESTS MAY HAVE OCCURRED AS A RESULT OF SUCH USE AND IN PROCEEDING TO
CLOSING UNDER THIS AGREEMENT, PURCHASER SHALL HAVE RELIED SOLELY ON THE
EXPRESS REPRESENTATIONS (SOME OF WHICH REPRESENTATIONS TERMINATE AT THE
CLOSING) AND COVENANTS OF SELLER IN THIS AGREEMENT, ITS INDEPENDENT
INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE EQUIPMENT AND THE
OTHER INTERESTS AND THE ADVICE OF ITS OWN LEGAL, TAX, ECONOMIC,
ENVIRONMENTAL, ENGINEERING, GEOLOGICAL AND GEOPHYSICAL ADVISORS AND NOT
ON ANY COMMENTS OR STATEMENTS OF ANY REPRESENTATIVES OF, OR CONSULTANTS
OR ADVISORS ENGAGED BY SELLER AND (v) LOW LEVELS OF NATURALLY OCCURRING
RADIOACTIVE MATERIAL (NORM) AND MAN-MADE MATERIAL FIBERS (MMMF) MAY BE
PRESENT AT SOME LOCATIONS. PURCHASER ACKNOWLEDGES THAT NORM IS A NATURAL
PHENOMENON ASSOCIATED WITH MANY OIL FIELDS IN THE U.S. AND THROUGHOUT
THE WORLD. PURCHASER SHOULD MAKE ITS OWN DETERMINATION OF THIS
PHENOMENON AND OTHER CONDITIONS. SELLER DISCLAIMS ANY LIABILITY ARISING
OUT OF OR IN CONNECTION WITH ANY PRESENCE OF NORM OR MMMF ON THE
PROPERTY AND ON THE CLOSING DATE, EXCEPT AS OTHERWISE PROVIDED
HEREUNDER, PURCHASER SHALL ASSUME THE RISK THAT THE INTERESTS MAY
CONTAIN WASTES OR CONTAMINANTS AND THAT ADVERSE PHYSICAL CONDITIONS,
INCLUDING THE PRESENCE OF WASTES OR CONTAMINANTS, MAY NOT HAVE BEEN
REVEALED BY PURCHASER'S INVESTIGATION. ON THE CLOSING DATE, ALL
RESPONSIBILITY AND LIABILITY RELATED TO DISPOSAL, SPILLS, WASTE, OR
CONTAMINATION ON AND BELOW THE INTERESTS SHALL BE TRANSFERRED FROM
SELLER TO PURCHASER AND, EXCEPT AS PROVIDED IN ARTICLES 20 AND 21,
PURCHASER SHALL INDEMNIFY, DEFEND, SAVE, DISCHARGE, RELEASE AND HOLD
SELLER HARMLESS THEREFROM. SELLER AND PURCHASER AGREE THAT THE
PROVISIONS OF THIS ARTICLE 22 SHALL SURVIVE THE CLOSING.
ARTICLE 23. LEASE MAINTENANCE CONDITIONS
Purchaser and Seller acknowledge that certain conditions may exist on the
Interests that do not fall under the definition of Adverse Environmental
Conditions, but that could be reasonably determined to require an expenditure
to correct the condition (hereinafter "Lease Maintenance Conditions").
Purchaser shall advise Seller in writing of any Lease Maintenance Conditions on
the Interests which in the aggregate exceed $250,000 and provide evidence
thereof not later than fifteen (15) days prior to the Closing. After receipt of
such notice, Seller and Purchaser shall agree (not later than seven (7) days
prior to the Closing) to adjust the Sale Price in an amount mutually agreeable
to the parties, provided, however, such adjustment shall not exceed $1,700,000
in the aggregate. If the parties cannot agree to an adjustment amount for a
property, the affected property shall be excluded from the sale and the Sale
Price adjusted by the value allocated thereto in Exhibit "B".
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ARTICLE 24. FURTHER ASSURANCES:
24.01 PERFORMANCE OF OBLIGATIONS: Seller and Purchaser shall use all
reasonable efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable to carry
out all of their respective obligations under this Agreement and to
consummate and make effective the purchase and sale of the Interests
pursuant to this Agreement.
24.02 FURTHER CONVEYANCES AND ASSUMPTIONS: After the Closing Date, Seller and
Purchaser shall execute, acknowledge and deliver all such further
conveyances, transfer orders, notices, assumptions and releases and such
other instruments, and shall take such further actors, as may be
necessary or appropriate to assure fully to Purchaser and its successors
or assigns all of the Interests and to assure fully to Seller and its
successors and assigns the assumptions of liabilities and obligations of
Purchaser.
ARTICLE 25. NOTICES
All notices and consents to be given hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally; faxed (i.e.,
sent by facsimile) with receipt acknowledged; mailed by certified or registered
mail, return receipt requested, postage prepaid; or delivered by a recognized
commercial courier to the party at the address set forth below or such other
address as any party shall have designated for itself by ten (10) days' prior
notice to the other party.
Notice is deemed to have been duly received on the day personally
delivered; on the day after it is sent by fax, four (4) days after mailing by
certified or registered mail and the day after it is received from a recognized
commercial courier.
Seller:
Mobil Exploration & Producing U.S. Inc.
Attn: H. L. Hickey
12450 Greenspoint Drive
Houston, Texas 77060-1991
Phone: (713) 775-2800
FAX No. (713) 775-4061
Purchaser:
Titan Resources, L.P.
Attn: Dan Colwell
500 West Texas
Suite 500
Midland, Texas 79701
Phone: (915) 682-6612
FAX No. (915) 687-3863
ARTICLE 26. WAIVER OF DTPA
26.01 WAIVER OF TEXAS DTPA: SELLER AND PURCHASER CERTIFY THAT THEY ARE NOT
"CONSUMERS" WITHIN THE MEANING OF THE TEXAS DECEPTIVE TRADE PRACTICES
CONSUMER PROTECTION ACT, SUBCHAPTER E OF CHAPTER 17, SECTIONS 17.41, ET
SEQ., OF VERNON'S TEXAS CODE ANNOTATED, BUSINESS AND COMMERCE CODE, AS
AMENDED (THE "DTPA"), IF THE INTERESTS ARE LOCATED IN TEXAS. PURCHASER
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<PAGE> 22
HEREBY WAIVES ITS RIGHTS UNDER THE DTPA, A LAW THAT GIVES CONSUMERS
SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN -ATTORNEY OF
ITS OWN SELECTION, PURCHASER VOLUNTARILY CONSENTS TO THIS WAIVER. TO
EVIDENCE ITS ABILITY TO GRANT SUCH WAIVER, PURCHASER REPRESENTS TO
SELLER THAT (I) IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION; (II) IT IS REPRESENTED BY LEGAL COUNSEL IN ENTERING INTO THIS
AGREEMENT; AND (111) SUCH LEGAL COUNSEL WAS NOT DIRECTLY OR INDIRECTLY
IDENTIFIED, SUGGESTED, OR SELECTED BY SELLER OR AN AGENT OF SELLER.
26.02 WAIVER OF COMPARABLE RIGHTS: PURCHASER WAIVES ANY COMPARABLE PROVISION
OF THE LAW OF THE STATE WHERE THE INTERESTS ARE LOCATED.
26.03 PURCHASER'S ACKNOWLEDGMENT: PURCHASER ACKNOWLEDGES THAT THE WAIVERS IN
THIS ARTICLE 26 ARE CONSPICUOUS.
