AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL , 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DOMAIN ENERGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1311
(STATE OR OTHER (PRIMARY STANDARD
JURISDICTION INDUSTRIAL 76-0526147
OF INCORPORATION OR CLASSIFICATION CODE (I.R.S. EMPLOYER
ORGANIZATION) NUMBER) IDENTIFICATION NUMBER)
MICHAEL V. RONCA
1100 LOUISIANA, SUITE 1500 PRESIDENT AND CHIEF EXECUTIVE OFFICER
HOUSTON, TEXAS 77002 P. O. BOX 2511
(713) 757-5662 HOUSTON, TEXAS 77252
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE
TELEPHONE NUMBER, AND
INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
PRINCIPAL EXECUTIVE OFFICES) CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JAMES L. RICE III, ESQ. R. JOEL SWANSON, ESQ.
WEIL, GOTSHAL & MANGES LLP BAKER & BOTTS, L.L.P.
700 LOUISIANA, SUITE 1600 910 LOUISIANA
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 546-5000 (713) 229-1234
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(1) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par
value................... -- -- $103,500,000 $31,364
====================================================================================================
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of determining the 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* 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
PRELIMINARY PROSPECTUS DATED , 1997
6,000,000 SHARES
DOMAIN ENERGY CORPORATION
COMMON STOCK
------------------------
All of the shares of Common Stock, $.01 par value per share ("Common
Stock"), of Domain Energy Corporation (the "Company") offered hereby (the
"Offering") are being sold by the Company. Prior to the Offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price of the Common Stock will be
between $13.00 and $15.00 per share. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price.
Application will be made for approval for listing of the Common Stock on the New
York Stock Exchange under the symbol " ."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREIN FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
UNDERWRITING
DISCOUNTS PROCEEDS
PRICE TO AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share.............................. $ $ $
- --------------------------------------------------------------------------------
Total.................................. $ $ $
- --------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3)............. $ $ $
================================================================================
(1) See "Underwriting."
(2) Before deducting expenses estimated at $1,000,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 900,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to withdraw, cancel, modify or reject orders in whole or
in part. It is expected that delivery of the Common Stock will be made in New
York City on or about , 1997.
------------------------
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[GRAPHICS HERE]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANS- ACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
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. CERTAIN TERMS RELATING TO THE OIL AND GAS BUSINESS ARE
DEFINED IN THE "GLOSSARY" SECTION OF THIS PROSPECTUS. UNLESS THE CONTEXT
INDICATES OTHERWISE, REFERENCES IN THIS PROSPECTUS TO "DOMAIN" OR THE
"COMPANY" ARE TO DOMAIN ENERGY CORPORATION, A DELAWARE CORPORATION, AND ITS
SUBSIDIARIES. UNLESS THE CONTEXT INDICATES OTHERWISE, THE DISCUSSION IN THIS
PROSPECTUS REFLECTS A 754-FOR-ONE STOCK SPLIT TO BE EFFECTED IMMEDIATELY PRIOR
TO CONSUMMATION OF THE OFFERING AND ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WITH RESPECT TO THE OFFERING IS NOT EXERCISED. UNLESS
OTHERWISE INDICATED, THE PRO FORMA INFORMATION PRESENTED IN THIS PROSPECTUS
GIVES EFFECT TO THE ACQUISITION, THE FUNDS ACQUISITION AND THE MICHIGAN
DISPOSITION (AS SUCH TERMS ARE DEFINED BELOW), THE PURCHASE OF COMMON STOCK BY
THE COMPANY'S EMPLOYEES IN 1997 AND THE APPLICATION OF THE NET PROCEEDS OF THE
OFFERING AS DESCRIBED IN "USE OF PROCEEDS." THE ESTIMATES OF THE COMPANY'S
PROVED RESERVES AS OF DECEMBER 31, 1996 SET FORTH IN THIS PROSPECTUS ARE BASED
ON THE REPORTS OF DEGOLYER AND MACNAUGHTON AND, IN THE CASE OF THE COMPANY'S
WEST DELTA 30 FIELD AND FORMER MICHIGAN PROPERTIES, OTHER THIRD-PARTY PETROLEUM
ENGINEERS. UNLESS OTHERWISE INDICATED, THE OPERATING AND RESERVE DATA SET FORTH
HEREIN DOES NOT INCLUDE THE RESERVES OR RESERVE VALUE ATTRIBUTABLE TO THE
COMPANY'S INDEPENDENT PRODUCER FINANCE PROGRAM.
THE COMPANY
Domain is an independent oil and gas company engaged in the exploration,
development, production and acquisition of domestic oil and natural gas
properties, principally in the Gulf Coast region. The Company complements these
activities with its Independent Producer Finance Program (the "IPF Program")
pursuant to which it invests in oil and natural gas reserves through the
acquisition of term overriding royalty interests. The Company's future growth
will be driven by development, exploitation and exploration drilling on its
existing properties, by the continuation of an opportunistic acquisition
strategy in the Gulf Coast region and by further expansion of the IPF Program.
The Company was formed in December 1996 by the management of Tenneco
Ventures Corporation and an affiliate of First Reserve Corporation to acquire
(the "Acquisition") Tenneco Ventures Corporation and certain of its affiliates
(collectively, "Tenneco Ventures"). Senior management of the Company
established Tenneco Ventures in 1992 as a separate business unit of its former
parent, Tenneco Inc. ("Tenneco"), to engage in exploration and production, oil
and gas program management, producer finance and related activities. All of the
Company's executive officers are veterans of the Tenneco organization, and 11 of
the Company's 19 technical personnel have Tenneco Oil Company backgrounds.
Approximately 90% of the Company's employees, including all of its management,
have purchased shares of Common Stock in the Company.
During the last four years, the Company has grown primarily through the
opportunistic acquisition of Gulf of Mexico properties and the subsequent
development, exploitation and exploration of these properties, resulting in
substantial increases in its reserves and production. The Company believes that
its acquisition costs, lease operating costs and net general and administrative
costs on a per Mcfe basis are low relative to other companies operating
principally in the Gulf Coast region. From 1994 through 1996, the Company
completed 11 acquisitions aggregating $106.9 million, with an average cost of
proved reserves estimated at the time of acquisition of $0.48 per Mcfe. Eight of
the 11 acquisitions were Gulf Coast region properties. In 1996 the Company
achieved a lease operating expense of $0.44 per Mcfe of production and a net
general and administrative expense (excluding Tenneco overhead allocations) of
$0.12 per Mcfe of production.
The Company's pro forma estimated net proved reserves as of December 31,
1996 were 153.8 Bcfe, and its pro forma average daily production during 1996 was
85.6 MMcfe, each of which represents a twelvefold increase from levels in 1993.
Approximately 60% of these reserves were natural gas, and approximately 67% of
proved reserves were classified as proved developed producing. On a pro forma
basis
3
<PAGE>
as of December 31, 1996, the Company had a PV-10 Reserve Value of $213.0
million, which does not include reserve value attributable to the IPF Program.
Through the IPF Program, the Company complements its exploration and
production activities by providing capital to independent producers in return
for term overriding royalty interests in oil and gas properties owned by such
producers. From inception through December 31, 1996, the IPF Program has
generated an average return on net assets in excess of 20%. In addition, the
Company believes that the IPF Program offers a lower level of reserve,
production and price risk than that associated with working interest ownership.
From inception through December 31, 1996, the Company completed 40 transactions
under its IPF Program. At December 31, 1996, based on Company estimates and
assuming prices of $2.10 per Mcf of natural gas and $21.00 per Bbl of oil, the
net present value attributable to IPF Program assets was $25.0 million.
The Company generated earnings before interest, taxes and depreciation and
amortization ("EBITDA") plus IPF Program return of capital of $41.6 million in
1996, $27.6 million in 1995 and $8.7 million in 1994. IPF Program return of
capital was $4.6 million in 1996, $2.6 million in 1995 and $3.5 million in 1994.
The Company's 1996 pro forma EBITDA plus IPF Program return of capital was $59.2
million.
The Company's Board of Directors has authorized a capital budget of $125.0
million for 1997. These planned expenditures consist of $23.0 million for
development and exploitation expenditures on the Company's existing Gulf Coast
region properties, $6.0 million for exploratory drilling, $36.0 million for IPF
Program investments and $60.0 million for acquisitions in the Company's core
operating area, $30.0 million of which is pending. See " -- Pending
Transactions -- The Funds Acquisition."
BUSINESS STRATEGY
The Company's objective is to maximize shareholder value by growing
reserves, production, cash flow and earnings through the opportunistic
acquisition of Gulf Coast region properties with underexploited value. The
Company applies 3-D seismic and other advanced technologies to development,
exploitation and exploration. These activities are complemented by the continued
expansion of the IPF Program. Fundamental to the execution of the Company's
strategy is its foundation of experienced technical talent strengthened by a
high level of financial, transactional and risk-management expertise resulting,
in part, from the former association of the Company and its employees with
Tenneco.
GEOGRAPHIC FOCUS. The Company concentrates its primary oil and gas
activities in the Gulf Coast region, specifically in state and federal waters
off the coast of Texas and Louisiana. The Company believes this region remains
attractive for future development, exploration and acquisition activities. This
is due to the availability of seismic data, significant reserve potential and a
well developed infrastructure of gathering systems, pipelines and platforms with
ready access to drilling services and equipment in the region. In addition, the
Company's relationships with major oil companies and independent producers
operating in the region allow continued access to new opportunities. This
geographic focus has enabled the Company to build and utilize a base of
region-specific geological, geophysical, engineering and production expertise.
The Company's geographic focus allows it to manage a large asset base with
relatively few employees, thus permitting the Company to control expenses and
add Gulf of Mexico production at a relatively low incremental cost.
ACQUISITION OF PROPERTIES WITH UNDEREXPLOITED VALUE. The Company employs
an acquisition strategy targeted primarily at purchases of Gulf Coast region
producing properties from major oil companies and large independents. These
properties provide opportunities to increase reserves, production and cash flow
through development and exploitation drilling and lease operating expense
reduction. The Company manages its acquired properties by working proactively
with its joint interest partners to accelerate development, identify
exploitation opportunities and implement cost controls on these properties.
4
<PAGE>
DEVELOPMENT, EXPLOITATION AND EXPLORATION. The Company integrates its
reservoir and production engineering expertise with its geologic and seismic
interpretation abilities to enhance the results of its exploration and
production business. The Company applies workovers, recompletions, secondary
recovery operations and other production enhancement techniques on its existing
properties to increase recoverable reserves, production and cash flow.
Additionally, the Company uses advanced technology in both its development and
exploration activities to reduce drilling risks and finding costs and to
prioritize its drilling prospects based on return potential. The Company's
ability to obtain 3-D seismic data and its balanced integration of reservoir and
production engineering with such data allows it to identify multiple development
and exploratory prospects in mature producing fields that were not identified
through earlier technologies. The Company currently employs six geoscientists
with an average experience level of more than 16 years and operates two
geophysical workstations interpreting 3-D seismic data over twelve fields and
six exploratory programs. The Company intends to expand its geoscience team in
1997.
The Company has assembled a multiyear inventory of development,
exploitation and exploratory drilling opportunities in the Gulf Coast region and
has identified more than 70 drilling and recompletion opportunities for 1997.
Most of the properties comprising this inventory are located in fields that have
well-established production histories. The Company believes these properties may
yield significant additional recoverable reserves through the application of
advanced exploration and development technologies. The Company participated in
the drilling of nine development wells and 33 exploratory wells in 1996, of
which 78% and 61%, respectively, were successful.
CONTINUED EXPANSION OF THE IPF PROGRAM. The Company has leveraged its
expertise in oil and gas reserve appraisal and evaluation to develop and grow
the IPF Program. The Company believes this program offers an attractive
risk/reward balance and stable earnings. The oil and gas companies that
establish a relationship with the Company through the IPF Program often come to
view the Company as a prospective working interest partner for their drilling or
acquisition projects. Management believes that the investment opportunities,
market information and business relationships generated as a result of the IPF
Program provide the Company with a strategic advantage over other independent
oil and gas companies that are not engaged in this business. As a result of the
Company's efficiency in originating and closing IPF Program transactions in the
$0.5 to $5.0 million range, the Company currently encounters only limited
competition from alternate sources of capital for investment in quality
properties and projects of independent oil and gas companies.
The Company closed six IPF Program transactions in the first quarter of
1997 for an aggregate of $9.1 million. In addition, the Company is currently
evaluating over 30 transactions, all of which satisfy the Company's initial
screening criteria. The Company has budgeted $36.0 million for investment in IPF
Program transactions in 1997.
PENDING TRANSACTIONS
THE FUNDS ACQUISITION. The Company previously sponsored and managed two
oil and gas investment programs (collectively, the "Funds") for institutional
investors. The Company has reached an agreement with the investors in the Funds
to acquire certain property interests from such investors upon consummation of
the Offering (the "Funds Acquisition"). These property interests are primarily
located in the Gulf Coast region and have combined proved reserves of 33.0 Bcfe.
Furthermore, these interests include 17,821 net undeveloped leasehold acres with
3-D seismic-based exploration potential. The Company expects to acquire these
property interests at an aggregate cost of $30.0 million, effective January 1,
1997, for a unit cost of $0.65 per Mcfe of net proved reserves. The Funds
Acquisition will provide the Company with a larger interest in certain of its
existing properties, including the West Delta 30 Field in the Gulf of Mexico.
THE MICHIGAN DISPOSITION. The Company has substantially completed
negotiations and expects to close the sale of its interests in a natural gas
development project located in northwestern Michigan (the
5
<PAGE>
"Michigan Development Project") in the near future. The Company views this
transaction (the "Michigan Disposition") as a disposition of non-core assets
and a further enhancement of its focus on the Gulf Coast region. The aggregate
sales price including assumption of debt is expected to be $32.2 million net to
the Company's interest. Upon consummation of the transaction, the Company will
sell 28.8 Bcfe of proved reserves as of December 31, 1996 (of which 3.3 Bcfe
were proved developed producing as of December 31, 1996) and interests in a
pipeline company and a processing company.
DEVELOPMENT, EXPLOITATION AND EXPLORATION PROJECTS
RABBIT ISLAND FIELD. In 1993 the Company purchased a 25% interest in the
Rabbit Island Field located in Louisiana state waters. The field has produced in
excess of 1.2 Tcf of gas and 46 MMBbls of oil. A 105 square-mile 3-D survey was
interpreted in 1993, and six of seven wells drilled since that time have been
successful, discovering 34.3 Bcfe of gross proved reserves (7.2 Bcfe net to the
Company's interest). The Company, Texaco Exploration and Production Inc.
("Texaco") and Shell Offshore Inc. ("Shell") are conducting a joint field
study to delineate additional exploitation opportunities in this field. This
study is expected to be completed in the third quarter of 1997. The preliminary
results of the study indicate at least 25 potential exploitation opportunities.
WEST DELTA 30. In 1995 the Company purchased a 70% working interest in the
West Delta 30 Field in the Gulf of Mexico from Shell and initiated an integrated
geological, geophysical and 3-D seismic study in the first half of 1996. As a
result of this study, the Company identified eight additional development
drilling locations and three deeper pool prospects that the Company believes
have significant exploratory potential. Based on the Company's proposal, Exxon
Company, U.S.A. ("Exxon"), the operator, has committed to drill a well to test
this field's deeper exploratory potential in mid-year 1997 and a development
well by year-end 1997.
MATAGORDA ISLAND 519. In late 1994 the Company purchased 13 producing
fields in the Gulf of Mexico from Pennzoil Company ("Pennzoil") for $51.3
million (the "Pennzoil Acquisition"), including the Matagorda Island 519
Field. The Company owns working interests of 17% and 25% in this field, which is
operated by Amoco Production Company ("Amoco"). Workover operations on three
wells in this field are scheduled to be performed in 1997. Amoco completed such
operations on the first well in January 1997, increasing gross production by 10
MMcf per day, a 50% increase in production attributable to the well. The Company
believes that significant development and exploratory potential remains in the
field. Amoco has purchased a 3-D seismic survey to delineate these
opportunities, in which the Company owns a 25% working interest.
HIGH ISLAND 110/111. The Company purchased its initial interest in this
Texaco-operated field as part of the Pennzoil Acquisition and currently holds a
17% working interest. The Company has identified several recompletion zones and
two proved undeveloped drilling locations in the field using 3-D seismic data to
reinterpret an internal field study. These wells are scheduled to be drilled in
1997.
MUSTANG ISLAND 846/847. The Company operates and owns a 100% working
interest in this field, which it acquired as part of the Pennzoil Acquisition.
Although the field was previously not producing and scheduled for abandonment by
Pennzoil, the Company initiated a three-well recompletion program on the field
shortly after its acquisition resulting in production of 8.8 MMcf per day. The
Company has conducted a detailed field study and identified a development
location that the Company believes has significant reserve potential. The
Company plans to drill this location by mid-year 1997.
WASSON FIELD. In June 1996 the Company acquired a 34.7% working interest
in the Cornell Unit in the Wasson Field in West Texas. Approximately 1.5 billion
Bbls of oil have been produced from the San Andres reservoir from which the
Cornell Unit produces. The field was initially waterflooded in 1965, and a CO2
flood was initiated in 1985 utilizing the water alternating-gas injection method
of enhanced oil recovery. Because the field has been restored to its original
pressure as the result of tertiary recovery activities, at year-end 1996 the
Company recommended the cessation of CO2 purchases for the next four to
6
<PAGE>
five years. This recommendation was adopted by the unit working interest owners.