ARTICLE 27. MISCELLANEOUS
27.01 ENTIRE AGREEMENT: This Agreement, together with any confidentiality
agreements relating to the Interests previously executed by Purchaser,
constitute the entire agreement between the parties and supersede all
prior agreements, understandings, negotiations and discussions, whether
oral or written, of the parties. No supplement, amendment, alteration,
modification, waiver or termination of this Agreement shall be binding
unless executed in writing by the parties hereto after the execution of
this Agreement. The provisions of Section 6.02 and Articles 18, 26 and
this Article 27 shall survive any termination of this Agreement.
27.02 SEVERABILITY: If any covenant, condition, or provision contained herein
is held to be invalid by a court of competent jurisdiction, the
invalidity of any such covenant, condition or provision shall in no way
affect any other covenant, condition or provision contained herein;
provided, however, that any such invalidity does not materially
prejudice either Purchaser or Seller in its respective rights and
obligations contained in the valid covenants, conditions, and provisions
of this Agreement.
27.03 WAIVER: No waiver of any of the provisions of this Agreement shall
constitute a waiver of any other provisions hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
27.04 CONSTRUCTION OF AMBIGUITY: In the event of any ambiguity in any of the
terms or conditions of this Agreement, including any exhibits thereto
and whether or not placed of record, such ambiguity shall not be
construed for or against any party hereto on the basis that such party
did or did not author the same.
27.05 CAPTIONS: The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction or
interpretation of any provisions of this Agreement.
27.06 GOVERNING LAW: This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas, without reference to the
conflict of laws or principles applied by the courts of the State of
Texas. All assignments and instruments of conveyance executed in
accordance with this Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the state where the Interests
conveyed thereby are located.
27.07 WAIVER OF JURY TRIAL: SELLER AND PURCHASER DO HEREBY IRREVOCABLY WAIVE.
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING
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OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
27.08 LIMITATION OF LIABILITY: Seller and Purchaser do hereby covenant and
agree that the recovery by either party hereto of any damages suffered
or incurred by it as a result of any breach by the other party of any
provision of this Agreement shall be limited to the actual damages
suffered or incurred by the non-breaching party as a result of the
breach by the breaching party and in no event shall the breaching party
be liable to the non-breaching party for any indirect, consequential,
exemplary or punitive damages suffered or incurred by the non-breaching
party as a result of the breach by the breaching party. This Section
shall not limit Seller's right to retain the Performance Deposit as
liquidated damages under Section 5.01.
27.09 PUBLICITY: Seller and Purchaser shall consult with each other with
regard to all publicity and other releases at or prior to the Closing
concerning this Agreement and the transactions contemplated hereby and,
except as required by applicable law or the applicable rules or
regulations of any governmental body or stock exchange, neither party
shall issue any publicity or other release without the prior written
consent of the other party.
27.10 USE OF SELLER'S NAME: As soon as practicable after the Closing,
Purchaser shall remove or cause to be removed the names and marks used
by Seller and all variations and derivations thereof and logos relating
thereto from the Interests and shall not thereafter make any use
whatsoever of those names, marks and logos.
27.11 COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
27.12 ASSIGNMENT: This Agreement may not be assigned by Purchaser without the
prior written consent of Seller, which consent may be withheld in its
sole discretion. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors
and assigns. All future conveyances of all or any portion of the
Interests shall expressly recognize and perpetuate the rights and
obligations set out in this Agreement.
27.13 COSTS AND EXPENSES: Except as otherwise expressly provided herein, each
party shall bear and pay its own costs and expenses, including, but not
limited to attorneys fees, incurred in connection with this transaction.
27.14 JOINT VENTURE, PARTNERSHIP AND AGENCY: Nothing contained in this
Agreement shall be deemed to create a joint venture, partnership, tax
partnership or agency relationship between the parties.
27.15 CONFIDENTIALITY: Prior to the Closing, Seller and Purchaser to the
extent permitted by law, shall keep confidential all information
received from the other unless such information is readily ascertainable
from public or published information or trade sources or is received
from a third-party having no obligation of confidentiality with respect
to such information. In the event of the termination of this Agreement,
Seller and Purchaser shall return to the other or destroy all
information received from the other and, to the extent permitted by law,
keep confidential and not use any confidential information obtained
pursuant to this Agreement.
27.16 SALE OF INTERESTS LOCATED ON INDIAN OR FEDERAL LANDS: If the Interests
are located on Indian or Federal Lands, Purchaser agrees to obtain
approval from the appropriate federal and/or state agencies as soon as
practicable after the Closing and to provide Seller with a copy thereof.
Purchaser shall indemnify, defend, save, discharge, release and hold
Seller harmless from and against any liability resulting from
Purchaser's failure to abide by this provision.
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27.17 MEDIATION: If a dispute arises out of or relates to this Agreement, or
the breach thereof, and if the dispute cannot be settled through
negotiation, the parties agree first to try in good faith to settle the
dispute by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules (or such other form of
mediation as is reasonably acceptable to both parties) before resorting
to arbitration, litigation, or some other dispute resolution procedure.
The mediator selected to resolve any dispute hereunder shall be
acceptable to both parties. If the parties cannot agree on a mediator,
then they shall make application to the Administrative Judge of the
State District Courts of Dallas County, Texas for appointment of a
mediator. Each parry shall bear its own attorneys' fees in connection
with any mediation and the cost of the mediation shall be shared equally
by both parties.
27.18 ARBITRATION: If a dispute arises out of or relates to this Agreement,
or the breach thereof, and if the dispute cannot be settled by
mediation, then the parties agree that the dispute shall be settled by
binding arbitration before one (1) mutually acceptable arbitrator having
experience in the oil and gas industry with minimal depositions,
expedited discovery,~and in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. The costs of the arbitration shall be shared equally by
both parties, and each party shall pay its own attorneys' fees.
27.19 SUSPENDED FUNDS: As soon as practicable after the Closing, Seller shall
provide to Purchaser a listing showing all proceeds from production
attributable to the Interests that are held in suspense and shall
transfer to Purchaser all such suspended proceeds (without reduction to
any amounts owed or claimed to be owed to Seller). Purchaser shall be
responsible for the proper distribution of all suspended proceeds to the
parties lawfully entitled to them, and Purchaser hereby agrees to
indemnify, defend, and hold harmless Seller from and against any and all
claims, liabilities, losses, costs and expenses (including, without
limitation, court cost and reasonable attorney fees) arising out of or
relating to Purchaser's erroneous distribution of such suspended
proceeds.
27.20 DISCLOSURE OF INFORMATION: Seller agrees (i) to provide Purchaser with
Disclosure Information (as defined below) for a 36-month period ending
no later than November 30,1996 and (ii) to reasonably cooperate with and
assist Purchaser in an audit of the Interests which audit shall be
performed at no cost to Seller. As used herein, "Disclosure Information"
means, as to the Interests, the net revenues, direct operating expenses
(including production and property taxes), exploratory and development
costs and production volume disclosures required under Statement of
Financial Accounting Standards No. 69 and balance sheet and other income
statement data in Seller's possession that Purchaser reasonably believes
are required to be included in any report filed by Purchaser with the
Securities and Exchange Commission. Purchaser shall complete the audit
no later than December 31,1996.