As a result, the Company expects to increase its annual cash flow from the field
by $1.9 million. The Company, working with unit operator Exxon, has identified
up to 30 infill drilling locations. Furthermore, pressure tests performed
recently in an adjoining unit indicate that the upper gas-bearing sands may be
produced separately from the oil reservoir. Exxon and the Company plan to test
the feasibility of producing these gas-bearing sands in 1997.
THE OFFERING
Common Stock Offered by the 6,000,000 shares
Company..............................
Common Stock to be Outstanding after
the Offering....................... 13,663,695 shares(1)
Use of Proceeds...................... The net proceeds to the Company
of the Offering are expected to
be approximately $77.1 million
($88.8 million if the
Underwriters' over-allotment
option is exercised in full) and
will be used (i) to pay the
purchase price of the Funds
Acquisition and (ii) to repay
$47.1 of indebtedness
outstanding under the Company's
existing credit facilities. See
"Use of Proceeds."
New York Stock Exchange Symbol.......
- ------------
(1) Does not include 849,702 shares of Common Stock reserved for issuance
pursuant to outstanding options under the Amended and Restated 1996 Stock
Purchase and Option Plan for Key Employees of Domain Energy Corporation and
Affiliates (the "Stock Purchase and Option Plan"). See
"Management -- Stock Purchase and Option Plan" and " -- Stock Option
Agreements."
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED AND CONSOLIDATED FINANCIAL DATA
The following summary historical financial data is derived from the audited
financial statements of the Company as of and for the periods presented. The
summary unaudited pro forma data is derived from the Unaudited Pro Forma
Combined and Consolidated Financial Statements of the Company included elsewhere
in this Prospectus. The unaudited pro forma income statement data and other
financial data give effect to (i) the completion of the Acquisition, (ii) the
purchase of Common Stock by the Company's employees in 1997, (iii) the
completion of the Funds Acquisition and the Michigan Disposition, and (iv) the
completion of the Offering, as if all such transactions occurred on January 1,
1996. The unaudited pro forma balance sheet data give effect to (i) the
completion of the Funds Acquisition and the Michigan Disposition, (ii) the
purchase of Common Stock by the Company's employees in 1997, and (iii) the
completion of the Offering, as if all such transactions occurred on December 31,
1996. The pro forma financial data is not necessarily indicative of actual
results of operations or financial position that would have occurred if these
transactions were completed on the indicated dates or of future results of
operations. The summary historical and pro forma financial data below should be
read in conjunction with "Capitalization," "Unaudited Condensed Pro Forma
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Combined and Consolidated
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
PREDECESSOR
------------------------------- PRO FORMA
1994 1995 1996 1996
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and natural gas sales........... $ 5,340 $ 34,877 $ 52,889 $70,746
IPF Activities(1)................... 1,417 2,356 4,369 4,369
Other............................... 283 414 64 (45)
--------- --------- --------- ---------
Total revenues................. 7,040 37,647 57,322 75,070
--------- --------- --------- ---------
Expenses:
Lease operating..................... 1,790 7,980 10,962 14,437
Production and severance taxes...... 18 710 1,372 1,492
Depreciation, depletion and
amortization...................... 3,101 22,692 22,739 21,605
General and administrative, net..... 52 4,050 8,188 4,696
--------- --------- --------- ---------
Total operating expenses....... 4,961 35,432 43,261 42,230
--------- --------- --------- ---------
Income from operations.................. 2,079 2,215 14,061 32,840
Interest expense, net................... -- -- 470 41
--------- --------- --------- ---------
Income before income taxes.............. 2,079 2,215 13,591 32,799
Income tax provision.................... 1,105 861 5,551 12,850
Minority interest....................... -- -- (157) --
--------- --------- --------- ---------
Net income.............................. $ 974 $ 1,354 $ 8,197 $19,949
========= ========= ========= =========
Net income per share(2)................. $ 1.37
Weighted average shares outstanding..... 14,513
OTHER FINANCIAL DATA:
EBITDA(3)........................... $ 5,180 $ 24,907 $ 36,957 $54,555
IPF Program return of capital(4).... 3,507 2,638 4,618 4,618
EBITDA plus IPF Program return of
capital........................... 8,687 27,545 41,575 59,173
Net cash provided by operating
activities........................ 12,203 25,687 38,899 48,644
Capital expenditures................ 85,205 43,645 56,876 86,876
</TABLE>
8
<PAGE>
AS OF DECEMBER 31, 1996
---------------------------
SUCCESSOR PRO FORMA
---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 736 $ 4,127
Property, plant and equipment,
net................................ 88,648 96,176
IPF Program notes receivable........ 21,710 21,710
Total assets........................ 137,126 145,848
Long-term debt (including current
maturities)........................ 92,675 25,292
Stockholders' equity................ 27,577 106,182
- ------------
(1) IPF Activities includes income from the Company's IPF Program and the
Company's "GasFund" partnership with a financial investor. See "Business
and Properties -- Producer Investment Activities."
(2) Net income per share has been computed based on the net income shown above
and assuming that the 7,177,682 shares of Common Stock purchased in
connection with the Acquisition, the 486,013 shares of Common Stock
purchased by the Company's employees in 1997, the 849,702 shares of Common
Stock reserved for issuance pursuant to outstanding options under the Stock
Purchase and Option Plan, and the 6,000,000 shares of Common Stock to be
issued in connection with the Offering were outstanding since January 1,
1996.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization. The Company believes that EBITDA
may provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA is a financial measure commonly used in the oil and gas
industry and should not be considered in isolation or as a substitute for
net income, operating income, net cash provided by operating activities or
any other measure of financial performance presented in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. Because EBITDA excludes some, but not all, items
that affect net income and may vary among companies, the EBITDA calculation
presented above may not be comparable to similarly titled measures of other
companies.
(4) To more accurately reflect the actual cash flow generated by the Company,
IPF Program return of capital is identified separately to allow such cash
receipts to be combined with EBITDA.
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SUMMARY OIL AND NATURAL GAS RESERVE DATA
The following table summarizes the estimates of the Company's historical
and pro forma net proved oil and natural gas reserves as of the dates indicated
and the present value attributable to the reserves at such dates. The reserve
and present value data as of December 31, 1994, 1995 and 1996 have been prepared
by DeGolyer and MacNaughton and other third-party petroleum engineers. See
"Business and Properties -- Oil and Natural Gas Reserves." Summaries of the
December 31, 1996 reserve reports and the letters of the third-party petroleum
engineers with respect thereto are included as Appendix A to this Prospectus.
The operating and reserve data set forth below does not include the Company's
term overriding royalty interests and associated reserves acquired through the
IPF Program.
AS OF DECEMBER 31,
-------------------------------------
PRO FORMA
1994 1995 1996(1) 1996(2)
--- --------- --------- ---------
PROVED RESERVES:
Natural gas (MMcf)............... 73,399 82,682 89,101 91,182
Oil and condensate (MBbls)....... 4,109 2,197 10,086 10,442
Total (MMcfe).................... 98,056 95,865 149,617 153,834
PV-10 Reserve Value (in
thousands)..................... $61,812 $ 103,931 $ 184,816 $ 213,030
Percent of proved developed
producing reserves............. 53.4% 55.0% 63.6% 66.5%
Reserve Life Index (in
years)(3)...................... -- 4.7x 6.0x 4.9x
RESERVE REPLACEMENT DATA:
Finding costs (per Mcfe)......... $0.91 $ 1.13 $ 0.51 $ 0.61
Production replacement
ratio(4)....................... 3,437.5% 222.6% 392.5% 418.6%
- ------------
(1) Excludes the minority interest attributable to the Michigan Development
Project.
(2) Gives effect to the Funds Acquisition and the Michigan Disposition as if
such transactions were consummated as of January 1, 1996.
(3) Calculated by dividing year-end proved reserves by annual actual or pro
forma production (as applicable) for the most recent year. The Company's
Reserve Life Index for 1994 was 34.7 and is excluded from the above table
because it reflects the Company's completion of a large acquisition in late
1994 and does not reflect production attributable to that acquisition for a
full-year period.
(4) Equals current period reserve additions through acquisitions of reserves,
extensions and discoveries, and revisions to prior estimates divided by the
production for such period.
SUMMARY OPERATING DATA
YEAR ENDED DECEMBER 31,
------------------------------------------
PRO FORMA
1994 1995 1996 1996(1)
--------- --------- --------- ---------
PRODUCTION VOLUMES:
Natural gas (MMcf).............. 2,334 18,065 21,578 25,714
Oil and condensate (MBbls)...... 83 424 574 920
Total (MMcfe)................... 2,832 20,609 25,022 31,234
AVERAGE REALIZED PRICES:(2)
Natural gas (per Mcf)........... $ 1.76 $ 1.54 $ 1.96 $ 2.06
Oil and condensate (per Bbl).... 14.93 16.76 18.60 19.42
EXPENSES (PER MCFE):
Lease operating................. $ 0.63 $ 0.39 $ 0.44 $ 0.46
Production taxes................ 0.01 0.03 0.06 0.05
Depreciation, depletion and
amortization.................. 1.03 1.08 0.91 0.67
General and administrative,
net(3)........................ 0.23 0.16 0.12 0.15
- ------------
(1) Gives effect to the Funds Acquisition and the Michigan Disposition as if
such transactions were consummated as of January 1, 1996.
(2) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Other
Matters -- Hedging Activities."
(3) Includes production attributable to properties managed for the Funds for the
periods indicated and excludes fees received from investors and overhead
allocations from Tenneco. Including Tenneco allocations, average net general
and administrative expenses per Mcfe for the years ended December 31, 1994,
1995 and 1996 would be $0.23, $0.20 and $0.28, respectively.
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RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS
"ANTICIPATE," "BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK,"
"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 ACQUISITIONS, FUTURE DRILLING
AND OPERATIONS, FUTURE CAPITAL EXPENDITURES, FUTURE PRODUCTION OF OIL AND GAS
AND FUTURE NET CASH FLOW. 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 UNDER THIS
CAPTION "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. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN
THIS PROSPECTUS ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO
ASSURANCE THAT THE ACTUAL RESULTS OR DEVELOPMENTS ANTICIPATED BY THE COMPANY
WILL BE REALIZED OR, EVEN IF SUBSTANTIALLY REALIZED, THAT THEY WILL HAVE THE
EXPECTED CONSEQUENCES TO OR EFFECTS ON THE COMPANY OR ITS BUSINESS OR
OPERATIONS. THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING
THE SHARES OF COMMON STOCK OFFERED HEREBY.
VOLATILITY OF OIL AND NATURAL GAS PRICES; MARKETABILITY OF PRODUCTION
The Company's financial condition, profitability, future rate of growth and
ability to borrow funds or obtain additional capital, as well as the carrying
value of its oil and natural gas properties, are substantially dependent upon
prevailing prices of, and demand for, oil and natural gas. The energy markets
have historically been, and are likely to continue to be, volatile, and prices
for oil and natural gas are subject to large fluctuations in response to
relatively minor changes in the supply and demand for oil and natural gas,
market uncertainty and a variety of additional factors beyond the control of the
Company. These factors include the level of consumer product demand, weather
conditions, the actions of the Organization of Petroleum Exporting Countries,
domestic and foreign governmental regulations, political stability in the Middle
East and other petroleum producing areas, the foreign and domestic supply of oil
and natural gas, the price of foreign imports, the price and availability of
alternative fuels and overall economic conditions. A substantial or extended
decline in oil or natural gas prices could have a material adverse effect on the
Company's financial position, results of operations, quantities of oil and
natural gas reserves that may be economically produced, carrying value of its
proved reserves, borrowing capacity and access to capital. In addition, the
marketability of the Company's production depends upon a number of factors
beyond the Company's control, including the availability and capacity of
transportation and processing facilities, the effect of federal and state
regulation of oil and natural gas production and transportation, changes in
supply due to drilling by other producers and changes in demand. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISK OF HEDGING ACTIVITIES
The Company's use of energy swap arrangements to reduce its sensitivity to
oil and natural 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, or otherwise, the Company would be required to satisfy
its obligations under potentially unfavorable terms. If the Company enters into
financial instrument contracts for the purpose of hedging prices and the
estimated production volumes are less than the amount covered by these
contracts, the Company would be required to mark-to-market these contracts and
recognize any and all losses within the determination period. Further, under
financial instrument contracts the Company may be at risk for basis
differential, which is the difference in the quoted financial price for contract
settlement and the actual physical point of delivery price. The Company will
from time to time attempt to mitigate basis differential risk by entering into
basis swap contracts. Substantial variations between the assumptions and
estimates used by the Company in its hedging activities and actual results
experienced could materially adversely affect the Company's anticipated profit
margins and its ability to manage risk associated with fluctuations in
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oil and natural gas prices. Furthermore, the fixed price sales and hedging
contracts limit the benefits the Company will realize if actual prices rise
above the contract prices.
As of March 15, 1997, on a pro forma basis, approximately 34.0% of the
Company's projected 1997 oil production and approximately 41.7% of its projected
1997 natural gas production were committed to hedging contracts. In addition,
the Company has hedges in place covering a portion of its projected oil
production through the year 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Other Matters -- Hedging
Activities."
RESERVE REPLACEMENT RISKS
The Company's future performance is dependent upon its ability to identify,
acquire and develop additional oil and natural gas reserves that are
economically recoverable. Without successful drilling or acquisition activities,
the Company's reserves and revenues will decline. No assurances can be given
that the Company will be able to identify, acquire or develop additional
reserves at an acceptable cost.
The successful acquisition of producing properties requires an assessment
of recoverable reserves, future oil and natural 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
typically performs, or retains a third party to perform, a review of the subject
properties, which review the Company believes is generally consistent with
industry practices. This review, however, will not reveal all existing or
potential problems, nor will it permit the Company 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 generally assumes preclosing liabilities, including
environmental liabilities, in connection with property acquisitions and
generally acquires interests in the properties on an "as is" basis. With
respect to its acquisitions to date, the Company has no material commitments for
capital expenditures to comply with existing environmental requirements. There
can be no assurance that any properties acquired by the Company will be
successfully developed or produced, and any such properties that are not
successfully developed or produced could have a material adverse effect on the
Company.
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that any 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 natural 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. In addition, the Company's
use of 3-D seismic requires greater pre-drilling expenditures than traditional
drilling strategies. 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. There can be no
assurances that any of the Company's future drilling activities will be
successful, and unsuccessful drilling activities by the Company may have a
material adverse effect on the Company. See "Business and
Properties -- Operating Hazards and Drilling Risks."
NON-OPERATOR STATUS
With the exception of the Mustang Island 846/847 Field and the Company's
interests in Michigan, all of the Company's oil and gas properties are operated
by others. As a result, the Company has a limited ability to exercise control
over operations or the associated costs of such operations. The success of the
Company's investment in a drilling or acquisition activity is therefore
dependent upon a number of factors that are outside of the Company's control,
including the competence and financial resources of the operator. Such factors
include the availability of future capital resources of the other participants
for the drilling of wells and the approval of other participants of the drilling
of wells on the properties in which the Company has an interest. The Company's
reliance on the operator and other working interest owners and its limited
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ability to control certain costs could have a material adverse effect on the
realization of expected rates of return on the Company's investment in drilling
or acquisition activities.
OPERATING RISKS
The oil and natural gas business involves a variety of operating risks,
including the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards such as oil spills, gas leaks,
ruptures or discharges of toxic gases. Any of these occurrences could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, clean-up responsibilities, regulatory investigation
and penalties and suspension of operations. Moreover, offshore operations are
subject to a variety of operating risks peculiar to the marine environment,
including hurricanes or other adverse weather conditions, more extensive
governmental regulation (including regulations that may, in certain
circumstances, impose strict liability for pollution damage) and interruption or
termination of operations by governmental authorities based on environmental or
other considerations. The presence of unanticipated pressure or irregularities
in formations, miscalculations or accidents may cause a drilling or production
operation to be unsuccessful, resulting in a total loss of the Company's
investment in such operation. Although the Company maintains insurance coverage
it believes is customary in the industry for companies of similar size, it is
not fully insured against certain of these risks, either because such insurance
is not available or because of the high premium costs. The Company does not
carry business interruption insurance. There can be no assurance that any
insurance obtained by the Company will be adequate to cover any losses or
liabilities, or that such insurance will continue to be available or available
on terms that are acceptable to the Company. See "Business and
Properties -- Operating Hazards and Drilling Risks."
RELIANCE ON ESTIMATES OF OIL AND NATURAL GAS RESERVES
The reserve data set forth in this Prospectus represent only estimates of
DeGolyer and MacNaughton ("DeGolyer"), Netherland, Sewell & Associates, Inc.
("Netherland, Sewell"), and other third-party petroleum engineers. The
estimation of reserve data is a subjective process of estimating the recovery of
underground accumulations of oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the
quality of the available data, the assumptions made, and engineering and
geological interpretation and judgment. Estimates of economically recoverable
oil and natural gas reserves and future net cash flows therefrom necessarily
depend upon a number of variable factors and assumptions, including historical
production from the area compared with production from other producing areas,
the assumed effects of regulation by governmental agencies and assumptions
concerning future oil and natural 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. Any such estimates are
therefore inherently imprecise, and estimates by other engineers, or by the same
engineers at a different time, might differ materially from those included
herein. Actual prices, production, development expenditures, operating expenses
and quantities of recoverable oil and natural gas reserves will vary from those
assumed in the estimates, and it is likely that such variances will be
significant. Any significant variance from the assumptions could result in the
actual quantity of the Company's reserves and future net cash flows therefrom
being materially different from the estimates set forth in this Prospectus. In
addition, the Company's estimated reserves may be subject to downward or upward
revision, based upon production history, results of future exploration and
development, prevailing oil and natural gas prices, operating and development
costs and other factors. The Company's properties may also be susceptible to
hydrocarbon drainage from production by other operators on adjacent properties.
See "Business and Properties -- Oil and Natural Gas Reserves."
The present value of future net cash flows set forth in this Prospectus
should not be construed as the current market value or the value at any prior
date of the estimated oil and natural gas reserves attributable to the Company's
properties. In accordance with applicable requirements of the Securities and
Exchange Commission (the "Commission"), the estimated discounted future net
cash flows from estimated proved reserves are based on prices and costs as of
the date of the estimate unless such prices or costs are
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contractually determined at such date. Actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will be affected
by factors such as actual production, supply and demand for oil and natural gas,
curtailments or increases in consumption by natural gas purchasers, changes in
governmental regulations or taxation and the impact of inflation on costs. In
addition, the 10% discount factor used to calculate the present value of future
net cash flows 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.
CERTAIN RISKS AFFECTING THE COMPANY'S IPF PROGRAM
The Company's IPF Program involves an up-front cash payment for the
purchase of a term overriding royalty interest pursuant to which the Company
receives an agreed upon share of revenues from identified properties. The
producer's obligation to deliver such revenues is nonrecourse to the producer
insofar as the producer generally is not liable to the Company for any failure
to meet its payment obligation except for such failures attributable to the
producer's failure to operate prudently, title failure or certain other causes
within the control of the producer. Consequently, the Company's ability to
realize successful investments through its producer finance business is subject
to the Company's ability to estimate accurately the volumes of recoverable
reserves from which the applicable production payment is to be discharged and
the operator's ability to recover these reserves. The Company's interest is
believed to constitute a property interest and, therefore, in the event of the
producer's bankruptcy or similar event, outside of the reach of the producer's
creditors; however, such creditor (or the producer as debtor-in-possession or a
trustee for the producer in a bankruptcy proceeding) may argue that the
transaction should be characterized as a loan, in which case the Company may
have only a creditor's claim for repayment of the amounts advanced. As non-
operating interests, the Company's ownership of these production payments should
not expose the Company to liability attendant to the ownership of direct working
interests, such as environmental liabilities and liabilities for personal injury
or death or damage to the property of others, although no assurances can be made
in this regard. Finally, as the producer's obligation is only to deliver a
specified share of revenues, subject to the ability of the burdened reserves to
produce such revenues, the Company bears the risk that future revenues delivered
will be insufficient to amortize the purchase price paid by the Company for the
interest or to provide any investment return thereon.
The Company operates the IPF Program through its indirect wholly-owned
subsidiary, Domain Energy Finance Corporation ("IPF Company"). IPF Company has
a $20.0 million revolving credit facility with a bank (the "IPF Company Credit
Facility") pursuant to which it finances a portion of the IPF Program. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- IPF Company Credit Facility."
EFFECTS OF LEVERAGE
On a pro forma basis as of December 31, 1996, the Company would have had
total consolidated indebtedness for money borrowed of approximately $25.3
million (including approximately $19.1 million outstanding under the Company's
revolving credit facility with a group of banks (the "Revolving Credit
Facility") and approximately $6.2 million outstanding under the IPF Company
Credit Facility) and stockholders' equity of approximately $106.2 million. The
Company intends to incur additional indebtedness for money borrowed in the
future, including in connection with the exploration for, and development,
production and acquisition of, oil and natural gas properties. These activities
could cause the Company's leverage to increase, which could have important
consequences to its stockholders, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes could be impaired in
the future; (ii) a substantial portion of the Company's cash flow from
operations could be required for the payment of principal and interest on its
indebtedness for money borrowed, thereby reducing the funds available to the
Company for its operations and other purposes; (iii) the Company may be
substantially more leveraged than certain of its competitors, which could place
the Company at a competitive disadvantage; and (iv) the Company's substantial
degree of leverage could hinder its ability to adjust rapidly to changing market
conditions and could make it more
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vulnerable in the event of a downturn in general economic conditions or its
business. In addition, the Company's borrowings are and are expected to continue
to be at variable rates, which exposes the Company to the risk of increased
interest rates. See " -- Substantial Capital Requirements" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Revolving Credit Facility."
The Company's ability to make scheduled payments of principal of and to pay
interest on, or to refinance, its indebtedness for money borrowed depends upon
its future performance and successful strategy implementation, which is subject
not only to its own actions but also to general economic, financial,
competitive, legislative, regulatory and other factors beyond its control, as
well as to the prevailing market prices for oil and natural gas. There can be no
assurance that the Company's business will generate sufficient cash flow from
operations or that future credit will be available in an amount sufficient to
enable the Company to service its indebtedness for money borrowed, or make
necessary capital expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
RESTRICTIVE DEBT COVENANTS
The Revolving Credit Facility contains covenants that, among other things,
restrict the ability of the Company to dispose of assets, incur additional
indebtedness or grant liens on its properties, repay other indebtedness, pay
dividends, enter into certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations, or engage in certain
transactions with subsidiaries and affiliates and that will otherwise restrict
corporate activities. There can be no assurance that such restrictions will not
adversely affect the Company's ability to finance its future operations or
capital needs or engage in other business activities that may be in the
interests of the Company. In addition, the Revolving Credit Facility requires
the Company to maintain a specified minimum tangible net worth and to comply
with certain prescribed financial ratios. The ability of the Company to maintain
such tangible net worth or to comply with such ratios may be affected by events
beyond the Company's control. A breach of any of these covenants or the
inability of the Company to maintain such tangible net worth or to comply with
the required financial ratios could result in a default under the Revolving
Credit Facility. The Company believes that the Company is currently in
compliance with the terms of the Revolving Credit Facility. However, in the
event of any such default, the lenders thereunder (the "Lenders") could elect
to terminate the Company's ability to borrow thereunder, to declare all
borrowings outstanding thereunder, together with accrued interest and other
fees, to be immediately due and payable, and to exercise foreclosure or other
remedies against the Company and its assets. The Revolving Credit Facility is
secured by approximately 80% of the aggregate value of the Company's oil and
natural gas properties and substantially all of the Company's other property
(other than the IPF Program properties), including the capital stock of the
Company's operating subsidiaries. Although the remaining approximately 20% of
the aggregate value of the Company's oil and natural gas properties is not
mortgaged to the Lenders under the Revolving Credit Facility, such properties
are nevertheless subject to the restrictions set forth therein, including a
prohibition on granting any security interests therein. If the indebtedness
under the Revolving Credit Facility were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay such
indebtedness in full. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Revolving Credit Facility."
The IPF Company Credit Facility restricts the ability of the IPF Company to
dividend cash to its parent, Domain Energy Ventures Corporation, or otherwise
advance cash to the Company. Consequently, cash generated by the IPF Company may
not be available to the Company, whether for repayment of the Revolving Credit
Facility or for other purposes. The IPF Company Credit Facility is secured by
substantially all of IPF Company's oil and gas interests, including the notes
receivable generated therefrom. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- IPF Company Credit Facility."
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SUBSTANTIAL CAPITAL REQUIREMENTS
Historically, the Company has financed its activities primarily with
internally generated funds and advances from Tenneco. The Company currently has
plans for substantial capital expenditures to continue its exploration,
development, production and acquisition activities. In 1997, excluding
acquisitions, the Company's budget for capital expenditures and IPF Program
investments is $65.0 million. The Company's business plan is dependent upon the
Company's ability to obtain financing beyond its internally generated cash flow,
for exploring for, developing, producing and acquiring oil and natural gas
properties. Management believes that the Company will have sufficient cash
provided by operating activities and borrowings under the Revolving Credit
Facility to fund planned capital expenditures in 1997. The Revolving Credit
Facility limits the amounts the Company may borrow thereunder to amounts
determined by the Lenders in their sole discretion, based upon the Lenders'
projection of the Company's discounted future net revenues from oil and natural
gas properties and other considerations, and restricts the amounts the Company
may borrow under other credit facilities. The Lenders may periodically adjust
the borrowing base under the Revolving Credit Facility and may require that
outstanding borrowings in excess of the borrowing base be repaid within 30 days
of the date such excess occurs. All amounts owed under the Revolving Credit
Facility are due and payable on December 31, 1999. In addition, the borrowing
base under the Revolving Credit Facility is scheduled to be redetermined as of
December 31, 1997 and may be reduced substantially from its February 28, 1997
level of $63.3 million and all amounts outstanding in excess of such reduced
borrowing base must be paid in full at such date. If revenues or the Company's
borrowing base decrease as a result of lower oil and natural gas prices,
operating difficulties, declines in reserves or otherwise, the Company's ability
to expend the capital necessary to undertake or complete future activities may
be significantly limited. No assurances can be given that the Company will have
adequate funds available to it under the Revolving Credit Facility to carry out
its strategy or that the Company will be able to make any mandatory principal
payments required by the Lenders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and " -- Revolving Credit Facility."
CONTROL BY EXISTING STOCKHOLDERS AND POTENTIAL CONFLICTS OF INTEREST
Upon completion of the Offering, the Company's existing stockholders will
own approximately 56.1% the outstanding shares of Common Stock (approximately
52.6% if the Underwriter's over-allotment option is exercised in full). First
Reserve Fund VII, Limited Partnership, a Delaware limited partnership ("Fund
VII"), the managing general partner of which is First Reserve Corporation, a
Delaware corporation ("First Reserve"), individually will own approximately
52.5% of the outstanding shares of Common Stock (approximately 49.3% if the
Underwriter's over-allotment option is exercised in full). As a result of such
stock ownership, these stockholders, as a group, and Fund VII, individually,
will be able to elect all members of the Company's board of directors (the
"Board of Directors") and to control the vote on matters submitted to the
Board of Directors or stockholders, including, without limitation, matters
relating to the Company's exploration, development, capital, operating and
acquisition expenditure plans, as well as mergers and other business
combinations, asset sales, financings, issuances of securities and other
significant transactions.
Such concentration of ownership of Common Stock may have an adverse effect
on the market price of the Common Stock. Conflicts of interest may arise in the
future between the Company and First Reserve and its affiliates with respect to,
among other things, potential competitive business activities or business
opportunities, issuances of additional shares of voting securities, the election
of directors or the payment of dividends, if any, by the Company or the exercise
by First Reserve, as managing general partner of Fund VII, of its ability to
control the management and affairs of the Company. There are no contractual or
other restrictions on the ability of First Reserve or its affiliates to engage
in oil and gas exploration and production or to pursue other investment
opportunities in the energy industry. Circumstances could arise in the future in
which the Company and First Reserve or its affiliates engage in activities in
competition with one another.
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DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent upon a relatively small group of
management and technical personnel. The loss of one or more of these individuals
could have a material adverse effect on the Company. The Company in particular
is substantially dependent on the efforts of Michael V. Ronca, its President and
Chief Executive Officer. If Mr. Ronca becomes unable or unwilling to continue in
his present role, the Company's business, operations and prospects would be
adversely affected. In connection with the consummation of the acquisition by
the Company of the capital stock of its operating subsidiaries, Mr. Ronca
entered into an Employment Agreement with the Company (the "Ronca Employment
Agreement"). Under the terms of the Ronca Employment Agreement, Mr. Ronca would
be entitled to terminate his employment (i) upon a "Change of Control," which
is defined therein as the acquisition by any person or entity, or group thereof,
excluding Fund VII and other affiliates of First Reserve of more than 50% of the
outstanding voting stock of the Company, or (ii) otherwise for "Good Reason,"
which is defined therein to include, among other things, material reductions in
Mr. Ronca's duties, responsibilities or base salary. See "Management -- Ronca
Employment Agreement."
COMPETITION
The Company encounters competition from other companies in all areas of its
operations, including the acquisition of producing properties and its IPF
Program. The Company's competitors include major integrated oil and natural gas
companies and numerous independent oil and natural gas companies, individuals
and drilling and income programs and, in the case of its IPF Program, affiliates
of investment, commercial and merchant banking firms and affiliates of large
interstate pipeline companies. Many of its competitors are large,
well-established companies with substantially larger operating staffs and
greater capital resources than the Company's and which, in many instances, have
been engaged in the oil and gas business for a much longer time than the
Company. Such companies may be able to pay more for producing oil and natural
gas properties and exploratory prospects and to define, evaluate, bid for and
purchase a greater number of properties and prospects than the Company's
financial or human resources permit. The Company's ability to acquire additional
properties and to discover reserves in the future, as well as its ability to
grow its IPF Program, will be dependent upon its ability to evaluate and select
suitable properties and to consummate transactions in this highly competitive
environment.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Oil and natural gas operations are subject to various federal, state and
local governmental laws and regulations that may be changed from time to time in
response to economic, political or other conditions. Matters subject to
regulation include discharge permits for drilling operations, drilling and
abandonment bonds, reports concerning operations, the spacing of wells,
unitization and pooling of properties and taxation. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of such resources. In
addition, the production, handling, storage, transportation and disposal of oil
and natural gas, by-products thereof and other substances and materials produced
or used in connection with oil and natural gas operations are subject to
regulation under federal, state and local laws and regulations primarily
relating to protection of human health and the environment. These laws and
regulations have imposed increasingly strict requirements for water and air
pollution control and solid waste management. To date, the Company's
expenditures related to compliance with these laws and regulations have not been
significant, although no assurances can be given that such expenditures will not
be significant in the future. The Company believes that the trend of more
expansive and stricter environmental legislation and regulations, including
regulations that may be promulgated under the Oil Pollution Act of 1990, will
continue, and that such legislation and regulations may result in additional
costs to the Company in the future. Amendments to the Resource Conservation and
Recovery Act to regulate further the handling, transportation, storage and
disposal of oil and natural gas exploration and production wastes have been
considered by Congress and may be adopted. Such legislation, if enacted, could
have a material adverse impact on the Company's operating costs. See "Business
and Properties -- Regulation."
17
<PAGE>
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; DILUTION
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
among the Company, First Reserve, and the Underwriters and may not be indicative
of the future market price for the Common Stock. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application will be made for approval for listing of the Common
Stock on the New York Stock Exchange. However, no assurance can be made that an
active trading market for the Common Stock will develop or, if developed, that
it will be sustained. The market price of the Common Stock could also be subject
to significant fluctuation in response to variations in results of operations
and other factors. In addition, Fund VII and certain employees of the Company
acquired their shares of Common Stock at a per share price that is substantially
less than the initial public offering price. Investors in the Common Stock
offered hereby will experience immediate and substantial dilution in the net
tangible book value of their shares of Common Stock. At an assumed public
offering price of $14.00 per share, the dilution to new investors would be $6.23
per share. These investors will also experience additional dilution upon the
exercise of outstanding options for the Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
The Company, each of the Company's directors and executive officers and
Fund VII have agreed not to dispose of any shares of Common Stock without the
prior consent of PaineWebber Incorporated for a period of 180 days from the date
of this Prospectus other than pursuant to the Offering or in connection with the
Company's employee benefit plans. The shares of Common Stock held by the
Company's officers and by Fund VII are deemed "restricted securities" within
the meaning of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), and may be resold after the 180-day period only upon
registration under the Securities Act or pursuant to an exemption from
registration, including exemptions contained in Rule 144. Pursuant to the terms
of the Securityholders Agreement, dated as of December 31, 1996, among the
Company, Fund VII and the Company's officers who have subscribed for Common
Stock, upon the consummation of the Offering and after expiration of the 180-day
period referred to above, Fund VII will have the right to demand registration of
its shares of Common Stock. See "Certain Transactions -- Securityholders
Agreement." Fund VII has informed the Company that it has no immediate plans to
sell or otherwise dispose of shares of the Common Stock. As of the date hereof,
options exercisable for 849,702 shares of Common Stock are outstanding under the
Amended and Restated 1996 Stock Purchase and Option Plan for Key Employees of
Domain Energy Corporation and Affiliates (the "Stock Purchase and Option
Plan"). Generally, all shares issued upon the exercise of such options will be
freely tradeable under the Securities Act. Sales of substantial amounts of
Common Stock in the public market, or the perception of the availability of
shares for sale, following the Offering could adversely affect the prevailing
market price of the Common Stock. The Company is unable to make any prediction
as to the effect, if any, that the future sales of Common Stock or the
availability of Common Stock for sale will have on the market price of the
Common Stock prevailing from time to time. See "Shares Eligible for Future
Sale."
BLANK CHECK PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") authorizes "blank check" preferred stock,
which may have the effect of discouraging unsolicited acquisition proposals. See
"Description of Capital Stock -- Preferred Stock."
USE OF PROCEEDS
The net proceeds to the Company of the Offering, calculated at an assumed
initial public offering price of $14.00 per share, are expected to be
approximately $77.1 million ($88.8 million if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated Offering expenses. The Company will use approximately
$30.0 million of the net proceeds to consummate the Funds Acquisition. It is
anticipated that the remainder of the proceeds to the Company of the Offering
will be used to repay $42.1 million of indebtedness outstanding under the
Revolving Credit
18
<PAGE>
Facility and $5.0 million of indebtedness outstanding under the IPF Company
Credit Facility. Pending application of the net proceeds of the Offering, such
net proceeds will be invested in short-term, interest bearing instruments.
In December 1996, the Company entered into the Revolving Credit Facility
under which the borrowing base was $63.3 million as of February 28, 1997. At
such date, borrowings outstanding under the Revolving Credit Facility totalled
$61.0 million. The initial borrowings under the Revolving Credit Facility were
used to finance a portion of the costs of the Acquisition. The Revolving Credit
Facility is a three-year revolving credit facility with the entire outstanding
principal amount maturing on December 31, 1999. In addition, the borrowing base
under the Revolving Credit Facility is scheduled to be redetermined as of
December 31, 1997 and may be reduced substantially from its current level. All
amounts outstanding in excess of such reduced borrowing base must be paid in
full at such date. Absent a default or an event of default (as defined therein),
outstanding borrowings under the Revolving Credit Facility accrue interest at
LIBOR plus a margin of 1.50% to 2.50% per annum depending on the total amount
drawn or, at the option of the Company, at the greater of (i) the prime rate and
(ii) the federal funds effective rate plus one-half of 1%, plus a margin of
0.50% to 1.50% depending on the total amount drawn. As of February 28, 1997, the
weighted average interest rate applicable to outstanding borrowings under the
Revolving Credit Facility was 8.05% per annum. For a description of the
Revolving Credit Facility, including certain mandatory prepayment terms, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Revolving Credit Facility."