27.21 SEISMIC DATA: SELLER, though its Broker, shall license to Purchaser the
right to use seismic data as described on Exhibit "E", (subject to any
third-party restrictions) for the allocated amount as shown on Exhibit
"B". Purchaser will be furnished paper copies of 2-D seismic lines at no
reproduction expense to Purchaser; however, Purchaser will be required
to pay any other reproduction expense or reprocessing charges directly
to Seller's Broker.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above set forth.
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SELLER:
ATTEST: MOBIL PRODUCING TEXAS & NEW MEXICO INC.
By: /s/ G.D. PARKERSON By: /s/ H.L. HICKEY
------------------------------- ----------------------------------------
Assistant Secretary Attorney-in-fact
By: /s/ L.W. COPPEDGE
----------------------------------------
Attorney-in-fact
PURCHASER:
TITAN RESOURCES, L.P. by and through the
General Partner TITAN RESOURCES I, INC.
By: /s/ JACK HIGHTOWER
----------------------------------------
Title: PRESIDENT
-------------------------------------
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EXHIBIT 10.22
================================================================================
UNIT PURCHASE AND EXCHANGE AGREEMENT
by and between
SELMA INTERNATIONAL INVESTMENT LIMITED
and
TITAN RESOURCES, L.P.
September 27, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Units . . . . . . . . . . . . . . . . . . . 3
3. Concurrent Actions . . . . . . . . . . . . . . . . . . . . . . . 3
4. Representations and Warranties of Titan . . . . . . . . . . . . . 4
4.1. Organization and Qualification . . . . . . . . . . . . . . 4
4.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . 4
4.3. Limited Partnership Agreement . . . . . . . . . . . . . . 5
4.4. Authorization and Validity of Agreement and Related
Documents . . . . . . . . . . . . . . . . . . . . . . . . 5
4.5. Consents and Approvals; No Violations . . . . . . . . . . 5
4.6. Financial Statements . . . . . . . . . . . . . . . . . . . 6
4.7. Absence of Changes . . . . . . . . . . . . . . . . . . . . 6
4.8. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . 6
4.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . 6
4.10. Compliance with Laws . . . . . . . . . . . . . . . . . . . 6
4.11. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 7
4.12. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Representations and Warranties of Selma . . . . . . . . . . . . . 7
5.1. Authorization and Validity of Agreement . . . . . . . . . 7
5.2. Consents and Approvals; No Violations . . . . . . . . . . 7
5.3. No Brokers . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4. Purchase for Investment . . . . . . . . . . . . . . . . . 8
5.5. Title to Properties . . . . . . . . . . . . . . . . . . . 9
5.6. Status of Contracts . . . . . . . . . . . . . . . . . . . 9
5.7. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 9
6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2. Survival of Representations and Warranties; Materiality
Standard . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4. Amendments . . . . . . . . . . . . . . . . . . . . . . . . 11
6.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . 11
6.6. Consent to Jurisdiction . . . . . . . . . . . . . . . . . 11
6.7. Entire Agreement; Waivers . . . . . . . . . . . . . . . . 11
6.8. Further Assurances . . . . . . . . . . . . . . . . . . . . 11
6.9. Binding Effect and Assignment . . . . . . . . . . . . . . 12
6.10. Severability . . . . . . . . . . . . . . . . . . . . . . . 12
6.11. U.S. Dollars . . . . . . . . . . . . . . . . . . . . . . . 12
6.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<TABLE>
<S> <C> <C>
6.13. Singular and Plural . . . . . . . . . . . . . . . . . . . 12
6.14. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
EXHIBITS
Exhibit A Oil and Gas Properties
Exhibit B Limited Partner Signature Page
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<PAGE> 4
UNIT PURCHASE AND EXCHANGE AGREEMENT
This UNIT PURCHASE AND EXCHANGE AGREEMENT (this "Agreement"), dated as
of September 27, 1996, is made and entered into by and between Selma
International Investment Limited, a Delaware corporation ("Selma"), and Titan
Resources, L.P., a Texas limited partnership ("Titan").
W I T N E S S E T H:
WHEREAS, Selma desires to purchase limited partnership units of the
Partnership (the "Units") for consideration consisting of properties and cash
on the terms and subject to the conditions set forth herein;
NOW THEREFORE, for and in consideration of the mutual covenants
contained herein and for such other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms have the meanings set forth below:
"Agreement": as defined in the introduction hereto.
"Applicable Law": any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any governmental entity to
which a specified person or property is subject.
"Contract": any written contract, agreement or other instrument of
Selma that relate to the Oil and Gas Properties or by which the Oil and Gas
Properties are bound.
"Defensible Title": such title of an Oil and Gas Property as is free and
clear of all Encumbrances created by, through or under Selma, but not
otherwise.
"Encumbrances": liens, security interests, pledges, options, rights of
first refusal, easements, mortgages, deeds of trust, licenses, or any other
encumbrances, claims or charges of any kind.
"General Partner": Titan Resources I, Inc., a Texas corporation and the
sole general partner of Titan.
"Letter Agreement": that certain letter agreement dated as of October
10, 1995 between Titan and Selma relating to certain of the Oil and Gas
Properties.
"Limited Partners": those Persons who are set forth on Schedule 1 of
the Limited Partnership Agreement as limited partners of Titan.
<PAGE> 5
"Limited Partnership Agreement": the Agreement of Limited Partnership
of the Partnership dated as of March 31, 1995, as amended by that certain
Amendment No. 1 dated as of December 11, 1995.
"Material Adverse Effect": any event or occurrence which could
reasonably be expected to result in a material liability to Titan or Selma, as
applicable, would result in a material liability relating to the Oil and Gas
Properties or would otherwise substantially interfere with the ability of Titan
or Selma, as applicable, to conduct its business or to perform its obligations
pursuant to this Agreement.
"Oil and Gas Properties": all rights, titles, interests and estates of
Selma in and to the oil, gas and mineral leases, interests, contracts and
rights of whatever nature and any rights that arise by operation of law or
otherwise set forth on Exhibit A to this Agreement, including, without
limitation, any rights or interests of Selma arising under the Letter
Agreement.
"Option Plan": the Option Plan of the Partnership effective as of March
31, 1995.
"Options": any options issued or to be issued under the Option Plan.
"Permits": any license, permit, franchise, consent, approval,
certification or authority granted by any Person.
"Person": any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or other department or agency
thereof or any other legally recognized entity.
"Purchase Price": as defined in Section 2 hereof.
"Registration Rights Agreement": the Registration Rights Agreement,
dated as of March 31, 1995, among Titan, Jack D. Hightower, Natural Gas
Partners, L.P., a Delaware limited partnership, Natural Gas Partners II, L.P.,
a Delaware limited partnership, Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership, and First Union Corporation, as
amended by that certain Amendment No. 1 dated December 11, 1995.
"Related Documents": the documents and instruments delivered
concurrently with this Agreement to the extent the referenced party is a party
thereto, including, without limitation, the documents and instruments set forth
in Section 3 hereof.
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"Securities Act": the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Selma": as defined in the introduction hereto.
"Titan": as defined in the introduction hereto.
"Units": as defined in the preamble hereto.
Other terms may be defined elsewhere in the text of this Agreement. The words
"hereof," "herein" and "hereunder," and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not any particular
provision of this Agreement. The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa. The terms defined
in the neuter or masculine gender shall include the feminine, neuter and
masculine genders, unless the context clearly indicates otherwise. Reference
to the "best knowledge" of a Person or words of similar import shall mean the
actual or constructive best knowledge of such Person after reasonable due
diligence by such Person as to the facts and circumstances addressed.