IPF Company is a party to the IPF Company Credit Facility, which provides
for a maximum $20.0 million revolving line of credit. Borrowings under this
facility are used to finance IPF Company's investment activities under the IPF
Program. The IPF Company Credit Facility matures June 1, 1998 at which time all
amounts owed thereunder are due and payable. The borrowing base under the
facility as of February 28, 1997 was $18.0 million and is subject to a scheduled
redetermination by the lender every six months and such other redeterminations
as the lender may elect to perform each year. As of February 28, 1997,
approximately $11.2 million was outstanding under the IPF Company Credit
Facility and the weighted average interest rate applicable to such outstanding
amount was 7.625% per annum. So long as no default or event of default (as
defined therein) is outstanding, borrowings under the IPF Company Credit
Facility accrue interest at LIBOR plus a margin of 2.25% or, at the option of
IPF Company, the prime rate published in THE WALL STREET JOURNAL. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- IPF Company Credit Facility."
DIVIDEND POLICY
The Company intends to retain its earnings to provide funds for
reinvestment in the Company's businesses, including exploration, development and
production activities, and, therefore, does not anticipate declaring or paying
cash dividends in the foreseeable future. The Company is a holding company that
conducts substantially all of its operations through its subsidiaries. As a
result, the Company's ability to pay dividends on the Common Stock would be
dependent on the cash flows of its subsidiaries. Payment of dividends is also
subject to then existing business conditions and the business results, cash
requirements and financial condition of the Company, and will be at the
discretion of the Board of Directors. In addition, the terms of the Revolving
Credit Facility currently prohibit the payment of dividends by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
19
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
December 31, 1996, and (ii) the pro forma capitalization of the Company as of
December 31, 1996 after giving effect to the Funds Acquisition and the Michigan
Disposition, the purchase of Common Stock by the Company's employees in 1997,
and the issuance of 6,000,000 shares of Common Stock in this Offering at an
assumed price of $14.00 per share and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined and Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.
DECEMBER 31, 1996
-------------------------
HISTORICAL PRO FORMA
---------- -----------
(IN THOUSANDS)
Current maturities of long-term debt.... 25,900 --
Long-term debt.......................... $ 66,775 $ 25,292
Stockholders' equity:
Preferred stock, $.01 par value, no
shares authorized and outstanding;
5,000,000 shares authorized and
none outstanding pro forma........ -- --
Common stock, $.01 par value,
15,080,000 shares authorized;
7,177,682 shares issued and
outstanding; 25,000,000 shares
authorized and 13,663,695 shares
issued and outstanding pro
forma............................. -- 137
Additional paid-in capital......... 27,577 106,591
Notes receivable -- stockholders... -- (546)
Retained earnings.................. -- --
---------- -----------
Total stockholders' equity.............. 27,577 106,182
---------- -----------
Total capitalization.................... $ 120,252 $ 131,474
========== ===========
20
<PAGE>
DILUTION
"Dilution" means the difference between the initial public offering price
per share of Common Stock and the pro forma net tangible book value per share of
Common Stock after giving effect to the Offering. "Net tangible book value per
share" represents the amount of total tangible assets less total liabilities
divided by the total number of shares of Common Stock outstanding. At December
31, 1996, after giving effect to the purchase of Common Stock by the Company's
employees in 1997, the Company's pro forma net tangible book value was $29.062
million, or approximately $3.79 per share of Common Stock. Assuming the sale of
6,000,000 shares pursuant to the Offering at a price of $14.00 per share and
assuming the use of the net proceeds thereof as specified in "Use of
Proceeds," the pro forma net tangible book value of the Company at December 31,
1996 would have been $7.77 per share, representing an immediate increase in pro
forma net tangible book value of $3.98 per share to the Company's existing
stockholders and an immediate dilution in pro forma net tangible book value of
$6.23 per share to new investors purchasing shares of Common Stock in the
Offering. The following table illustrates such pro forma per share dilution at
December 31, 1996:
Assumed initial public offering price
per share............................. $ 14.00
Pro forma net tangible book value
per share at December 31, 1996.... $ 3.79
Increase per share attributable to
new investors..................... 3.98
---------
Pro forma net tangible book value
per share after the Offering...... 7.77
---------
Dilution per share to new investors..... $ 6.23
=========
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 (assuming an initial
public offering price of $14.00 per share) by purchasers of shares of Common
Stock offered hereby (before deducting underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------- --------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 7,663,695 56.1% $32,031,354 27.6% $ 4.18
New investors............ 6,000,000 43.9% 84,000,000 72.4% 14.00
------------ ------- --------------- -------
Total............... 13,663,695 100.0% $116,031,354 100.0%
============ ======= =============== =======
</TABLE>
The foregoing computations do not include 424,851 shares of Common Stock
issuable upon exercise of outstanding employee stock options at an exercise
price of $4.18 and 424,851 shares of Common Stock issuable upon exercise of
outstanding employee stock options at an exercise price of $.01 per share. See
"Management -- Stock Option Agreements."
21
<PAGE>
UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet as of December 31, 1996
gives effect to (i) the sale of shares of Common Stock to the Company's
employees in 1997, (ii) the completion of the Offering and (iii) the completion
of the Funds Acquisition and the Michigan Disposition, as if all such
transactions (the "Transactions") occurred on December 31, 1996. The unaudited
pro forma consolidated income statement for the year ended December 31, 1996
gives effect to (i) the Acquisition and (ii) the completion of the Funds
Acquisition and the Michigan Disposition, as if all such transactions had
occurred on January 1, 1996. The unaudited condensed pro forma balance sheet is
based on the Consolidated Balance Sheet of the Company included elsewhere in
this Prospectus. The unaudited condensed pro forma income statement is based on
the historical Combined Statement of Income of the Company and unaudited
financial information related to the Fund Acquisition.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The pro
forma financial information does not purport to represent what the Company's
financial position or results of operations would actually have been had the
Transactions in fact occurred on such dates. In addition, the pro forma
financial statements are not necessarily indicative of the results of future
operations of the Company and should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Combined and Consolidated
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
22
<PAGE>
DOMAIN ENERGY CORPORATION
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS FOR
FOR PENDING FUNDS
EMPLOYEE ADJUSTMENTS ACQUISITION AND
PRIVATE FOR MICHIGAN PRO
HISTORICAL OFFERINGS OFFERING DISPOSITION FORMA
---------- ----------- ----------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 736 $ 1,485(a) $ 30,000(b) $ (30,000)(c) $ 4,127
1,906(d)
Restricted certificate of
deposit................ 8,000 -- -- (8,000)(e) --
Accounts receivable...... 13,404 -- -- 5,803(d) 19,207
IPF Program notes
receivable, current
portion................ 7,874 -- -- -- 7,874
Prepaids and other
current assets......... 1,525 -- -- -- 1,525
---------- ----------- ----------- --------------- ----------
Total current
assets............ 31,539 1,485 30,000 (30,291) 32,733
---------- ----------- ----------- --------------- ----------
IPF Program notes
receivable............. 13,836 -- -- -- 13,836
Property, plant and
equipment, net......... 88,648 -- -- 30,000(c) 96,176
(22,472)(d)
Other assets............. 3,103 -- -- -- 3,103
---------- ----------- ----------- --------------- ----------
Total assets........ $ 137,126 $ 1,485 $ 30,000 $ (22,763) $ 145,848
---------- ----------- ----------- --------------- ----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and
accrued expenses....... $ 15,888 $-- $ -- $ (1,894)(d) $ 13,994
Current maturities of
long-term debt......... 25,900 -- (17,900)(b) (8,000)(e) --
---------- ----------- ----------- --------------- ----------
Total current
liabilities....... 41,788 -- (17,900) (9,894) 13,994
---------- ----------- ----------- --------------- ----------
Long-term debt........... 66,775 -- (29,220)(b) (12,263)(d) 25,292
---------- ----------- ----------- --------------- ----------
Total liabilities... 108,563 -- (47,120) (22,157) 39,286
---------- ----------- ----------- --------------- ----------
Minority interest........ 986 -- -- (606) 380
Common stock............. -- 77(a) 60(b) -- 137
Additional paid-in
capital................ 27,577 1,954(a) 77,060(b) -- 106,591
Notes
receivable -- stockholders... -- (546)(a) -- -- (546)
Retained earnings........ -- -- -- -- --
---------- ----------- ----------- --------------- ----------
Total stockholders'
equity............ 27,577 1,485 77,120 -- 106,182
---------- ----------- ----------- --------------- ----------
Total liabilities
and stockholders'
equity............ $ 137,126 $ 1,485 $ 30,000 $ (22,763) $ 145,848
========== =========== =========== =============== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
23
<PAGE>
DOMAIN ENERGY CORPORATION
UNAUDITED CONDENSED PRO FORMA INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS FOR
ADJUSTMENTS ADJUSTMENTS FOR PENDING PENDING
FOR THE FOR MICHIGAN FUNDS
HISTORICAL ACQUISITION OFFERING DISPOSITION ACQUISITION PRO FORMA
---------- ----------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and natural gas sales............... $ 52,889 $ -- $-- $ (615)(k) $18,472(m) $70,746
IPF Activities.......................... 4,369 -- -- -- -- 4,369
Other................................... 64 -- -- (115)(k) 6(m) (45)
---------- ----------- ----------- ----------- ----------- ---------
Total revenues..................... 57,322 -- -- (730) 18,478 75,070
---------- ----------- ----------- ----------- ----------- ---------
EXPENSES
Production expenses..................... 12,334 -- -- (788)(k) 4,383(m) 15,929
Depreciation, depletion and
amortization.......................... 22,739 (7,134)(f) -- (86)(k) 6,086(m) 21,605
General and administrative.............. 8,188 (3,784)(g) -- -- 292(m) 4,696
---------- ----------- ----------- ----------- ----------- ---------
Total operating expenses........... 43,261 (10,918) -- (874) 10,761 42,230
---------- ----------- ----------- ----------- ----------- ---------
Operating income........................ 14,061 10,918 -- 144 7,717 32,840
---------- ----------- ----------- ----------- ----------- ---------
Interest expense, net................... 470 4,536(h) (3,466)(h) (687)(h) (702) (h) 151
Interest income......................... -- (368) (i) -- 258(l) -- (110)
---------- ----------- ----------- ----------- ----------- ---------
Net income before income taxes and
minority interest..................... 13,591 6,750 3,466 573 8,419 32,799
Income tax expense...................... 5,551 2,565(i) 1,317 218(j) 3,199(j) 12,850
Minority interest....................... (157) 36 -- 124(k) (3)(j) --
---------- ----------- ----------- ----------- ----------- ---------
Net income.............................. $ 8,197 $ 4,149 $ 2,149 $ 231 $ 5,223 $19,949
========== =========== =========== =========== =========== =========
Net income per share.................... $ 1.37
=========
Common stock and common stock
equivalents outstanding............... 14,513
=========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
24
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The following pro forma adjustments have been prepared as if the
Transactions had taken place on December 31, 1996, in the case of the pro forma
balance sheet or as of January 1, 1996, in the case of the pro forma statement
of income. The adjustments are based upon currently available information and
certain estimates and assumptions, and therefore the actual adjustments made to
effect the Transactions may differ from the pro forma adjustments. However,
management believes that the assumptions provide a reasonable basis for
presenting the significant effects of the Transactions as contemplated and that
the pro forma adjustments give appropriate effect to these assumptions and are
properly applied in the pro forma financial information.
PRO FORMA ADJUSTMENTS TO THE BALANCE SHEET
A. Reflects the issuance of 486,013 shares of Common Stock at $4.18 per share
pursuant to two private offerings made to the employees of the Company
prior to the Offering. For the sale of such shares the Company received
$1.5 million in cash and notes receivable of $0.6 million. The notes
receivable have been reflected as a reduction of stockholders' equity. Also
reflects the effect of the 754-for-one stock split on shares of Common
Stock issued in connection with the Acquisition.
B. Reflects (i) the proceeds from the issuance of 6,000,000 shares of Common
Stock at $14.00 per share pursuant to the Offering and (ii) use of the
proceeds as summarized below (in millions):
Proceeds from the Offering.............. $ 84.0
Offering expenses....................... (6.9)
---------
Net proceeds.................. $ 77.1
=========
Use of proceeds:
Cash for Funds Acquisition......... $ 30.0
Repayment of long-term debt........ 47.1
---------
Net proceeds.................. $ 77.1
=========
C. Reflects the pending acquisition of the oil and gas properties of the Funds
for $30.0 million.
D. Reflects the pending sale of the Michigan Development Project. After
repayment by the Company and assumption by the buyer of an aggregate of
$12.2 million of long-term debt, the Company will receive $1.9 million in
cash at closing and will receive an additional $5.8 million from the
payment of an interest-bearing note receivable.
E. Reflects the repayment of the indebtedness to Fund VII with the proceeds
from the sale of an $8.0 million certificate of deposit that was released
as collateral for Domain Energy Guarantor Corporation's guarantee of the
Michigan Senior Debt as a result of the Michigan Disposition.
PRO FORMA ADJUSTMENTS TO THE INCOME STATEMENT
F. Reflects the reduction in the depreciation, depletion, and amortization
rate as a result of the allocation of the Acquisition purchase price in
accordance with the purchase method of accounting.
G. Reflects a reduction in general and administrative expenses of $4.8 million
resulting from the elimination of the components of the corporate overhead
allocation from Tenneco that were related to severance, retention bonuses,
and other costs resulting from the merger between Tenneco and an affiliate
of El Paso Natural Gas Company. In addition, the Company has estimated and
included $1.0 million of additional costs related to legal, treasury,
audit, and other services it expects will be incurred by the Company on a
pro forma basis.
25
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
H. Reflects the adjustments to interest expense computed as follows (in
thousands):
(1) The Acquisition financing:
Revolving Credit Facility........ $ 4,896
IPF Company Credit Facility...... 550
Indebtedness to Fund VII......... 368
Michigan Senior Debt............. 319
Amounts capitalized.............. (1,127)
Less: Historical interest
expense....................... (470) $ 4,536
---------
(2) Repayment of debt using Offering
proceeds:
Revolving Credit Facility........ (3,066)
IPF Company Credit Facility...... (400) (3,466)
---------
(3) Michigan Disposition:
Michigan Senior Debt............. (319)
Repayment of indebtedness to Fund
VII........................... (368) (687)
---------
(4) Amounts capitalized -- Funds
Acquisition........................... (702) (702)
Total pro forma interest expense
adjustment.................... $ (319)
=========
The total pro forma interest expense adjustment reflects a change in the
interest rate from 8% to 7% for the Revolving Credit Facility due to a
reduction in the amount of outstanding debt below the borrowing base amount.
If the interest expense rate increases by 1/8 of 1%, the total pro forma
interest expense would increase by $31,616.
I. Reflects the interest income on a certificate of deposit used as collateral
for the Michigan Development Project.
J. Reflects the income tax effect of pro forma adjustments computed at an
estimated effective rate of 38.0%.
K. Reflects the changes in operating income items from the Michigan
Disposition.
L. Reflects change in interest income from:
(1) Increase from the note receivable received in the Michigan
Disposition.
(2) Reduction from the Michigan Development Project certificate of
deposit.
M. Reflects the changes in operating income items from the Funds Acquisition.
26
<PAGE>
SELECTED HISTORICAL COMBINED AND CONSOLIDATED FINANCIAL DATA
The following table sets forth selected predecessor historical combined and
consolidated information of the Company for the five years ended and as of
December 31, 1996. The selected combined and consolidated financial data should
be read in conjunction with "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined and
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and natural gas sales.......... $ 2 $ 1,922 $ 5,340 $ 34,877 $ 52,889
IPF Activities(1).................. -- 200 1,417 2,356 4,369
Other.............................. -- -- 283 414 64
--------- --------- ---------- ---------- ----------
Total revenues................ 2 2,122 7,040 37,647 57,322
--------- --------- ---------- ---------- ----------
Expenses:
Lease operating.................... -- 218 1,790 7,980 10,962
Production and severance taxes..... -- 2 18 710 1,372
Depreciation, depletion and
amortization..................... -- 987 3,101 22,692 22,739
General and administrative, net.... 332 681 52 4,050 8,188
--------- --------- ---------- ---------- ----------
Total operating expenses...... 332 1,888 4,961 35,432 43,261
--------- --------- ---------- ---------- ----------
Income (loss) from operations........... (330) 234 2,079 2,215 14,061
Interest expense, net................... 20 -- -- -- 470
--------- --------- ---------- ---------- ----------
Income (loss) before income taxes....... (350) 234 2,079 2,215 13,591
Income tax provision (benefit).......... (119) 92 1,105 861 5,551
Minority interest....................... -- -- -- -- (157)
--------- --------- ---------- ---------- ----------
Net income (loss)....................... $ (231) $ 142 $ 974 $ 1,354 $ 8,197
========= ========= ========== ========== ==========
AS OF DECEMBER 31,
--------------------------------------------------------
PREDECESSOR
-------------------------------------------- SUCCESSOR
1992 1993 1994 1995 1996
--------- --------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 2 $ 1,635 $ 11,467 $ -- $ 736
Property, plant and equipment,
net.............................. 131 11,544 93,823 111,724 88,648
IPF Program notes receivable....... -- 4,215 4,023 7,991 21,710
Total assets....................... 1,403 23,493 117,755 137,096 137,126
Long-term debt (including current
maturities)...................... -- -- -- -- 92,675
Parent advances.................... 1,684 19,234 103,303 110,274 --
Stockholder's equity............... (309) (168) 806 2,160 27,577
</TABLE>
- ------------
(1) IPF Activities includes income from the Company's IPF Program and the
Company's "GasFund" partnership with a financial investor. See "Business
and Properties -- Producer Investment Activities."