2. Purchase and Sale of Units. On the date hereof, Selma shall
purchase and Titan shall sell 1,086,250 Units in exchange for (i) all of
Selma's interests in the Oil and Gas Properties and (ii) $3,700,000 in cash
(collectively, the "Purchase Price").
3. Concurrent Actions. Concurrently with the execution of this
Agreement, the following actions have taken place:
3.1. Selma has delivered $3,700,000 by wire transfer to Titan
for the purchase of Units;
3.2. Selma has executed and delivered to Titan assignments and
other instruments of conveyance in order to assign, transfer and convey all of
Selma's right, title and interest in the Oil and Gas Properties to Titan in
exchange for Units;
3.3. Titan and Selma have executed a letter agreement
terminating the Letter Agreement;
3.4. Selma has executed a Limited Partner Signature Page
substantially in the form of Exhibit B attached to this Agreement in order to
become a Limited Partner of the Partnership and agree to all of the terms and
provisions of the Limited Partnership Agreement;
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<PAGE> 7
3.5. The General Partner has executed an amendment of the
Limited Partnership Agreement in order to amend Schedule 1 thereof to evidence
Selma's purchase of the Units issued in accordance herewith and Selma's
admission into Titan as a limited partner;
3.6. Titan has delivered to Selma evidence of the consent of
the requisite percentage of Limited Partners of Titan in accordance with the
terms of the Limited Partnership Agreement to the waiver of the preemptive
rights of the Limited Partners under Section 3.2 of the Limited Partnership
Agreement and other agreements applicable to Titan; and
3.7. Selma and Titan have executed Amendment No. 2 to the
Registration Rights Agreement in order that Selma shall become a party to such
agreement.
4. Representations and Warranties of Titan. Titan hereby represents
and warrants to Selma as follows:
4.1. Organization and Qualification.
4.1.1. Titan is a limited partnership duly organized and
validly existing under the laws of the State of Texas and has all
requisite power and authority to execute, deliver and perform its
obligations under this Agreement and the Related Documents and to
consummate the transactions contemplated thereby. Titan is duly
qualified to do business as a foreign limited partnership in each
jurisdiction where the nature of the properties owned or the business
transacted by Titan requires it to be so qualified, the failure of which
would have a Material Adverse Effect.
4.1.2. The General Partner is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas and has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and Related
Documents and to consummate the transactions contemplated thereby.
4.2. Capitalization.
4.2.1. Schedule 1 to the Limited Partnership Agreement
lists all of the issued and outstanding Units other than the Units to be
issued hereunder, of the Partnership, all of which are fully paid and
nonassessable and held beneficially and of record by the Limited
Partners set forth therein. Other than Units reserved for issuance upon
exercise of the Options, there are no Units reserved for issuance.
4.2.2. Upon issuance in consideration of the Purchase
Price, the Units will be validly issued, fully paid and non-assessable.
Other than the Options or as set forth in the Limited Partnership
Agreement, there are no outstanding subscriptions, convertible
securities, indebtedness convertible into equity securities, warrants or
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<PAGE> 8
options of any kind to purchase or otherwise acquire any security of or
equity interest in Titan. All partnership interests in Titan have been
issued in compliance with exemptions from the registration requirements
of federal and state securities laws, as applicable. Except as set
forth in the Limited Partnership Agreement, Titan does not have any
obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay
any dividend or make any other distribution in respect thereof.
4.3. Limited Partnership Agreement. Titan has made available
to Selma true and correct copies of the Limited Partnership Agreement. Other
than as contemplated in connection with this Agreement, the Limited Partnership
Agreement, including Schedule 1 thereto, has not been amended since December
11, 1995.
4.4. Authorization and Validity of Agreement and Related
Documents. Titan, acting through the General Partner, has full power and
authority to execute and deliver this Agreement and the Related Documents, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the Related Documents by Titan and the consummation of the
transactions contemplated hereby, have been duly authorized and approved by the
Board of Directors of the General Partner and no other action on the part of
Titan, the General Partner or the Limited Partners not contemplated by this
Agreement is necessary to authorize the execution, delivery and performance of
this Agreement or the Related Documents by Titan and the consummation of the
transactions contemplated hereby. This Agreement and the Related Documents
have been duly executed and delivered by Titan and are valid and binding
obligations of Titan enforceable against Titan in accordance with their
respective terms, except to the extent that such enforceability may be subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles.
4.5. Consents and Approvals; No Violations. The execution,
delivery and performance of this Agreement and the Related Documents by Titan
and the consummation by Titan of the transactions contemplated hereby will not,
with or without the giving of notice or the lapse of time or both: (i)
violate, conflict with, or result in a breach or default under any provision of
the Limited Partnership Agreement or the charter or bylaws of the General
Partner; (ii) violate any statute, ordinance, rule, regulation, order, judgment
or decree of any court or of any governmental or regulatory body, agency or
authority applicable to Titan or by which any of its properties or assets may
be bound; (iii) require any filing by or with, or require Titan to obtain any
Permit from, or require Titan to give any notice to, any governmental or
regulatory body, agency or authority; or (iv) result in a violation or breach
by Titan of, conflict with, constitute (with or without due notice or lapse of
time or both) a default by Titan (or give rise to any right of termination,
cancellation, payment or acceleration) under or result in the creation of any
Encumbrance upon any of the properties or assets of Titan under any of the
terms, conditions, or provisions of any Permit, material agreement or other
instrument or obligation to which Titan is a party, or by which it or any of
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<PAGE> 9
its properties or assets may be bound, except where any such default would not
have a Material Adverse Effect.
4.6. Financial Statements. The General Partner has delivered
to Selma the accurate and complete copies of (i) Titan's audited balance sheet
as of December 31, 1995, and the related audited statements of operations,
partners' capital and cash flows for the period from March 31, 1995 (date of
inception) through December 31, 1995), and the notes and schedules thereto,
together with the unqualified report thereon of Titan's independent public
accountants (the "Audited Financial Statements"), and (ii) Titan's unaudited
balance sheet as of June 30, 1996 (the "Latest Balance Sheet"), and the related
unaudited statements of operations, partners' capital and cash flows for the
six-month period then ended (the "Unaudited Financial Statements"). The
Audited Financial Statements and the Unaudited Financial Statements
(collectively, the "Financial Statements") (i) have been prepared from the
books and records of Titan in conformity with generally accepted accounting
principles applied on a basis consistent with preceding periods throughout the
periods involved, except that the Unaudited Financial Statements are not
accompanied by notes or other textual disclosure required by generally accepted
accounting principles, and (ii) present fairly Titan's financial position as of
the respective dates thereof and its results of operations and cash flows for
the period then ended, except that the Unaudited Financial Statements are
subject to normal year-end adjustments that in Titan's reasonable judgment
should not be material in the aggregate.
4.7. Absence of Changes. Since the date of the Latest Balance
Sheet, (a) there has not been any change in the business, financial condition,
operations or results of operations of Titan that would be expected to have a
Material Adverse Effect, and (b) Titan has not incurred any obligation or
liability, or entered into any agreement to incur any such obligation or
liability other than (i) in the ordinary course of its business, (ii) as
contemplated by or described in the Latest Balance Sheet, (iii) in connection
with the acquisition of approximately $170 million of additional producing
properties in the Permian Basin from Mobil Producing Texas & New Mexico Inc.
("MPTNM"), (iv) in connection with financing transactions, including incurrence
additional senior secured indebtedness, with respect to such acquisition from
MPTNM, or (v) with respect to a proposed initial public offering of equity
securities of an affiliate of Titan.