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
Company's historical financial position and results of operations as of and for
each year of the three-year period ended December 31, 1996. The Company's
historical financial statements and notes thereto included elsewhere in this
Prospectus contain detailed information that should be referred to in
conjunction with this discussion.
GENERAL
On December 31, 1996, the Company acquired all of the outstanding capital
stock of its operating subsidiaries, Domain Energy Ventures Corporation
("Ventures Corporation") and Domain Energy Production Corporation
("Production Corporation"). The Company has accounted for the acquisition (the
"Acquisition") using the purchase method of accounting, under which the
purchase price has been allocated to the assets acquired and liabilities assumed
based upon their fair values at the acquisition date.
The Company is an independent oil and gas company engaged in the
exploration, development, production and acquisition of domestic oil and natural
gas properties, principally in the Gulf Coast region. The Company complements
these activities with its IPF Program pursuant to which it invests in oil and
natural gas reserves through the acquisition of term overriding royalty
interests accounted for as notes receivable. As of December 31, 1996, the
Company had estimated net proved reserves of 149.6 Bcfe. Approximately 60% of
the Company's net proved reserves at such date were natural gas and
approximately 64% of proved reserves were classified as proved developed
producing. As of December 31, 1996, the Company had a PV-10 Reserve Value of
$184.8 million, which does not include reserve value attributable to the IPF
Program.
The Company's selected historical combined and consolidated financial data
included elsewhere in this Prospectus have been derived from the audited
Combined and Consolidated Financial Statements of the Company. The selected
balance sheet data at December 31, 1996 reflects the Acquisition that occurred
on that date. The selected balance sheet and income statement data at other
dates and for other periods reflects the combined financial position and results
of operations of Ventures Corporation and Production Corporation with
intercompany transactions and account balances eliminated.
Prior to the Acquisition, these companies and their subsidiaries were
included in the consolidated federal income tax return of Tenneco, as a result
of which Tenneco will receive all benefit for such entities' historical tax
losses. In connection with the Acquisition, the Company agreed to file an
election under Sections 338(g) and 338(h)(10) of the Internal Revenue Code of
1986, as amended, pursuant to which the Company will allocate the purchase price
paid by the Company among the assets of these companies to determine the basis
of assets acquired in accordance with the principles of Treasury Regulation
1.338(h)(10)-1(f)(1)(ii).
28
<PAGE>
The sources and uses of funds related to financing the Acquisition as of
the closing date were as follows:
(IN MILLIONS)
SOURCES OF FUNDS:
Revolving Credit Facility....... $61.2
Common Stock purchased by Fund
VII............................ 30.0
IPF Company Credit Facility..... 5.0
-------------
$96.2
=============
USES OF FUNDS:
Acquisition purchase price(1)... $95.2
Acquisition costs and other
expenses........................ 0.6
Related corporate purposes...... 0.4
-------------
$96.2
=============
- ------------
(1) In February 1997 the Company paid an additional $500,000 as a post-closing
adjustment to the Acquisition purchase price.
The Company's objective is to maximize shareholder value by growing
reserves, production, cash flow and earnings through the opportunistic
acquisition of Gulf Coast region properties with underexploited value. The
Company applies 3-D seismic and other advanced technologies to development,
exploitation and exploration. These activities are complemented by the continued
expansion of the IPF Program. Fundamental to the execution of the Company's
strategy is its foundation of experienced technical talent strengthened by a
high level of financial, transactional and risk-management expertise, resulting
in part, from the former association of the Company and its employees with
Tenneco.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and natural gas, which
are dependent upon numerous factors beyond the Company's control, such as
economic, political and regulatory developments and competition from other
sources of energy. The energy markets have historically been highly volatile,
and future decreases in oil or natural gas prices could have a material adverse
effect on the Company's financial position, results of operations, quantities of
oil and natural gas reserves that may be economically produced, and access to
capital.
The Company uses the full cost method of accounting for its investments in
oil and natural gas properties. Under such methodology, all costs of
exploration, development and acquisition of oil and natural gas reserves are
capitalized into a "full cost pool" as incurred and properties in the pool are
depleted and charged to operations using the unit-of-production method based on
a ratio of current production to total proved oil and natural gas reserves. To
the extent that such capitalized costs (net of accumulated depreciation,
depletion, and amortization) less deferred taxes exceed the present value (using
a 10% discount rate) of estimated future net cash flows from proved oil and
natural gas reserves and the lower of cost or fair value of unproved properties,
such excess costs are charged to operations. If a write-down were required, it
would result in a non-cash charge to earnings but would not have an impact on
cash flows.
ACCOUNTING FOR IPF PROGRAM ACTIVITY
Through its IPF Program, the Company acquires term overriding royalty
interests in oil and gas properties owned by independent producers. Because the
capital advanced to a producer for these interests is repaid from an agreed upon
share of cash revenues from the sale of production until the capital advanced
plus a contractual return is paid in full, the Company accounts for the term
overriding royalty interests as notes receivable. Under this accounting method,
the Company recognizes only the interest income portion of payments received
from a producer as revenues on its income statement. The remaining cash receipts
are recorded as a reduction in notes receivable on the Company's balance sheet
and as IPF Program return of capital on the Company's statement of cash flows.
29
<PAGE>
If instead of acquiring dollar-denominated term overriding royalty
interests, the Company were purchasing term overriding royalty interests
requiring delivery of a specified quantity of oil and gas, IPF Program results
would be accounted for differently. Specifically, in 1996, Company EBITDA would
increase by $4.3 million and IPF Program return of capital in the Combined
Statement of Cash Flows would decrease by the same amount. To more accurately
reflect the actual cash flows generated by the Company, IPF Program return of
capital is identified separately to allow such cash receipts to be combined with
EBITDA.
Although, to date, the Company has not incurred any losses on notes
outstanding under the IPF Program, as of December 31, 1996, the Company
established a non-cash reserve for potential future losses of $437,000.
RESULTS OF OPERATIONS
The Company has experienced significant growth in reserves, production,
cash flow and earnings over the past three years. The following table summarizes
certain operating and financial data, production volumes, average realized
prices and average expenses for the Company's oil and natural gas operations for
the years ended December 31, 1994, 1995 and 1996:
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
OPERATING DATA (IN THOUSANDS):
Revenues
Natural gas................... $ 4,101 $ 27,772 $ 42,211
Oil and condensate............ 1,239 7,105 10,678
IPF Activities(1)............. 1,417 2,356 4,369
Total operating revenues........... 7,040 37,647 57,322
Total operating expenses........... 4,961 35,432 43,261
--------- --------- ---------
Income from operations............. $ 2,079 $ 2,215 $ 14,061
========= ========= =========
OTHER FINANCIAL DATA (IN THOUSANDS):
EBITDA(2).......................... $ 5,180 $ 24,907 $ 36,957
IPF Program return of capital(3)... 3,507 2,638 4,618
EBITDA plus IPF Program return of
capital.......................... 8,687 27,545 41,575
PRODUCTION VOLUMES:
Natural gas (MMcf)................. 2,334 18,065 21,578
Oil and condensate (MBbls)......... 83 424 574
Total (MMcfe)...................... 2,832 20,609 25,022
AVERAGE REALIZED PRICES:(4)
Natural gas (per Mcf).............. $ 1.76 $ 1.54 $ 1.96
Oil and condensate (per Bbl)....... 14.93 16.76 18.60
EXPENSES (PER MCFE):
Lease operating.................... $ 0.63 $ 0.39 $ 0.44
Production taxes................... 0.01 0.03 0.06
Depreciation, depletion and
amortization..................... 1.03 1.08 0.91
General and administrative,
net(5)........................... 0.23 0.16 0.12
- ------------
(1) IPF Activities includes income from the Company's IPF Program and the
Company's "GasFund" partnership with a financial investor. See "Business
and Properties -- Producer Investment Activities."
(2) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization. The Company believes that EBITDA
may provide additional information about the Company's ability to meet its
future
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
30
<PAGE>
requirements for debt service, capital expenditures and working capital.
EBITDA is a financial measure commonly used in the oil and gas industry and
should not be considered in isolation or as a substitute for net income,
operating income, net cash provided by operating activities or any other
measure of financial performance presented in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. Because EBITDA excludes some, but not all, items that affect
net income and may vary among companies, the EBITDA calculation presented
above may not be comparable to similarly titled measures of other companies.
(3) To more accurately reflect the actual cash flows generated by the Company,
IPF Program return of capital is identified separately to allow such cash
receipts to be combined with EBITDA.
(4) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities. See " -- Other
Matters -- Hedging Activities."
(5) Includes production attributable to properties managed for the Funds for the
periods indicated and excludes fees received from investors and overhead
allocations from Tenneco. Including Tenneco allocations, average net general
and administrative expenses per Mcfe for the years ended December 31, 1994,
1995 and 1996 would be $0.23, $0.20 and $0.28, respectively.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Oil and natural gas revenues increased from $34.9 million in 1995 to $52.9
million in 1996, an increase of $18.0 million, or 51.6%. Production volumes for
oil and condensate increased from 424 MBbls in 1995 to 574 MBbls in 1996, an
increase of 150 MBbls, or 35.4%. Production volumes for natural gas increased
from 18.1 Bcf in 1995 to 21.5 Bcf in 1996, an increase of 3.4 Bcf, or 19.4%. The
increase in oil and natural gas production was due to new wells being
successfully drilled and completed during 1996, as well as acquisitions of
producing properties. The increase in total net production increased revenues by
$7.6 million. In addition, the Company experienced a 14.0% increase in average
oil and condensate prices and a 27.9% increase in average natural gas prices.
Increases in average oil and natural gas prices were directly attributable to
general improved market conditions.
As a result of hedging activities, the Company realized an average oil
price of $18.60 per Bbl and an average gas price of $1.96 per Mcf for the year
ended December 31, 1996, compared to average prices of $20.73 per Bbl and $2.40
per Mcf, respectively, that otherwise would have been received. These hedging
activities decreased oil and natural gas revenues by approximately $10.7
million. This loss of revenue was the result of hedges made at the direction of
Tenneco in late 1995.
Revenues from IPF Activities increased from $2.4 million in 1995 to $4.4
million in 1996, an increase of $2.0 million, or 85.4%. This increase was the
result of a $1.0 million increase in IPF Program revenues and a $1.0 million
increase in GasFund revenues. See "Business and Properties -- Producer
Investment Activities." IPF Program revenues increased as the result of an
increase in IPF Program investments attributable to a 100% increase in IPF
Program customers at year-end 1996 compared to year-end 1995.
Lease operating expenses increased from $8.0 million in 1995 to $11.0
million in 1996, an increase of $3.0 million, or 37.4%. On an Mcfe basis, lease
operating expenses increased from $0.39 in 1995 to $0.44 in 1996, an increase of
$0.05, or 12.8%. The increase in lease operating expenses was primarily
attributable to increased production volumes. On a per unit basis, the increase
was primarily attributable to the acquisition in June 1996 of an interest in the
Wasson Field, which is undergoing tertiary enhanced recovery and the expenses
associated therewith.
Depreciation, depletion and amortization ("DD&A") expense remained flat
at $22.7 million from 1995 to 1996. This was the result of higher oil and gas
production volumes partially offset by an 18.5% decrease in the DD&A rate. The
reduced DD&A rate was attributable to the acquisition of low cost reserves in
the Wasson Field and the Company's investment in the Michigan Development
Project. See "Business and Properties -- Pending Transactions -- The Michigan
Disposition."
General and administrative expense, net of capitalized amounts, increased
from $4.1 million in 1995 to $8.2 million in 1996, an increase of $4.1 million,
or 102.2%. The increase was primarily due to a $3.6 million increase in the
corporate overhead allocation from Tenneco which included costs directly related
to severance payments, retention bonuses and other costs associated with the
merger of Tenneco with an affiliate of El Paso Natural Gas Company and also
reflects that during 1996 the Company was not paid any arrangement fees from
investors in the Funds.
31
<PAGE>
Income tax expense increased from $0.9 million in 1995 to $5.6 million in
1996, an increase of $4.7 million, or 545%. This was due to an increase in
income before taxes from $2.2 million in 1995 to $13.6 million in 1996 and an
increase in the effective tax rate from 38.9% in 1995 to 40.8% in 1996.
Net income was $8.2 million in 1996 compared to $1.4 million in 1995, as a
result of the factors described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Oil and natural gas revenues increased from $5.3 million in 1994 to $34.9
million in 1995, an increase of $29.6 million, or 553%. Production volumes for
oil and condensate increased from 83 MBbls in 1994 to 424 MBbls in 1995, an
increase of 341 MBbls, or 411%. Production volumes for natural gas increased
from 2.3 Bcf in 1994 to 18.1 Bcf in 1995, an increase of 15.8 Bcf, or 674%. The
increase in oil and natural gas production was due to increased drilling
activities, as well as the Pennzoil Acquisition and other acquisitions of
producing properties. The increase in total net production increased revenues by
$32.8 million. In addition, the Company experienced a 9% increase in average oil
and condensate prices, and a 13% decrease in average natural gas prices.
As a result of hedging activities, the Company realized an average oil
price of $16.76 per Bbl for the year ended December 31, 1995, compared to an
average price of $15.87 per Bbl that otherwise would have been received. These
hedging activities increased oil revenues by approximately $0.4 million.
Revenues from IPF Activities increased from $1.4 million in 1994 to $2.4
million in 1995, an increase of $1.0 million, or 66%. This increase was
primarily attributable to GasFund loan activity.
Lease operating expenses increased from $1.8 million in 1994 to $8.0
million in 1995, an increase of $6.2 million, or 346%. However, on an Mcfe
basis, lease operating expenses decreased from $0.63 in 1994 to $0.39 in 1995, a
decrease of $0.24, or 38%. The decrease in lease operating cost per Mcfe was
primarily attributable to significant increases in production volumes, following
several substantial asset acquisitions.
DD&A expense increased from $3.1 million in 1994 to $22.7 million in 1995,
an increase of $19.6 million, or 632%. This increase was due to the increase in
oil and gas production volumes and a 5% increase in the DD&A rate.
General and administrative expense, net of capitalized amounts, increased
from $0.1 million in 1994 to $4.1 million in 1995, an increase of $4.0 million.
The increase includes a $1.3 million corporate overhead allocation from Tenneco.
Excluding the corporate overhead allocation, the remainder of the increase was
primarily attributable to increased staffing requirements resulting from
acquisitions.
Income tax expense decreased from $1.1 million in 1994 to $0.9 million in
1995, a decrease of $0.2 million, or 22.1%. This was primarily due to a decrease
in the effective tax rate from 53.2% in 1994 to 38.9% in 1995.
Net income was $1.4 million in 1995 compared to $1.0 million in 1994, as a
result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Funding for the Company's exploration and development activities,
acquisitions and IPF Program investments has historically been provided by
operating cash flows, revolving credit borrowings, asset sales and advances from
Tenneco. The Company's Board of Directors has authorized a capital budget of
$125.0 million for 1997 to be spent on exploratory and development drilling, IPF
Program investments and acquisitions of oil and gas properties. The Company
intends to finance these expenditures with a portion of the net proceeds from
this Offering, cash flow from operations and borrowings under its revolving
credit facilities.
As a result of borrowings under the Revolving Credit Facility and the IPF
Company Credit Facility in order to finance a portion of the costs of the
Acquisition, the Company has incurred substantial indebtedness and has minimal
borrowing availability under either of such facilities. As of December 31, 1996,
the Company had total consolidated indebtedness for money borrowed of
approximately $92.7 million. On a
32
<PAGE>
pro forma basis as of December 31, 1996, the Company would have had total
consolidated indebtedness for money borrowed of approximately $25.3 million,
resulting in availability for additional borrowings of $44.2 million and $11.8
million under the Revolving Credit Facility and the IPF Company Credit Facility,
respectively (assuming a borrowing base of $63.3 million and $18.0 million,
respectively.)
The borrowing base under the Revolving Credit Facility is scheduled to be
redetermined based on the Company's January 1 and June 30, 1997 reserve reports.
Depending on the price outlook for oil and natural gas and the levels of the
Company's cash flows and capital expenditures, the borrowing base may be re-set
below the amounts outstanding under the Revolving Credit Facility, and in such
case the Company may need to refinance a portion of the principal amount of such
indebtedness prior to its maturity. The Company believes that cash flow from
operations, proceeds from the Offering and revolving credit borrowings will be
adequate to meet future liquidity needs, including satisfying the Company's
financial obligations and funding its capital investment program.
REVOLVING CREDIT FACILITY. In connection with the Acquisition, the Company
entered into the $65.0 million Revolving Credit Facility maturing on December
31, 1999 with a group of banks led by The Chase Manhattan Bank (the
"Lenders"). The Revolving Credit Facility is secured by approximately 80% of
the aggregate value of the Company's oil and gas properties and substantially
all of the Company's other property (other than IPF Program properties),
including the capital stock of Ventures Corporation and Production Corporation.
Although the remaining approximately 20% of the aggregate value of the Company's
oil and natural gas properties is not mortgaged to the Lenders thereunder, such
properties are nevertheless subject to the restrictions set forth therein,
including a prohibition on granting any security interests therein. The
borrowing base under the facility was $63.3 million as of February 28, 1997, and
is subject to a scheduled redetermination every six months (and such other
redeterminations as the Lenders may elect to perform each year) by the Lenders
at the Lenders' sole discretion and in accordance with their customary practices
and standards in effect from time to time for reserve-based loans to borrowers
similar to the Company. Determination of the borrowing base may be affected by,
among other things, estimates and projections of reserves and production rates
with respect to the Company's oil and natural gas properties and changes in oil
and natural gas prices. The Company's obligations under the Revolving Credit
Facility are guaranteed by its wholly-owned subsidiaries, Ventures Corporation
and Production Corporation.
If the Company's borrowing base is reduced, the amount available to the
Company under the Revolving Credit Facility will be reduced and, to the extent
that the borrowing base is less than the amount then outstanding thereunder, the
Company will be obligated to provide additional collateral or prepay such excess
amount within 30 days following the date on which the excess amount first
occurred. The borrowing base under the Revolving Credit Facility is scheduled to
be redetermined as of December 31, 1997 and may be reduced substantially from
its current level. All amounts outstanding in excess of such reduced borrowing
base must be paid in full at such date. In addition, if at the end of any fiscal
quarter of the Company during 1997 the amount then outstanding thereunder
exceeds $43.3 million (as such amount may be adjusted from time to time pursuant
to the Revolving Credit Facility), the Company will be obligated to prepay the
outstanding indebtedness thereunder in an amount equal to 100% of the Company's
"excess cash flow" (as defined therein) for such fiscal quarter. Excess cash
flow is defined to include a portion of the net proceeds to the Company of the
Offering.
Absent a default or an event of default (as defined therein), borrowings
under the Revolving Credit Facility accrue interest at LIBOR plus a margin of
1.50% to 2.50% per annum depending on the total amount outstanding or, at the
option of the Company, at the greater of (i) the prime rate and (ii) the federal
funds effective rate plus 0.50%, plus a margin of 0.50% to 1.50% depending on
the total amount outstanding. The Company incurs a quarterly commitment fee
ranging from 0.375% to 0.50% per annum on the average unused portion of the
Lenders' aggregate commitment, depending on the total amount outstanding.
The Revolving Credit Facility contains a number of covenants that, among
other things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness or grant liens on its properties,
33
<PAGE>
repay other indebtedness, pay dividends, enter into certain investments or
acquisitions, repurchase or redeem capital stock, engage in mergers or
consolidations, or engage in certain transactions with subsidiaries and
affiliates and that will otherwise restrict corporate activities. In addition,
such facility requires the Company to maintain a specified minimum tangible net
worth and to comply with certain prescribed financial ratios. Further, under
such facility, an event of default is deemed to occur if any person, other than
the Company's officers, Fund VII or any other investment fund, the managing
general partner of which is First Reserve, becomes the beneficial owner,
directly or indirectly, of more than 40% of the outstanding shares of Common
Stock.
IPF COMPANY CREDIT FACILITY. IPF Company, an indirect wholly-owned
subsidiary of the Company, has a $20.0 million revolving credit facility with
Compass Bank-Houston pursuant to which it finances a portion of the IPF Program.
The IPF Company Credit Facility matures June 1, 1998 at which time all amounts
owed thereunder are due and payable. The IPF Company Credit Facility is secured
by substantially all of IPF Company's oil and gas interests, including the notes
receivable generated therefrom. The borrowing base under the facility as of
February 28, 1997 was $18.0 million and is subject to a scheduled
redetermination by the lender every six months and such other redeterminations
as the lender may elect to perform each year. As of February 28, 1997,
approximately $11.2 million was outstanding under the IPF Company Credit
Facility. So long as no default or event of default (as defined therein) is
outstanding, borrowings under the IPF Company Credit Facility accrue interest at
LIBOR plus a margin of 2.25% or, at the option of IPF Company, the prime rate
published in THE WALL STREET JOURNAL.
The IPF Company Credit Facility contains a number of covenants that, among
other things, restrict the ability of IPF Company to incur additional
indebtedness or grant liens on its properties, guarantee indebtedness of any
other person, dispose of assets, make loans in excess of $100,000 other than in
the ordinary course of its business, issue additional shares of capital stock,
engage in certain transactions with affiliates, enter into any new line of
business or amend certain of its material contracts. In addition, such facility
requires IPF Company to maintain a specified minimum tangible net worth.
The IPF Company Credit Facility restricts the ability of IPF Company to
dividend cash to its parent, Ventures Corporation, or otherwise advance cash to
the Company. As of December 31, 1996, IPF Company net assets of approximately
$8.0 million were restricted.
CAPITAL EXPENDITURES AND FUTURE OUTLOOK
The following table sets forth the Company's capital expenditures and IPF
Program investments for each of the past three years.
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Acquisition of oil and gas properties... $ 65,201 $ 12,134 $ 23,328
Development and exploitation............ 4,883 7,834 13,765
Exploration............................. 15,121 23,677 12,126
IPF Program investments................. 3,315 6,606 18,608
Other................................... -- -- 7,657
--------- --------- ---------
Total.............................. $ 88,520 $ 50,251 $ 75,484
========= ========= =========
The Company's Board of Directors has authorized a capital budget of $125.0
million for 1997. The Company expects that $23.0 million of such capital
expenditures will be spent on completion, development and exploitation
activities on 10 Gulf of Mexico lease-blocks and $6.0 million will be spent on
drilling in connection with six exploratory programs. In addition, the Company
expects to invest $36.0 million in new IPF Program assets. The balance of
projected capital expenditures is attributable to $60.0 million in acquisitions
in the Company's core operating area, $30.0 million of which will be used to
finance the Funds Acquisition. The Company expects to finance these expenditures
with proceeds from the Offering, cash flow from operations and borrowings under
the Company's revolving credit facilities.
34
<PAGE>
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.
OTHER MATTERS
HEDGING ACTIVITIES. In an effort to achieve more predictable cash flows
and earnings and reduce the effects of the volatility of the price of oil and
natural gas on the Company's operations, the Company has in the past and may in
the future hedge oil and natural gas prices through the use of commodity
futures, options and swap agreements and other hedge devices. While the use of
these hedging arrangements limits the downside risk of adverse price movements,
it may also limit future gains from favorable movements. The Company accounts
for these transactions as hedging activities and, accordingly, gains and losses
are included in oil and natural gas revenues in the period in which the related
production occurs. The Company does not engage in speculative hedges. The
Revolving Credit Facility imposes certain limitations on the Company's ability
to enter into hedging transactions, but such limitations are not expected to
constrain the Company's hedging activities in any material respect.
The annual average oil and natural gas prices received by the Company have
fluctuated significantly over the past three years. The Company's weighted
average natural gas price received per Mcf (including the effects of hedging
transactions) was $1.76, $1.54 and $1.96 during the years ended December 31,
1994, 1995, and 1996, respectively. Hedging transactions resulted in a $0.43
reduction in the Company's weighted average natural gas price received per Mcf
in 1996. The Company's weighted average oil price received per Bbl during the
years ended December 31, 1994, 1995 and 1996 was $14.93, $16.76 and $18.60,
respectively. Hedging transactions resulted in a $2.15 reduction in the
Company's weighted average oil price received per Bbl in 1996.
The following table sets forth the Company's open hedging contracts for oil
and natural gas and the corresponding weighted average prices to be received
under various swap agreements as of March 15, 1997 and, assuming a market price
based on the NYMEX twelve-month strip as of December 31, 1996, the Company's
projected losses from hedging activities from 1997 to 2000.
<TABLE>
<CAPTION>
OIL NATURAL GAS
--------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BBLS PRICE MMBTU PRICE
--------- -------- ----- --------
<S> <C> <C> <C> <C>
January 1997 through December 1997...... 244,540 $17.37 4,270 $2.58
January 1998 through December 2000...... 442,550 $18.37 -- --
Projected Losses: January 1997
through December 2000 (in
thousands)............................ $ (2,532) $ (209)
</TABLE>
The following table sets forth the increase (decrease) in the Company's oil
and natural gas revenues as a result of hedging transactions and the effects of
hedging transactions on price per Mcf and price per Bbl during the periods
indicated. The Company's hedging transactions in 1995 and 1996 were made at the
direction of the management of Tenneco.
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Increase (decrease) in natural gas sales
(in thousands)........................ $ -- $ -- $ (9,454)
Increase (decrease) in oil sales (in
thousands)............................ -- 189 (1,223)
Effect of hedging transactions on
average gas sales price (per Mcf)..... -- -- (0.44)
Effect of hedging transactions on
average oil sales price (per Bbl)..... -- 0.45 (2.13)
NATURAL GAS BALANCING. The Company incurs certain gas production volume
imbalances in the ordinary course of business and utilizes the sales method to
account for such imbalances. Under this method, income is recorded based on the
Company's net revenue interest in production taken for delivery. Management does
not believe that the Company had any material gas imbalances as of December 31,
1995 or 1996.
35
<PAGE>
ACCOUNTING PRONOUNCEMENTS. On October 23, 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which establishes a
fair value method for accounting for stock-based compensation plans either
through recognition or disclosure. SFAS 123 encourages, but does not require,
companies to adopt the fair value method of accounting in place of the existing
intrinsic value method of accounting for stock-based compensation. The Company
currently utilizes the intrinsic value method of accounting and will continue to
use this method. When applicable, the Company will disclose the pro forma
adjustments to net income and earnings per share as required by SFAS 123 in the
notes to the Combined and Consolidated Financial Statements of the Company
included elsewhere in this Prospectus.
BUSINESS AND PROPERTIES
THE COMPANY
Domain is an independent oil and gas company engaged in the exploration,
development, production and acquisition of domestic oil and natural gas
properties, principally in the Gulf Coast region. The Company complements these
activities with its Independent Producer Finance Program (the "IPF Program")
pursuant to which it invests in oil and natural gas reserves through the
acquisition of term overriding royalty interests. The Company's future growth
will be driven by development, exploitation and exploration drilling on its
existing properties, by the continuation of an opportunistic acquisition
strategy in the Gulf Coast region and by further expansion of the IPF Program.
The Company was formed in December 1996 by the management of Tenneco
Ventures Corporation and an affiliate of First Reserve Corporation to acquire
(the "Acquisition") Tenneco Ventures Corporation and certain of its affiliates
(collectively, "Tenneco Ventures"). Senior management of the Company
established Tenneco Ventures in 1992 as a separate business unit of its former
parent, Tenneco Inc. ("Tenneco"), to engage in exploration and production, oil
and gas program management, producer finance and related activities. All of the
Company's executive officers are veterans of the Tenneco organization, and 11 of
the Company's 19 technical personnel have Tenneco Oil Company backgrounds.
Approximately 90% of the Company's employees, including all of its management,
have purchased shares of Common Stock in the Company.
During the last four years, the Company has grown primarily through the
opportunistic acquisition of Gulf of Mexico properties and the subsequent
development, exploitation and exploration of these properties, resulting in
substantial increases in its reserves and production. The Company believes that
its acquisition costs, lease operating costs and net general and administrative
costs on a per Mcfe basis are low relative to other companies operating
principally in the Gulf Coast region. From 1994 through 1996, the Company
completed 11 acquisitions aggregating $106.9 million, with an average cost of
proved reserves estimated at the time of acquisition of $0.48 per Mcfe. Eight of
the 11 acquisitions were Gulf Coast region properties. In 1996 the Company
achieved a lease operating expense of $0.44 per Mcfe of production and a net
general and administrative expense (excluding Tenneco overhead allocations) of
$0.12 per Mcfe of production.
The Company's pro forma estimated net proved reserves as of December 31,
1996 were 153.8 Bcfe, and its pro forma average daily production during 1996 was
85.6 MMcfe, each of which represents a twelvefold increase from levels in 1993.
Approximately 60% of these reserves were natural gas, and approximately 67% of
proved reserves were classified as proved developed producing. On a pro forma
basis as of December 31, 1996, the Company had a PV-10 Reserve Value of $213.0
million, which does not include reserve value attributable to the IPF Program.
Through the IPF Program, the Company complements its exploration and
production activities by providing capital to independent producers in return
for term overriding royalty interests in oil and gas properties owned by such
producers. From inception through December 31, 1996, the IPF Program has
generated an average return on net assets in excess of 20%. In addition, the
Company believes that the IPF Program offers a lower level of reserve,
production and price risk than that associated with working interest ownership.
From inception through December 31, 1996, the Company completed 40 transactions
under its IPF Program. At December 31, 1996, based on Company estimates and
assuming prices of $2.10 per Mcf of
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natural gas and $21.00 per Bbl of oil, the net present value attributable to IPF
Program assets was $25.0 million.
The Company generated earnings before interest, taxes and depreciation and
amortization ("EBITDA") plus IPF Program return of capital of $41.6 million in
1996, $27.6 million in 1995 and $8.7 million in 1994. IPF Program return of
capital was $4.6 million in 1996, $2.6 million in 1995 and $3.5 million in 1994.
The Company's 1996 pro forma EBITDA plus IPF Program return of capital was $59.2
million.
The Company's Board of Directors has authorized a capital budget of $125.0
million for 1997. These planned expenditures consist of $23.0 million for
development and exploitation expenditures on the Company's existing Gulf Coast
region properties, $6.0 million for exploratory drilling, $36.0 million for IPF
Program investments and $60.0 million for acquisitions in the Company's core
operating area, $30.0 million of which is pending. See " -- Pending
Transactions -- The Funds Acquisition."
The Company's principal executive offices are located at 1100 Louisiana,
Suite 1500, Houston, Texas 77002 and its telephone number is (713) 757-5662. The
mailing address of the Company's principal executive offices is P.O. Box 2511,
Houston, Texas 77252.
BUSINESS STRATEGY
The Company's objective is to maximize shareholder value by growing
reserves, production, cash flow and earnings through the opportunistic
acquisition of Gulf Coast region properties with underexploited value. The
Company applies 3-D seismic and other advanced technologies to development,
exploitation and exploration. These activities are complemented by the continued
expansion of the IPF Program. Fundamental to the execution of the Company's
strategy is its foundation of experienced technical talent strengthened by a
high level of financial, transactional and risk-management expertise resulting,
in part, from the former association of the Company and its employees with
Tenneco.
GEOGRAPHIC FOCUS. The Company concentrates its primary oil and gas
activities in the Gulf Coast region, specifically in state and federal waters
off the coast of Texas and Louisiana. The Company believes this region remains
attractive for future development, exploration and acquisition activities. This
is due to the availability of seismic data, significant reserve potential and a
well developed infrastructure of gathering systems, pipelines and platforms with
ready access to drilling services and equipment in the region. In addition, the
Company's relationships with major oil companies and independent producers
operating in the region allow continued access to new opportunities. This
geographic focus has enabled the Company to build and utilize a base of
region-specific geological, geophysical, engineering and production expertise.
The Company's geographic focus allows it to manage a large asset base with
relatively few employees, thus permitting the Company to control expenses and
add Gulf of Mexico production at a relatively low incremental cost.
ACQUISITION OF PROPERTIES WITH UNDEREXPLOITED VALUE. The Company employs
an acquisition strategy targeted primarily at purchases of Gulf Coast region
producing properties from major oil companies and large independents. These
properties provide opportunities to increase reserves, production and cash flow
through development and exploitation drilling and lease operating expense
reduction. The Company manages its acquired properties by working proactively
with its joint interest partners to accelerate development, identify
exploitation opportunities and implement cost controls on these properties.
DEVELOPMENT, EXPLOITATION AND EXPLORATION. The Company integrates its
reservoir and production engineering expertise with its geologic and seismic
interpretation abilities to enhance the results of its exploration and
production business. The Company applies workovers, recompletions, secondary
recovery operations and other production enhancement techniques on its existing
properties to increase recoverable reserves, production and cash flow.
Additionally, the Company uses advanced technology in both its development and
exploration activities to reduce drilling risks and finding costs and to
prioritize its drilling prospects based on return potential. The Company's
ability to obtain 3-D seismic data and its balanced integration of reservoir and
production engineering with such data allows it to identify multiple development
and exploratory prospects in mature producing fields that were not identified
through earlier
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technologies. The Company currently employs six geoscientists with an average
experience level of more than 16 years and operates two geophysical workstations
interpreting 3-D seismic data over twelve fields and six exploratory programs.
The Company intends to expand its geoscience team in 1997.
The Company has assembled a multiyear inventory of development,
exploitation and exploratory drilling opportunities in the Gulf Coast region and
has identified more than 70 drilling and recompletion opportunities for 1997.
Most of the properties comprising this inventory are located in fields that have
well-established production histories. The Company believes these properties may
yield significant additional recoverable reserves through the application of
advanced exploration and development technologies. The Company participated in
the drilling of nine development wells and 33 exploratory wells in 1996, of
which 78% and 61%, respectively, were successful.
CONTINUED EXPANSION OF THE IPF PROGRAM. The Company has leveraged its
expertise in oil and gas reserve appraisal and evaluation to develop and grow
the IPF Program. The Company believes this program offers an attractive
risk/reward balance and stable earnings. The oil and gas companies that
establish a relationship with the Company through the IPF Program often come to
view the Company as a prospective working interest partner for their drilling or
acquisition projects. Management believes that the investment opportunities,
market information and business relationships generated as a result of the IPF
Program provide the Company with a strategic advantage over other independent
oil and gas companies that are not engaged in this business. As a result of the
Company's efficiency in originating and closing IPF Program transactions in the
$0.5 to $5.0 million range, the Company currently encounters only limited
competition from alternate sources of capital for investment in quality
properties and projects of independent oil and gas companies.