4.8. No Brokers. Titan has no direct or indirect agreement
with any person, firm or corporation for the payment of any commission,
brokerage or "finder's fee" in connection with the transactions contemplated
herein.
4.9. Litigation. There is no litigation at law or in equity,
and no proceeding or investigation before or by any governmental agency pending
or, to the knowledge of the Titan, threatened against Titan the existence of
which would have a Material Adverse Effect.
4.10. Compliance with Laws. Titan has complied with all
Applicable Laws, other than violations which in the reasonable judgment of
Titan, individually or in the aggregate, do not and will not have a Material
Adverse Effect. Titan has obtained and holds
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<PAGE> 10
all material permits, licenses, variances, exemptions, orders, franchises,
approvals and authorizations of all governmental entities necessary for the
lawful conduct of its business or the lawful ownership, use and operation of
its assets.
4.11. Insurance. Titan maintains insurance of such types and in
such amounts as is usual and customary in the industry and in such amounts as
would a reasonably prudent operator under similar circumstances.
4.12. Disclosure. No representation or warranty by Titan in
this Agreement (including the Exhibits attached hereto) or in any document
delivered by or on behalf of Titan to Selma in connection herewith, contains
any untrue statement of a material fact, or omits to state a material fact
which would be necessary to make the statements contained herein or therein not
misleading.
5. Representations and Warranties of Selma. Selma represents and
warrants to Titan as follows:
5.1. Authorization and Validity of Agreement. Selma is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement and the
Related Documents and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the Related Documents
by Selma and the consummation of the transactions contemplated hereby, have
been duly authorized and approved by the Board of Directors of Selma, and no
other action on the part of Selma is necessary to authorize the execution,
delivery and performance of this Agreement and the Related Documents by Selma
and the consummation of the transactions contemplated hereby. This Agreement
and the Related Documents have been duly executed and delivered by an
authorized officer of Selma and are valid and binding obligations of Selma
enforceable against Selma in accordance with their respective terms, except to
the extent that such enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
5.2. Consents and Approvals; No Violations. The execution,
delivery and performance of this Agreement and the Related Documents by Selma
and the consummation by Selma of the transactions contemplated hereby will not,
with or without the giving of notice or the lapse of time or both: (i)
violate, conflict with, or result in a breach or default under any provision of
the charter or bylaws of Selma; (ii) violate any statute, ordinance, rule,
regulation, order, judgment or decree of any court or of any governmental or
regulatory body, agency or authority applicable to Selma or by which any of its
properties or assets may be bound; (iii) require any filing by, or require
Selma to obtain any Permit of, or require Selma to give any notice to, any
governmental or regulatory body, agency or authority; or (iv) result in a
violation or breach by Selma of, conflict with, constitute (with or without due
notice or lapse of time or both) a default by Selma (or give rise to any right
of termination, cancellation, payment or acceleration) under or result in the
creation of any
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<PAGE> 11
Encumbrance upon any of the Oil and Gas Properties, or any other properties or
assets of Selma under any of the terms, conditions, or provisions of any
Permit, material agreement or other instrument or obligation to which Selma is
a party, or by which it or the Oil and Gas Properties or any of its other
properties or assets may be bound, except where any such default would not have
a Material Adverse Effect.
5.3. No Brokers. Selma has no direct or indirect agreement
with any person, firm or corporation for the payment of any commission,
brokerage or "finder's fee" in connection with the transactions contemplated
herein.
5.4. Purchase for Investment.
5.4.1. Selma has been furnished with all information that
it has requested for the purpose of evaluating the proposed acquisition of the
Units pursuant hereto, and Selma has had an opportunity to ask questions of and
receive answers from Titan regarding Titan and its business, assets, results of
operations, financial condition and prospects and the terms and conditions of
the issuance of the Units, but only to the extent Titan possesses such
information and documents or could acquire such without unreasonable effort or
expense.
5.4.2. Selma is acquiring the Units solely by and for its
own account, for investment purposes only and not for the purpose of resale or
distribution; and Selma does not have any contract, undertaking, agreement or
arrangement with any person or entity to sell, transfer or pledge to such
person or anyone else any Units; and Selma does not have any present plans or
intentions to enter into any such contract, undertaking or arrangement.
5.4.3. Selma acknowledges and understands that (i) no
registration statement relating to the Units has been or is to be filed with
the Securities and Exchange Commission under the Securities Act, or pursuant to
the securities laws of any state; (ii) the Units cannot be sold or transferred
without compliance with the applicable provisions of the Limited Partnership
Agreement and registration provisions of the Securities Act or compliance with
exemptions, if any, available thereunder; (iii) the Limited Partnership
Agreement includes a legend thereon that refers to the foregoing; and (iv)
Titan has no obligation to register the Units under any federal or state
securities act or law.
5.4.4. Selma (i) is an "accredited investor" as defined
in Rule 501 of the rules promulgated pursuant to the Securities Act; (ii) has
such knowledge and experience in financial and business matters in general that
it has the capacity to evaluate the merits and risks of an investment in the
Units and to protect its own interests in connection with an investment in the
Units; (iii) has such a financial condition that it has no need for liquidity
with respect to its investment in the Units to satisfy any existing or
contemplated undertaking, obligation or indebtedness; and (iv) is able to bear
the economic risk of its investment in the Units for an indefinite period of
time.
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<PAGE> 12
5.4.5. Selma has relied upon its own independent
investigations of the business of Titan or upon its own attorneys, accountants,
engineers and other independent advisors (collectively, "Purchaser Advisors")
in evaluating its investment in the Units. Titan has accorded Selma and the
Purchaser Advisors the opportunity to review files of Titan relating to its
currently owned properties and to ask questions and receive answers from Titan
and the engineering, legal, accounting and other advisors of Titan to all their
questions concerning Titan and its operations and an investment in Titan and
such other matters raised by Selma and the Purchaser Advisors.
5.4.6. Selma further represents and warrants that it has
reviewed the Limited Partnership Agreement.
5.5. Title to Properties. Selma has Defensible Title to all of
the Oil and Gas Properties, and upon consummation of the transactions
contemplated in this Agreement and in the Related Documents, Titan shall
acquire Defensible Title to all of the Oil and Gas Properties.
5.6. Status of Contracts. Neither Selma nor, to the knowledge
of Selma (without investigation by Selma), any other party to the Contracts (a)
is in breach of or default, or with the lapse of time or the giving of notice,
or both, would be in breach or default, with respect to any of its obligations
thereunder to the extent that such breaches or defaults could have a Material
Adverse Effect or (b) has given or threatened to give notice of any default
under or inquiry into any possible default under, or action to alter,
terminate, rescind or procure a judicial reformation of any Contract.
5.7. Disclosure. No representation or warranty by Selma in
this Agreement (including the Exhibits attached hereto) or in any document
delivered by or on behalf of Selma to Titan in connection herewith, contains
any untrue statement of a material fact, or omits to state a material fact
which would be necessary to make the statements contained herein or therein not
misleading.
6. Miscellaneous.
6.1. Expenses. All fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby, including fees
and expenses of counsel, shall be paid by the party incurring such fee or
expense.