The Company closed six IPF Program transactions in the first quarter of
1997 for an aggregate of $9.1 million. In addition, the Company is currently
evaluating over 30 transactions, all of which satisfy the Company's initial
screening criteria. The Company has budgeted $36.0 million for investment in IPF
Program transactions in 1997.
PENDING TRANSACTIONS
THE FUNDS ACQUISITION. The Company previously sponsored and managed two
oil and gas investment programs (collectively, the "Funds") for institutional
investors. The Company has reached an agreement with the investors in the Funds
to acquire certain property interests from such investors upon consummation of
the Offering (the "Funds Acquisition"). These property interests are primarily
located in the Gulf Coast region and have combined proved reserves of 33.0 Bcfe.
Furthermore, these interests include 17,821 net undeveloped leasehold acres with
3-D seismic based exploration potential. The Company expects to acquire these
reserves at an aggregate cost of $30.0 million, effective January 1, 1997, for a
unit cost of $0.65 per Mcfe of net proved reserves. The Funds Acquisition will
provide the Company with a larger interest in certain of its existing
properties, including the West Delta 30 Field in the Gulf of Mexico.
THE MICHIGAN DISPOSITION. The Company has substantially completed
negotiations and expects to close the sale of its interests in a natural gas
development project located in northwestern Michigan (the "Michigan Development
Project") in the near future. The Company views this transaction (the
"Michigan Disposition") as a disposition of non-core assets and a further
enhancement of its focus on the Gulf Coast region. The aggregate sales price
including assumption of debt is expected to be $32.2 million net to the
Company's interest. Upon consummation of the transaction, the Company will sell
28.8 Bcfe of proved reserves as of December 31, 1996 (of which 3.3 Bcfe were
proved developed producing as of December 31, 1996) and interests in a pipeline
company and a processing company.
The Company retained its interests in Oceana Exploration Company, L.C., a
Michigan exploration company. See "Business and Properties -- Exploration
Programs -- Michigan."
DEVELOPMENT, EXPLOITATION AND EXPLORATION PROJECTS
Set forth below is a description of the development and exploitation
projects that the Company's management expects to pursue during calendar year
1997. While the Company presently intends to
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<PAGE>
complete these projects, the number, type and timing thereof are subject to
change as a result of many factors, including the availability of capital to
fund such projects, initial test results, results of drilling by third parties
on adjacent blocks, weather, oil and gas prices and other general economic
conditions that are beyond the control of the Company. In addition, because the
Company does not operate most of its properties, it can influence but does not
have the ability to control the initiation and timing of many capital projects.
The Company currently anticipates spending approximately $23.0 million during
calendar year 1997 on some of the following projects. There can be no assurance
that any of these projects can be successfully developed within budget, or that,
once developed, such projects will be commercially productive. See "Risk
Factors -- Volatility of Oil and Natural Gas Prices; Marketability of
Production," "-- Reserve Replacement Risks," "-- Reliance on Estimates of
Oil and Natural Gas Reserves" and "-- Substantial Capital Requirements."
RABBIT ISLAND FIELD. In 1993 the Company purchased a 25% interest in the
Rabbit Island Field located in Louisiana state waters. The field has produced in
excess of 1.2 Tcf of gas and 46 MMBbls of oil. A 105 square-mile 3-D survey was
interpreted in 1993, and six of seven wells drilled since that time have been
successful, discovering 34.3 Bcfe of gross proved reserves (7.2 Bcfe net to the
Company's interest). The Company, Texaco Exploration and Production Inc.
("Texaco") and Shell Offshore Inc. ("Shell") are conducting a joint field
study to delineate additional exploitation opportunities in this field. This
study is expected to be completed in the third quarter of 1997. The preliminary
results of the study indicate at least 25 potential exploitation opportunities.
WEST DELTA 30. In 1995 the Company purchased a 70% working interest in the
West Delta 30 Field in the Gulf of Mexico from Shell and initiated an integrated
geological, geophysical and 3-D seismic study in the first half of 1996. As a
result of this study, the Company identified eight additional development
drilling locations and three deeper pool prospects that the Company believes
have significant exploratory potential. Based on the Company's proposal, Exxon
Company, U.S.A. ("Exxon"), the operator, has committed to drill a well to test
this field's deeper exploratory potential in mid-year 1997 and a development
well by year-end 1997.
MATAGORDA ISLAND 519. In late 1994 the Company purchased 13 producing
fields in the Gulf of Mexico from Pennzoil Company ("Pennzoil") for $51.3
million (the "Pennzoil Acquisition"), including the Matagorda Island 519
Field. The Company owns working interests of 17% and 25% in this field, which is
operated by Amoco Production Company ("Amoco"). Workover operations on three
wells in this field are scheduled to be performed in 1997. Amoco completed such
operations on the first well in January 1997, increasing gross production by 10
MMcf per day, a 50% increase in production attributable to the well. The Company
believes that significant development and exploratory potential remains in the
field. Amoco has purchased a 3-D seismic survey to delineate these
opportunities, in which the Company owns a 25% working interest.
HIGH ISLAND 110/111. The Company purchased its initial interest in this
Texaco-operated field as part of the Pennzoil Acquisition and currently holds a
17% working interest. The Company has identified several recompletion zones and
two proved undeveloped drilling locations in the field using 3-D seismic data to
reinterpret an internal field study. These wells are scheduled to be drilled in
1997.
MUSTANG ISLAND 846/847. The Company operates and owns a 100% working
interest in this field, which it acquired as part of the Pennzoil Acquisition.
Although the field was previously not producing and scheduled for abandonment by
Pennzoil, the Company initiated a three-well recompletion program on the field
shortly after its acquisition resulting in production of 8.8 MMcf per day. The
Company has conducted a detailed field study and identified a development
location that the Company believes has significant reserve potential. The
Company plans to drill this location by mid-year 1997.
WASSON FIELD. In June 1996 the Company acquired a 34.7% working interest
in the Cornell Unit in the Wasson Field in West Texas. Approximately 1.5 billion
Bbls of oil have been produced from the San Andres reservoir from which the
Cornell Unit produces. The field was initially waterflooded in 1965, and a CO2
flood was initiated in 1985 utilizing the water alternating-gas injection method
of enhanced oil recovery. Because the field has been restored to its original
pressure as the result of tertiary recovery
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<PAGE>
activities, at year-end 1996 the Company recommended the cessation of CO2
purchases for the next four to five years. This recommendation was adopted by
the unit working interest owners. As a result, the Company expects to increase
its annual cash flow from the field by $1.9 million. The Company, working with
unit operator Exxon, has identified up to 30 infill drilling locations.
Furthermore, pressure tests performed recently in an adjoining unit indicate
that the upper gas-bearing sands may be produced separately from the oil
reservoir. Exxon and the Company plan to test the feasibility of producing these
gas-bearing sands in 1997.
PRODUCER INVESTMENT ACTIVITIES
IPF PROGRAM. The Company complements its exploration and production
activities with its IPF Program pursuant to which it invests in oil and natural
gas reserves through the acquisition of term overriding royalty interests. From
inception through December 31, 1996, the IPF Program has generated an average
return on assets employed in excess of 20%. The IPF Program was established in
1993 and is funded by a combination of equity provided by the Company and
third-party debt. The IPF Program enables independent producers to obtain
nonrecourse financing, while maintaining ownership of their properties, through
the sale to the Company of term overriding royalty interests. Transaction sizes
for the program generally have ranged from $0.5 million to $5.0 million. A
strong customer focus has resulted in a large majority of IPF Program customers
having returned for additional funding requests and approximately a 100% average
annual growth in year-end customers over the last two years. From inception
through December 31, 1996, the Company completed 40 transactions under the IPF
Program. At December 31, 1996, based on Company estimates and assuming prices of
$2.10 per Mcf of natural gas and $21.00 per Bbl of oil, the net present value
attributable to IPF Program assets was $25.0 million.
The Company believes that the IPF Program offers a lower level of reserve,
production and price risk than that associated with working interest ownership.
Such risks are mitigated through strict adherence to the Company's IPF Program
underwriting guidelines and the Company structuring its investment to receive an
agreed upon share of revenues from identified properties until a contractual
return is attained. The Company's underwriting guidelines include the
requirement of sufficient reserve value, or collateral coverage, in excess of
the IPF Program investment and the requirement that the IPF Program investments
be structured so as not to bear production expenses. Additionally, because the
Company originates dollar-denominated IPF Program assets, the effect of
commodity price declines on the expected return on these assets is reduced as
compared to working interest ownership. This reduction in price risk occurs
because the Company structures its IPF Program term overriding royalty interests
to result in a contractual return before the overriding royalty interest is
discharged. As a result, IPF Program customers must deliver proceeds from the
sale of oil and gas production until such return is achieved by the Company on
its investment, regardless of the commodity price realized by the customer over
the term of the transaction.
On June 7, 1996, the Company's indirect wholly-owned subsidiary, IPF
Company, entered into the IPF Company Credit Facility pursuant to which it
finances the purchase of term overriding royalty interests under the IPF
Program. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- IPF Company Credit
Facility."
THE GASFUND. In May 1993, Ventures Corporation and EnCap Ventures 1993
Limited Partnership ("EnCap") finalized a partnership arrangement named the
GasFund ("GasFund"). The GasFund was a financing vehicle that utilized bank
debt supported by limited Company and EnCap credit enhancements, which provided
production-based financing to independent producers for oil and gas projects
generally exceeding $10.0 million.
Currently, there are no existing obligations and no outstanding
transactions associated with the GasFund. As a result of the Company's
assessment that the market to provide financing in amounts greater than $10.0
million is competitive to the point of unattractive returns, and the reduced
credit enhancement capabilities of the Company as a result of the Acquisition,
the Company does not anticipate participating in any future GasFund
transactions.
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<PAGE>
EXPLORATION PROGRAMS
During 1996 the Company participated in 33 exploration wells with 20
completions, for a 60.6% success rate. In addition to the exploration that the
Company may conduct on its existing properties, the Company intends to continue
participation in exploration activities through various joint venture programs,
including those summarized below.
SOUTH TEXAS -- COX & PERKINS DRILLING PROGRAM. The Cox & Perkins drilling
program is an exploration effort in the expanded Yegua gas trend within Jackson
and Wharton Counties, Texas. The Company holds a 10% working interest in this
program, which utilizes 3-D seismic data to delineate potential structural and
stratigraphic traps within the trend. The program sponsor and operator is Cox &
Perkins Exploration, Inc., a privately-held, independent exploration and
production company. Twenty-six wells have been drilled to date, of which 18 are
productive. Current gross daily production from the wells is approximately 42
MMcf of natural gas and 1,070 Bbls of condensate. One well is currently being
drilled, with four additional wells scheduled to be drilled in 1997.
SOUTH TEXAS -- KENEDY RANCH. The Kenedy Ranch program is an exploration
effort to delineate expanded Frio reservoir traps on this large ranch in Kenedy
County along the southern Texas Gulf Coast. Output Exploration Company, Inc.,
Hunt Petroleum Company and the Company have shot a 180 square mile 3-D seismic
survey and acquired 49,000 acres in defining potential drill sites. The program
operator is Hunt Petroleum Company. Interpretation of the seismic data has
identified five primary prospect areas. The Company holds a 12.5% working
interest in this project.
SOUTH LOUISIANA SALT DOMES. The Company and an affiliate of Shell,
together with the operator, Texaco, are engaged in an effort to delineate the
exploitation and exploration potential of three salt domes in southern
Louisiana, including the Rabbit Island Field. The group is utilizing 3-D seismic
to identify remaining potential. Nine out of 11 wells drilled to date have been
successful, discovering approximately 62.2 Bcfe of gross proved reserves (12.2
Bcfe net to the Company's interest). The Company's net working interest in these
program wells ranges from 7.6% to 25%.
ANADARKO BASIN. The Anadarko Basin seismic program is an exploration
effort within the Morrow Sand trend. The Company and the operator, Brigham
Exploration Company, are utilizing 3-D seismic technology to delineate potential
gas reservoirs in the channel-controlled Upper Morrow Sand. Additional
objectives are present both above and below the main objective. The program
participants hold 13,000 gross acres under lease, are pursuing another 12,000
gross acres and hold options on an additional 80,000 gross acres. Six 3-D
seismic surveys have been shot and the evaluation thereof is in progress. Five
wells have been drilled to date with two completions. The Company holds a 70%
working interest in two of the 3-D areas, a 37.5% working interest in three of
the 3-D areas and a 35% working interest in the remainder. Six additional wells
are currently being drilled or are scheduled to be drilled in the first half of
1997.
PERMIAN BASIN. The Permian Basin drilling program is an exploration effort
targeting the Strawn Formation. The Company and the operator, Rand Paulson Oil
Company, Inc., a privately-held, independent exploration and production company,
combine 3-D seismic technology with detailed, bio-stratigraphic zonation work to
delineate potential traps. Numerous secondary objectives exist above the primary
targets. The program participants hold 32,000 gross acres under lease. To date,
the Company has participated in nine wells with three completions. Thirteen
additional prospects have been identified on acreage held by the participants
with three wells currently being drilled and three additional wells scheduled to
be drilled by mid-year 1997. The Company holds a 50% working interest in the
program.
MICHIGAN. Oceana Exploration Company, L.C., a Texas limited liability
company and 80% owned subsidiary of Ventures Corporation, is obligated to drill,
or cause to be drilled, four exploratory wells in Oceana County, Michigan by the
end of 1997. Two such wells have been permitted and are expected to spud in the
first half of 1997. Through this program, the Company is targeting the Niagaran
reef trend, which the Company believes has significant exploratory potential.
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SIGNIFICANT PROPERTIES
The following table sets forth the net proved reserves and the PV-10
Reserve Value attributable to the Company's significant properties as of
December 31, 1996 and on a pro forma basis as of December 31, 1996 after giving
effect to the Funds Acquisition and the Michigan Disposition. The reserve data
set forth below does not include reserves or reserve value attributable to the
IPF Program. At December 31, 1996, the Company estimates that the net present
value attributable to IPF Program assets was $25.0 million.
<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1996
------------------------------------- -------------------------------------
NET % OF TOTAL PV-10 NET % OF TOTAL PV-10
PROVED NET RESERVE PROVED NET RESERVE
RESERVES PROVED VALUE RESERVES PROVED VALUE
(BCFE) RESERVES (IN MILLIONS) (BCFE) RESERVES (IN MILLIONS)
-------- ---------- ------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
GULF COAST FIELDS
Matagorda Island 519............... 14.2 9.5% $ 33.6 14.2 9.2% $ 33.6
West Delta 30...................... 11.5 7.7% 18.4 28.8 18.7% 46.1
High Island 110/111................ 5.6 3.7% 8.4 5.6 3.6% 8.4
Mustang Island 846/847............. 4.3 2.9% 4.8 4.3 2.8% 4.8
Eugene Island 372.................. 3.0 2.0% 4.7 3.0 2.0% 4.7
Rabbit Island...................... 3.0 2.0% 10.3 3.0 2.0% 10.3
Main Pass 74....................... 2.5 1.7% 4.7 2.5 1.6% 4.7
Other Gulf Coast................... 26.4 17.7% 57.0 42.1 27.4% 95.0
-------- ---------- ------------- -------- ---------- -------------
70.5 47.2% $ 141.9 103.5 67.3% $ 207.6
OTHER FIELDS
Wasson Field....................... 50.3 33.6% $ 12.6 50.3 32.7% $ 12.6
Michigan Development Project....... 28.8 19.2% $ 36.9 -- -- --
-------- ---------- ------------- -------- ---------- -------------
Total......................... 149.6 100% $ 191.4(1) 153.8 100% $ 220.2(1)
======== ========== ============= ======== ========== =============
</TABLE>
- ------------
(1) Does not reflect losses calculated to be incurred from future hedging
activities. As a result of such losses, PV-10 Reserve Value and pro forma
PV-10 Reserve Value as of December 31, 1996 were $184.8 million and $213.0
million, respectively.
MATAGORDA ISLAND 519 FIELD. The Matagorda Island Block 519 Field is
located offshore Texas, approximately 12 miles southeast of Matagorda County, in
approximately 69 feet of water. Amoco discovered the field in 1983 and is the
current operator. Four wells produce gas from lower Miocene Sands at a depth of
approximately 14,800 feet to 17,000 feet. This field is currently producing 58.9
MMcf of gas per day and 134 Bbls of oil per day (7.7 MMcf and 17.4 Bbls net to
the Company's interest). The Company acquired an average 20% working interest in
the field effective October 1, 1994 pursuant to the Pennzoil Acquisition.
WEST DELTA 30 FIELD. The West Delta 30 Field is located offshore
Louisiana, approximately 65 miles south-southeast of New Orleans, in
approximately 50 feet of water. The field was discovered in 1954 and has had
over 200 wells drilled, the last of which was drilled in the early 1990s.
Effective January 1, 1995, the Company acquired 28% of Shell's working interests
in this field, which ranged from 50% to 100%. Cumulative production to date is
approximately 300 Bcf of gas and 200 MMBbls of oil and the field currently
produces 4.8 MMcf of gas per day and 1,489 Bbls of oil per day (1.4 MMcf and 417
Bbls net to the Company's interest). Seneca Resources Corporation and Exxon are
the operators of the field. The West Delta 30 Field produces from Pliocene and
Miocene Sands at a depth of approximately 6,500 feet to 11,000 feet that are
trapped against a salt dome feature.