6.2. Survival of Representations and Warranties; Materiality
Standard. All representations, warranties and covenants contained in this
Agreement shall survive the execution hereof for a period of three months and
shall not be deemed limited by any investigation made by or on behalf of any
party with respect thereto. The parties hereto agree that all of the
representations and warranties of the parties herein are made subject to a
materiality standard and no breach thereof shall be deemed to have occurred
notwithstanding the fact that, unknown to the party making the representation
or warranty, such representation or warranty is proved to have been untrue or
incorrect as of the date made (a
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<PAGE> 13
"Defect") if such Defect, individually and in the aggregate with all prior
Defects would not have a Material Adverse Effect.
6.3. Notices. Any notice, request, instruction, correspondence
or other document to be given hereunder by either party to the other (herein
collectively called "Notice") shall be in writing and delivered in person or by
courier service requiring acknowledgment of receipt of delivery or mailed by
certified mail, postage prepaid and return receipt requested, or by telecopier,
as follows:
If to Titan, addressed to:
Titan Resources I, Inc.
500 West Texas, Suite 500
Midland, Texas 79701
Attention: Mr. Jack D. Hightower
Telecopy: (915) 687-0192
with a copy to:
Mr. Jeffrey A. Zlotky
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201-4693
Telecopy: (214) 969-1751
If to Selma, addressed to:
Selma International Investment Limited
550 West Texas, Suite 500
Midland, Texas 79701
Attention: Mr. Philip M. Whitehead
Telecopy: (915) 684-3849
with a copy to:
Mr. J. Cavanaugh O'Leary
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Telecopy: (713) 758-2346
Notice given by personal delivery, courier service or mail shall be
effective upon actual receipt by the addressee at the address specified
herein for giving of notice. Notice given by telecopier shall be
confirmed by appropriate answer back and shall be
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<PAGE> 14
effective upon actual receipt if received during the recipient's normal
business hours, or at the beginning of the recipient's next business day
after receipt if not received during the recipient's normal business
hours. All Notices by telecopier shall be confirmed promptly after
transmission in writing by courier service, certified mail or personal
delivery. Any party may change any address to which Notice is to be
given to it by giving Notice as provided above of such change of
address.
6.4. Amendments. This Agreement may be amended only by an
instrument in writing signed by the parties hereto.
6.5. Governing Law. The provisions of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Texas (excluding any conflicts-of-law rule or principle that might refer
same to the laws of another jurisdiction).
6.6. Consent to Jurisdiction. The parties hereto hereby
irrevocably submit to the jurisdiction of the courts of the State of Texas, and
appropriate appellate courts therefrom, over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby and
each party hereby irrevocably agrees that all claims in respect of such dispute
or proceeding may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection that they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved.
6.7. Entire Agreement; Waivers. This Agreement constitutes the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth specifically
herein or contemplated hereby. No waiver of this Agreement shall be binding
unless executed in writing by the party to be bound thereby. The failure of a
party to exercise any right or remedy shall not be deemed or constitute a
waiver of such right or remedy in the future. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided.
6.8. Further Assurances. From time to time following the date
hereof, at the request of either party and without further consideration, the
other party shall execute and deliver to the requesting party such instruments
and documents and take such other action
-11-
<PAGE> 15
(but without incurring any material financial obligation) as the requesting
party may reasonably request in order to consummate more fully and effectively
the transactions contemplated hereby.
6.9. Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by either of
the parties hereto without the prior written consent of the other party.
Nothing in this Agreement, express or implied, is intended to or shall confer
upon any person other than the parties hereto, and their respective successors
and permitted assigns, any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
6.10. Severability. If any provision of the Agreement is
rendered or declared illegal or unenforceable by reason of any existing or
subsequently enacted legislation or by decree of a court of last resort, Selma
and Titan shall promptly meet and use good faith efforts to negotiate
substitute provisions for those rendered or declared illegal or unenforceable,
but all of the remaining provisions of this Agreement shall remain in full
force and effect.
6.11. U.S. Dollars. All dollar amounts in this Agreement and
the Schedules and Exhibits hereto are expressed in United States dollars.
6.12. Headings. The headings of the sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
6.13. Singular and Plural. Words used herein in the singular,
except where the context would otherwise require, shall be deemed to include
the plural and vice versa. The definitions of words in the singular herein
shall apply to such words when used in the plural where the context so permits
and vice versa.
6.14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
-12-
<PAGE> 16
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
TITAN RESOURCES, L.P.
By: Titan Resources I, Inc.
its General Partner
By: /s/ JACK D. HIGHTOWER
-----------------------------------
Jack D. Hightower, President
SELMA INTERNATIONAL INVESTMENT
LIMITED
By: /s/ PHILIP M. WHITEHEAD
-----------------------------------
Philip M. Whitehead, President
-13-
<PAGE> 17
EXHIBIT A
PROPERTIES
<PAGE> 18
EXHIBIT B
LIMITED PARTNER SIGNATURE PAGE (ENTITY)
The undersigned, desiring to become a Limited Partner of Titan
Resources, L.P. (the "Partnership"), hereby agrees to all of the terms and
provisions of the Agreement of Limited Partnership of the Partnership, and
agrees to be bound by the terms and provisions of this Limited Partner
Signature Page which, together with other Limited Partner Signature Pages, is
hereby incorporated into the said Agreement of Limited Partnership. The
undersigned hereby joins and executes the said Agreement of Limited
Partnership, hereby authorizing this Limited Partner Signature Page to be
attached thereto. The place of residence or principal business address of the
undersigned is as shown below.
IN WITNESS WHEREOF, the undersigned has executed this Limited Partner
Signature Page to the Agreement of Limited Partnership as of the date set forth
hereinafter.
Date: September 27, 1996 ENTITY LIMITED PARTNER:
----------------------
1.
------------------------------------
(Name of Entity Printed)
2.
------------------------------------
(Name of General Partner or Trustee
of Entity, if applicable)
3.
------------------------------------
(Signature of Officer or Trustee)
4.
------------------------------------
(Name of Officer Printed)
5.
------------------------------------
(Title of Officer)
<PAGE> 1
EXHIBIT 10.23
INDEMNITY AGREEMENT
This Agreement made and entered into as of this 30th day of September,
1996, by and between TITAN EXPLORATION, INC., a Delaware corporation (the
"Company"), and [See Schedule I attached hereto] ("Indemnitee"), who is
currently serving the Company in the capacity of a director and/or officer
thereof;
W I T N E S S E T H:
WHEREAS, the Company and Indemnitee recognize that the interpretation of
ambiguous statutes, regulations and court opinions and of the Certificate of
Incorporation and Bylaws of the Company, and the vagaries of public policy, are
too uncertain to provide the directors and officers of the Company with
adequate or reliable advance knowledge or guidance with respect to the legal
risks and potential liabilities to which they become personally exposed as a
result of performing their duties in good faith for the Company; and
WHEREAS, the Company and the Indemnitee are aware that highly
experienced and capable persons are often reluctant to serve as directors or
officers of a corporation unless they are protected to the fullest extent
permitted by law by comprehensive insurance or indemnification, especially
since the legal risks and potential liabilities, and the very threat thereof,
associated with lawsuits filed against the officers and directors of a
corporation, and the resultant substantial time, expense, harassment, ridicule,
abuse and anxiety spent and endured in defending against such lawsuits, whether
or not meritorious, bear no reasonable or logical relationship to the amount of
compensation received by the directors or officers from the corporation; and
WHEREAS, Section 145 of the General Corporation Law of the State of
Delaware, which sets forth certain provisions relating to the mandatory and
permissive indemnification of, and advancement of expenses to, officers and
directors (among others) of a Delaware corporation by such corporation, is
specifically not exclusive of other rights to which those indemnified
thereunder may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, and, thus, does not by itself limit the
extent to which the Company may indemnify persons serving as its officers and
directors (among others); and
WHEREAS, after due consideration and investigation of the terms and
provisions of this Agreement and the various other options available to the
Company and the Indemnitee in lieu thereof, the board of directors of the
Company has determined that the following Agreement is not only reasonable and
prudent but necessary to promote and ensure the best interests of the Company
and its stockholders; and
WHEREAS, the Company desires to have Indemnitee serve or continue to
serve as an officer and/or director of the Company, free from undue concern for
unpredictable, inappropriate or unreasonable legal risks and personal
liabilities by reason of his acting in good faith in the performance of his
duty to the Company; and Indemnitee desires to serve, or to
<PAGE> 2
continue to serve (provided that he is furnished the indemnity provided for
hereinafter), in either or both of such capacities;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Indemnitee, intending to be legally bound, do hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve or continue to
serve as director and/or officer of the Company, at the will of the Company or
under separate contract, if such exists, for so long as he is duly elected or
appointed and qualified in accordance with the provisions of the Bylaws of the
Company or until such time as he tenders his resignation in writing.
2. DEFINITIONS. As used in this Agreement:
(a) The term "Proceeding" shall mean any action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or proceeding, and any
inquiry or investigation that could lead to such an action, suit or
proceeding, except one initiated by Indemnitee to enforce his rights
under this Agreement.
(b) The term "Expenses" includes, without limitation, all
reasonable attorneys' fees, retainers, court costs, transcript costs,
fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements or expenses of the types customarily
incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(c) References to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any (i) excise taxes
assessed with respect to any employee benefit plan and (ii) penalties;
references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which
imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acts in good faith and
in a manner he reasonably believes to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to in this Agreement.
3. INDEMNITY IN THIRD PARTY PROCEEDINGS. The Company shall
indemnify Indemnitee in accordance with the provisions of this Section 3 if
Indemnitee is a party to or is threatened to be made a party to or otherwise
involved in any threatened, pending or completed Proceeding (other than a
Proceeding by or in the right of the Company to procure a judgment in its
favor) by reason of the fact that Indemnitee is or was a director and/or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all
2
<PAGE> 3
Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with such Proceeding, provided
it is determined pursuant to Section 7 of this Agreement or by the court having
jurisdiction in the matter, that Indemnitee acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any Proceeding
by judgment, order, settlement or conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that Indemnitee
did not act in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal Proceeding, had reasonable cause to believe that his conduct was
unlawful.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The
Company shall indemnify Indemnitee in accordance with the provisions of this
Section 4 if Indemnitee is a party to or is threatened to be made a party to or
otherwise involved in any threatened, pending or completed Proceeding by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that Indemnitee is or was a director and/or officer of the Company, or is
or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against all Expenses actually and reasonably incurred by Indemnitee
in connection with the defense, settlement or other disposition of such
Proceeding, but only if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification shall be made under this Section 4 in
respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such Proceeding was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Expenses as the Delaware Court of
Chancery or such other court shall deem proper.
5. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding any other provision of this Agreement to the contrary, to the
extent that Indemnitee has been successful on the merits or otherwise in
defense of any Proceeding referred to in Sections 3 and/or 4 of this Agreement,
or in defense of any claim, issue or matter therein, including dismissal
without prejudice, Indemnitee shall be indemnified against all Expenses
actually and reasonably incurred by Indemnitee in connection therewith.
6. ADVANCES OF EXPENSES. The Expenses incurred by Indemnitee
pursuant to Sections 3 and/or 4 of this Agreement in connection with any
Proceeding shall, at the written request of the Indemnitee, be paid by the
Company in advance of the final disposition of such Proceeding upon receipt by
the Company of an undertaking by or on behalf of Indemnitee ("Indemnitee's
Undertaking") to repay such amount to the extent that it is ultimately
determined that Indemnitee is not entitled to be indemnified by the Company.
The request for advancement of Expenses by Indemnitee and the undertaking to
repay of Indemnitee, which need not be secured, shall be substantially in the
form of Exhibit A to this Agreement.
3
<PAGE> 4
7. RIGHT OF INDEMNITEE TO INDEMNIFICATION OR ADVANCEMENT OF EXPENSES
UPON APPLICATION; PROCEDURE UPON APPLICATION.
(a) Any indemnification under Sections 3 and/or 4 of this
Agreement shall be made no later than 45 days after receipt by the
Company of the written request of Indemnitee, unless a determination is
made within said 45-day period by (i) a majority vote of the directors
of the Company who are not parties to the involved Proceeding, even
though less than a quorum, or (ii) independent legal counsel in a
written opinion (which counsel shall be appointed if there are no such
directors or if such directors so direct), that the Indemnitee has not
met the applicable standards for indemnification set forth in Section 3
or 4, as the case may be.
(b) Any advancement of Expenses under Section 6 of this
Agreement shall be made no later than 10 days after receipt by the
Company of Indemnitee's Undertaking.
(c) In any action to establish or enforce the right of
indemnification or to receive advancement of Expenses as provided in
this Agreement, the burden of proving that indemnification or
advancement of Expenses is not appropriate shall be on the Company.
Neither the failure of the Company (including its board of directors or
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification or advancement of
Expenses is proper in the circumstances because Indemnitee has met the
applicable standard of conduct, nor an actual determination by the
Company (including its board of directors or independent legal counsel)
that Indemnitee has not met such applicable standard of conduct, shall
be a defense to the action or create a presumption that Indemnitee has
not met the applicable standard of conduct. Expenses incurred by
Indemnitee in connection with successfully establishing or enforcing his
right of indemnification or to receive advancement of Expenses, in whole
or in part, under this Agreement shall also be indemnified by the
Company.
8. INDEMNIFICATION AND ADVANCEMENT OF EXPENSES UNDER THIS AGREEMENT
NOT EXCLUSIVE. The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may be entitled under the Certificate of
Incorporation or Bylaws of the Company, any other agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office.
9. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification or to receive advancement by the
Company for some or a portion of the Expenses, judgments, fines or amounts paid
in settlement actually and reasonably incurred by Indemnitee in the
investigation, defense, appeal, settlement or other disposition of any
Proceeding but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee
is entitled.
4
<PAGE> 5
10. RIGHTS CONTINUED. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall continue as to
Indemnitee even though Indemnitee may have ceased to be a director or officer
of the Company and shall inure to the benefit of Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
11. NO CONSTRUCTION AS AN EMPLOYMENT AGREEMENT OR ANY OTHER
COMMITMENT. Nothing contained in this Agreement shall be construed as giving
Indemnitee any right to be retained in the employ of the Company or any of its
subsidiaries, if Indemnitee currently serves as an officer of the Company, or
to be renominated as a director of the Company, if Indemnitee currently serves
as a director of the Company.
12. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies in accordance
with its or their terms, to the maximum extent of the coverage available for
any director or officer of the Company under such policy or policies.
13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable
under this Agreement to make any payment of amounts otherwise indemnifiable
under this Agreement if, and to the extent that, Indemnitee has otherwise
actually received such payment under any contract, agreement or insurance
policy, the Certificate of Incorporation or Bylaws of the Company, or
otherwise.
14. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including without
limitation the execution of such documents as may be necessary to enable the
Company effectively to bring suit to enforce such rights.
15. EXCEPTIONS. Notwithstanding any other provision in this
Agreement, the Company shall not be obligated pursuant to the terms of this
Agreement, to indemnify or advance Expenses to the Indemnitee with respect to
any Proceeding, or any claim therein, (i) brought or made by Indemnitee
against the Company, or (ii) in which final judgment is rendered against the
Indemnitee for an accounting of profits made from the purchase and sale or the
sale and purchase by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended,
or similar provisions of any federal, state or local statute.
16. NOTICES. Any notice or other communication required or permitted
to be given or made to the Company or Indemnitee pursuant to this Agreement
shall be given or made in writing by depositing the same in the United States
mail, with postage thereon prepaid, addressed to the person to whom such notice
or communication is directed at the address of such person on the records of
the Company, and such notice or communication shall be deemed given or made at
the time when the same shall be so deposited in the United States mail. Any
such notice or communication to the Company shall be addressed to the Secretary
of the Company.
5
<PAGE> 6
17. CONTRACTUAL RIGHTS. The right to be indemnified or to receive
advancement of Expenses under this Agreement (i) is a contract right based upon
good and valuable consideration, pursuant to which Indemnitee may sue, (ii) is
and is intended to be retroactive and shall be available as to events occurring
prior to the date of this Agreement and (iii) shall continue after any
rescission or restrictive modification of this Agreement as to events occurring
prior thereto.
18. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provisions held invalid,
illegal or unenforceable.
19. SUCCESSORS; BINDING AGREEMENT. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company (whether direct or indirect, by purchase, merger, consolidation or
otherwise), by agreement in form and substance reasonably satisfactory to
Indemnitee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this Section 19 or which otherwise becomes bound by the terms and
provisions of this Agreement by operation of law.
20. COUNTERPARTS, MODIFICATION, HEADINGS, GENDER.
(a) This Agreement may be executed in any number of
counterparts, each of which shall constitute one and the same
instrument, and either party hereto may execute this Agreement by
signing any such counterpart.
(b) No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Indemnitee and an appropriate officer of the
Company. No waiver by any party at any time of any breach by any other
party of, or compliance with, any condition or provision of this
Agreement to be performed by any other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at
any prior or subsequent time.
(c) Section headings are not to be considered part of this
Agreement, are solely for convenience of reference, and shall not affect
the meaning or interpretation of this Agreement or any provision set
forth herein.
(d) Pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender, and words in the singular form
shall be construed to include the plural and vice versa, unless the
context otherwise requires.
21. ASSIGNABILITY. This Agreement shall not be assignable by either
party without the consent of the other.
6
<PAGE> 7
22. EXCLUSIVE JURISDICTION; GOVERNING LAW. The Company and
Indemnitee agree that all disputes in any way relating to or arising under this
Agreement, including, without limitation, any action for advancement of
Expenses or indemnification, shall be litigated, if at all, exclusively in the
Delaware Court of Chancery, and, if necessary, the corresponding appellate
courts. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws. The Company and Indemnitee expressly submit themselves to
the personal jurisdiction of the State of Delaware.
23. TERMINATION.
(a) This Agreement shall terminate upon the mutual agreement
of the parties that this Agreement shall terminate or upon the death of
Indemnitee or the resignation, retirement, removal or replacement of
Indemnitee from all of his positions as a director and/or officer of the
Company.
(b) The termination of this Agreement shall not terminate:
(i) the Company's liability for claims or actions
against Indemnitee arising out of or related to acts, omissions,
occurrences, facts or circumstances occurring or alleged to have
occurred prior to such termination; or
(ii) the applicability of the terms and conditions of
this Agreement to such claims or actions.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Agreement as of the date and year first above written.
TITAN EXPLORATION, INC.
By:
----------------------------
Name:
-----------------------------
Title:
----------------------------
INDEMNITEE
-----------------------------------
Name: [See Schedule I attached
hereto]
8
<PAGE> 9
SCHEDULE I
Jack D. Hightower
George G. Staley
Rodney L. Woodard
Thomas H. Moore
Dan P. Colwell
William K. White
John L. Benfatti
Susan D. Rowland
David R. Albin
Kenneth A. Hersh
<PAGE> 1
EXHIBIT 10.24
ADVISORY DIRECTOR AGREEMENT
This Advisory Director Agreement (the "Agreement") is entered into as of
the 30th day of September, 1996, by and between Titan Exploration, Inc., a
Delaware corporation (the "Corporation"), and Joint Energy Development
Investments Limited Partnership, a Delaware limited partnership ("JEDI").
R E C I T A L S
WHEREAS, as of the date hereof, the Corporation has been formed as a
Delaware corporation and Section 16 of the Corporation's Bylaws provide for the
appointment of persons to act as advisory directors to the Corporation;
WHEREAS, as of the date hereof, the Corporation, JEDI and other parties
have entered into an Exchange Agreement whereby the Corporation has acquired
JEDI's former interest in Titan Resource I, Inc., a Texas corporation (the
"General Partner") and the general partner of Titan Resource, L.P., a Texas
limited partnership;
WHEREAS, pursuant to certain agreements, JEDI had the right to nominate
an advisory director to the board of directors of the General Partners and JEDI
and the Corporation desire for that right to continue with respect to the board
of directors of the Corporation;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements and conditions contained herein, the parties hereto agree as
follows:
1. For so long as JEDI owns at least 5% of the issued and
outstanding shares of a class of voting equity securities of the Corporation,
the Corporation agrees to appoint one advisory director designated by an
authorized representative of JEDI, who shall also be entitled to act as an
advisory director to any Executive Committee that may hereafter be authorized
by the Corporation.
2. The Corporation agrees to give JEDI's designee notice of all
meetings of the Board of Directors or of the Executive Committee, if
applicable, to the same extent given to the members thereof.
3. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to the principles
of conflict of laws thereof.
<PAGE> 2
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first written above.
TITAN EXPLORATION, INC.
By: /s/ JACK HIGHTOWER
--------------------------------------
Name: Jack Hightower
------------------------------------
Title: President
-----------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general
partner
By: /s/ WYNNE SNOOTS, JR.
--------------------------------------
Name: Wynne Snoots, Jr.
Title: Agent and Attorney in Fact
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF TITAN EXPLORATION, INC.
Titan Resources I, Inc., a Texas corporation
Titan Resources, L.P., a Texas limited partership
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Titan Exploration, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Midland, Texas
October 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TITAN EXPLORATION, INC. FOR THE PERIOD ENDED DECEMBER
31, 1995 AND THE UNAUDITED PERIODS JUNE 30, 1995 AND 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> MAR-31-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 6,213 8,937
<SECURITIES> 5,000 0
<RECEIVABLES> 2,550 3,454
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,843 33
<PP&E> 43,214 47,580
<DEPRECIATION> (216) (1,894)
<TOTAL-ASSETS> 57,487 58,690
<CURRENT-LIABILITIES> 1,938 2,753
<BONDS> 20,000 0
0 0
0 0
<COMMON> 34,074 188
<OTHER-SE> 0 33,030
<TOTAL-LIABILITY-AND-EQUITY> 57,487 58,690
<SALES> 743 6,654
<TOTAL-REVENUES> 985 6,789
<CGS> 304 2,992
<TOTAL-COSTS> 1,093 4,833
<OTHER-EXPENSES> 1,618 1,423
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 97 711
<INCOME-PRETAX> (1,823) (45)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,823) (45)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,823) (45)
<EPS-PRIMARY> (.13) 0
<EPS-DILUTED> (.13) 0
</TABLE>