HIGH ISLAND 110/111 FIELD. High Island Blocks 110 and 111 are located
offshore Texas, approximately 20 miles offshore of Jefferson County, in
approximately 30 feet of water. The field was discovered in 1973 and is
currently operated by Texaco. The 17.7% average working interest owned by the
Company was acquired from Pennzoil in 1994 and Sonat Exploration Company in
1995. Cumulative production to
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date from this field has been approximately 309 Bcf of gas and 2.6 MMBbls of oil
and the field currently produces 8.8 MMcf of gas per day and 170 Bbls of oil per
day (1.3 MMcf and 24.1 Bbls net to the Company's interest). The High Island
110/111 Field produces from Miocene Sands at a depth of approximately 7,500 feet
to 12,500 feet that are trapped in a faulted anticline, downthrown to a major
listric fault.
MUSTANG ISLAND 846/847 FIELD. Mustang Island Blocks 846 and 847 are
located offshore Texas, approximately 23 miles south of Corpus Christi in
approximately 124 feet of water. This field was discovered in 1984 and has
produced approximately 16 Bcf of gas. The field is currently producing 4.4 MMcf
of gas per day and 5.0 Bbls of oil per day (3.7 MMcf and 4.2 Bbls net to the
Company's interest). The Company acquired a 100% working interest in this field
as a result of the Pennzoil Acquisition. The Mustang Island 846/847 Field
produces from lower Miocene Sands at a depth of approximately 6,000 feet to
7,200 feet. The reservoir trap is a low relief rollover, downthrown to a
regional fault.
EUGENE ISLAND 372 FIELD. Eugene Island Block 372 is located offshore
Louisiana, approximately 168 miles southwest of New Orleans, in approximately
400 feet of water. This field was discovered in 1978 and has produced
approximately 44 Bcf of gas and 1.5 MMBbls of oil from nine wells. Currently,
there are five active wells in this field. The Company acquired its 37.5%
working interest in this field as a result of the Pennzoil Acquisition. The
Eugene Island 372 Field produces from Pleistocene Sands at a depth of
approximately 5,100 feet to 9,900 feet. The reservoir trap is characterized by
complex faulting and highly stratigraphic sands. Unocal Corporation
("Unocal"), the current operator, is in the process of interpreting a new 3-D
seismic survey covering the block and has identified several untested seismic
amplitudes. Work is in progress to evaluate the size and economic viability of
these leads.
RABBIT ISLAND. The Rabbit Island Field is located in Louisiana state
waters, approximately 95 miles southwest of New Orleans in approximately ten
feet of water. This field was discovered in 1939 and has produced in excess of
1.2 Tcf of gas and 46 MMBbls of oil. The field is currently producing 32.2 MMcf
of gas per day and 112 Bbls of oil per day (6.1 MMcf and 21.1 Bbls net to the
Company's interest). Benton Oil & Gas Company of Louisiana ("Benton") earned a
50% working interest in this field from Texaco by acquiring and interpreting a
105 square mile 3-D seismic survey across the field. In 1993, the Company bought
a 25% working interest from Benton. In early 1996, Shell acquired Benton,
leaving Texaco, Shell, and the Company as working interest owners. The
productive interval is Miocene Sands at a depth of approximately 1,600 feet to
12,000 feet. The field is a piercement salt dome with associated radial
faulting.
MAIN PASS 74. Main Pass Block 74 is located in Louisiana state waters,
approximately 85 miles southeast of New Orleans in approximately 75 feet of
water. This field was discovered in 1981 and is currently operated by Exxon.
Cumulative production from this field has been approximately 20 MMBbls of oil
and 41 Bcf of gas. The Company acquired an average working interest of 14.4% in
this field as a result of the Pennzoil Acquisition. All production from the Main
Pass 74 Field has come from Miocene Puma Sand at a depth of approximately 10,000
feet to 10,500 feet. The reservoir trap is a westerly-dipping, stratigraphic
trap. The Company has identified one additional drilling location within the
field, and Exxon has expressed an interest in drilling a horizontal well into
the reservoir.
WASSON FIELD. The Wasson Field is located in Gaines and Yoakum Counties,
Texas, approximately 80 miles northwest of Midland, Texas. In June 1996 the
Company acquired from Kerr-McGee Corporation 34.7% and .17% working interests in
the Cornell and Denver Units at this field, respectively. These two units are
currently producing 40,301 Bbls of oil per day (548.8 Bbls net to the Company's
interest). The Wasson Field was discovered in 1937. The Cornell and Denver Units
are currently operated by Exxon and Altura Energy, Inc. (a joint venture between
Shell and Amoco), respectively. Approximately 1.5 billion barrels of oil have
been produced from the San Andres reservoir. The San Andres produces in both the
Cornell and Denver Units at depths of approximately 5,500 feet to 6,000 feet.
This field was initially waterflooded in 1965, and a CO2 flood was initiated in
1985 utilizing the water-alternating-gas injection method of enhanced oil
recovery.
43
<PAGE>
OIL AND NATURAL GAS RESERVES
The following table summarizes the estimates of the Company's historical
net proved reserves as of December 31, 1994, 1995 and 1996 and pro forma net
proved reserves as of December 31, 1996, and the present values attributable to
these reserves at such dates. The reserve data and present values as of December
31, 1994 have been estimated by DeGolyer and other third-party petroleum
engineers. The reserve data and present values as of December 31, 1995 have been
estimated by DeGolyer and Netherland, Sewell. The reserve data and present
values as of December 31, 1996 have been estimated by (i) Netherland, Sewell,
with respect to the West Delta 30 Field, (ii) by other third-party petroleum
engineers with respect to the Michigan Development Project and (iii) by DeGolyer
with respect to all of the Company's other oil and natural gas properties. See
"Significant Properties." The pro forma December 31, 1996 reserve data and
present values give effect to the Funds Acquisition and the Michigan
Disposition. Summaries of the December 31, 1996 reserve reports and the letters
of DeGolyer and Netherland, Sewell with respect thereto are included as Appendix
A to this Prospectus. The reserve data set forth below does not include reserves
or reserve value attributable to the IPF Program. At December 31, 1996, the
Company estimates that the net present value attributable to IPF Program assets
was $25.0 million.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------
PRO FORMA
1994 1995 1996(1)(2) 1996(1)
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
PROVED RESERVES:
Natural Gas (MMcf)................. 73,399 82,682 89,101 91,182
Oil and condensate (MBbls)......... 4,109 2,197 10,086 10,442
Total (MMcfe)...................... 98,053 95,864 149,617 153,834
PROVED DEVELOPED PRODUCING RESERVES:
Natural Gas (MMcf)................. 46,544 45,386 47,029 52,055
Oil and condensate (MBbls)......... 967 1,219 8,010 8,379
Total (MMcfe)...................... 52,346 52,700 95,089 102,332
PV-10 Reserve Value (in thousands)...... $ 61,812 $ 103,931 $ 184,816 $ 213,030
Standardized measure of discounted
future net cash flows (in
thousands)............................ $ 68,492 $ 98,999 $ 157,177 --
</TABLE>
- ------------
(1) The present values as of December 31, 1996 were prepared using a weighted
average sales price of $22.50 per Bbl of oil and $3.38 per Mcf of natural
gas. The pro forma present values as of December 31, 1996 were prepared
using a weighted average sales price of $23.63 per Bbl of oil and $3.59 per
Mcf of natural gas. By comparison, the present values as of December 31,
1995 were prepared using a weighted average sales price of $18.76 per Bbl of
oil and $3.30 per Mcf of natural gas.
(2) Except for the standardized measure calculation, excludes minority interest
attributable to the Michigan Development Project.
The estimation of reserve data is a subjective process of estimating the
recovery of underground accumulations of oil and natural gas that cannot be
measured in an exact manner, and the accuracy of any reserve estimate is a
function of the quality of the available data, the assumptions made, and
engineering and geological interpretation and judgment. Estimates of
economically recoverable oil and natural gas reserves and future net cash flows
therefrom necessarily depend upon a number of variable factors and assumptions,
including historical production from the area compared with production from
other producing areas, the assumed effects of regulation by governmental
agencies and assumptions concerning future oil and natural 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.
Any such estimates are therefore inherently imprecise, and estimates by other
engineers, or by the same engineers at a different time, might differ materially
from those included herein. Actual prices, production, development expenditures,
operating expenses and quantities of recoverable oil and natural gas reserves
will vary from those assumed in the estimates and it is likely that such
variances will be significant. Any significant variance
44
<PAGE>
from the assumptions could result in the actual quantity of the Company's
reserves and future net cash flow therefrom being materially different from the
estimates set forth in this Prospectus. In addition, the Company's estimated
reserves may be subject to downward or upward revision, based upon production
history, results of future exploration and development, prevailing oil and
natural gas prices, operating and development costs and other factors.
Estimates with respect to proved undeveloped reserves that may be developed
and produced in the future are often based upon volumetric calculations and upon
analogy to similar types of reserves rather than actual production history.
Estimates based on these methods are generally less reliable than those based on
actual production history. Subsequent evaluation of the same reserves based upon
production history will result in variations, which may be substantial, in the
estimated reserves.
The present value of future net cash flows shown above should not be
construed as the current market value, or the market value as of December 31,
1996, or any prior date, of the estimated oil and natural gas reserves
attributable to the Company's properties. In accordance with applicable
requirements of the Commission, the estimated discounted future net cash flows
from estimated proved reserves are based on prices and costs as of the date of
the estimate unless such prices or costs are contractually determined at such
date. Actual future prices and costs may be materially higher or lower. Actual
future net cash flows also will be affected by factors such as actual
production, supply and demand for oil and natural gas, curtailments or increases
in consumption by natural gas purchasers, changes in governmental regulations or
taxation and the impact of inflation on costs.
The Company's PV-10 Reserve Value as of December 31, 1996 was prepared
using a weighted average sales price of $22.50 per Bbl of oil and $3.38 per Mcf
of natural gas. These prices were substantially higher than prices used by the
Company to calculate PV-10 Reserve Value in recent years. The Company estimates
that a substantial decline in prices relative to year-end 1996 would cause a
substantial decline in the Company's PV-10 Reserve Value. For example, compared
to the pro forma data set forth in the above table as of December 31, 1996, a
$0.10 per Mcf decline in natural gas prices, holding all other variables
constant, would decrease the Company's pro forma December 31, 1996 PV-10 Reserve
Value by approximately $6.4 million, or 2.8%, and a $1.00 per Bbl decline in oil
and condensate prices would decrease the Company's PV-10 Reserve Value by
approximately $4.0 million, or 1.8%. While the foregoing calculations should
assist the reader in understanding the effect of a decline in oil or natural gas
prices on the Company's PV-10 Reserve Value, such calculations assume that
quantities of recoverable reserves are constant and therefore would not be
accurate if prices decreased to a level at which reserves would no longer be
economically recoverable.
In accordance with methodology approved by the Commission, specific
assumptions were applied in the estimates of future net cash flows. Under this
methodology, estimated future net cash flows are determined by reducing
estimated future gross cash flows to the Company for oil and natural gas sales
by the estimated costs to develop and produce the underlying reserves, including
future capital expenditures, operating costs, transportation costs, royalty and
overriding royalty burdens. Estimated future production costs were based on
actual annual production costs incurred during the reported period. A portion of
the Company's proved reserves are undeveloped, and future development costs
thereon were calculated based on a continuation of present economic conditions.
Future net cash flows were discounted at 10% per annum to arrive at
discounted future net cash flows. The 10% discount factor used to calculate
present value is required by the Commission, but such rate is not necessarily
the most appropriate discount rate. Present value of future net cash flows,
irrespective of the discount rate used, is materially affected by assumptions as
to timing of future natural gas and oil prices and production, which may prove
to be inaccurate. In addition, the calculations of estimated net revenues do not
take into account the effect of certain cash outlays, including among other
things, general and administrative costs, interest expense and dividends.
The Company's estimated proved reserves have not been filed with or
included in reports to any federal authority or agency.
45
<PAGE>
PRODUCTION, PRICES AND OPERATING EXPENSES
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
PRODUCTION VOLUMES:
Natural gas (MMcf)................. 2,334 18,065 21,578
Oil and liquids (MBbls)............ 83 424 574
Total (MMcfe)...................... 2,832 20,609 25,022
AVERAGE REALIZED PRICES:(1)
Natural gas (per Mcf).............. $ 1.76 $ 1.54 $ 1.96
Oil and liquids (per Bbl).......... 14.93 16.76 18.60
EXPENSES (PER MCFE):
Lease operating expense............ $ 0.63 $ 0.39 $ 0.44
Production taxes................... 0.01 0.03 0.06
Depreciation, depletion and
amortization..................... 1.03 1.08 0.91
General and administrative,
net(2)........................... 0.23 0.16 0.12
- ------------
(1) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Other
Matters -- Hedging Activities."
(2) Includes production attributable to properties managed for the Funds for the
periods indicated and excludes fees received from investors and overhead
allocations from Tenneco. Including Tenneco allocations, average net general
and administrative expenses per Mcfe for the years ended December 31, 1994,
1995, and 1996 would be $0.23, $0.20 and $0.28, respectively.
PRODUCTIVE WELLS
The following table sets forth the number of productive oil and natural gas
wells in which the Company owned an interest as of December 31, 1996.
TOTAL PRODUCTIVE
WELLS
--------------------
GROSS NET
--------- ---------
OFFSHORE
Natural gas............................. 71.0 20.8
Oil..................................... 39.0 8.2
--------- ---------
Total.............................. 110.0 29.0
ONSHORE
Natural gas............................. 43.0 10.0
Oil..................................... 837.0(1) 24.8(1)
--------- ---------
Total.............................. 880.0 34.8
TOTAL OFFSHORE AND ONSHORE
Natural gas............................. 114.0 30.8
Oil..................................... 876.0(1) 33.0(1)
--------- ---------
Total.............................. 990.0 63.8
========= =========
- ------------
(1) Includes 756 gross wells in the Wasson Field (Denver Unit) in which the
Company holds a 0.17% working interest.
Productive wells consist of producing wells and wells capable of
production, including natural gas wells awaiting pipeline connections to
commence deliveries and oil wells awaiting connection to production facilities.
In wells with multiple completions mechanically isolated zones are counted as
individual wells.
46
<PAGE>
ACREAGE DATA
The following table sets forth the approximate developed and undeveloped
acreage in which the Company held a leasehold mineral or other interest as of
December 31, 1996. 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 natural gas, regardless of whether or not such
acreage contains proved reserves.
TOTAL ACREAGE DEVELOPED UNDEVELOPED
-------------------- ACREAGE ACREAGE
AREA (GROSS) (NET) (NET) (NET)
- ------------------------------ --------- --------- --------- -----------
Onshore:
Alabama.................. 18,571 2,889 2,889 --
Louisiana................ 10,764 4,170 1,058 3,112
Michigan................. 9,491 8,503 1,512 6,991
Mississippi.............. 4,444 1,023 626 397
New Mexico............... 34,588 13,163 168 12,995
Texas.................... 107,021 16,229 2,262 13,967
--------- --------- --------- -----------
Total Onshore................. 184,879 45,977 8,515 37,462
--------- --------- --------- -----------
Offshore:
Louisiana................ 158,776 42,283 29,333 12,950
Texas.................... 80,555 26,968 23,848 3,120
--------- --------- --------- -----------
Total Offshore................ 239,331 69,251 53,181 16,070
--------- --------- --------- -----------
Total......................... 424,210 115,228 61,696 53,532
========= ========= ========= ===========
The Company will acquire an aggregate of 14,858 developed and 17,821
undeveloped net leasehold acres pursuant to the Funds Acquisition and will
dispose of 1,892 of the gross leasehold acres and 1,512 of the net developed
leasehold acres set forth above in Michigan pursuant to the Michigan
Disposition.
47
<PAGE>
DRILLING ACTIVITIES
The following table sets forth the drilling activity of the Company on its
properties for the years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
OFFSHORE DRILLING ACTIVITY:
Development:
Productive...................... 3.0 0.8 2.0 0.5 5.0 1.5
Non-productive.................. -- -- -- -- -- --
----- --- ----- --- ----- ---
Total...................... 3.0 0.8 2.0 0.5 5.0 1.5
Exploratory:
Productive...................... 2.0 0.9 4.0 1.3 2.0 0.6
Non-productive.................. 4.0 0.5 4.0 0.9 1.0 0.2
----- --- ----- --- ----- ---
Total...................... 6.0 1.4 8.0 2.2 3.0 0.8
ONSHORE DRILLING ACTIVITY:
Development:
Productive...................... -- -- 4.0 0.7 2.0 0.3
Non-productive.................. -- -- 1.0 0.1 2.0 0.6
----- --- ----- --- ----- ---
Total...................... -- -- 5.0 0.8 4.0 0.9
Exploratory:
Productive...................... 12.0 1.7 15.0 1.8 18.0 2.0
Non-productive.................. 14.0 2.7 25.0 4.6 12.0 1.7
----- --- ----- --- ----- ---
Total...................... 26.0 4.4 40.0 6.4 30.0 3.7
</TABLE>
The information contained in the foregoing table should not be considered
indicative of future performance, nor should it be assumed that there is
necessarily any correlation between the number of productive wells drilled and
the oil and natural gas reserves generated therefrom.
From January 1, 1997 through March 15, 1997, the Company participated in
drilling activities on 15 gross wells. Of the 15 wells, 5 (1.4 net) have been
completed as commercial producers, 4 (0.6 net) were dry holes, and 6 (2.3 net)
are currently being drilled.
OIL AND GAS MARKETING
The Company's production is priced based on short-term spot prices and is
marketed to third parties consistent with industry practices. The Company is
aided by the presence of multiple delivery points near its production in the
Gulf Coast region. From time to time, the Company has hedged a portion of its
oil and gas production to achieve more predictable cash flows and to reduce its
exposure to fluctuations in oil and gas prices. Despite the measures taken by
the Company to attempt to control price risk, the revenues generated by the
Company's operations are highly dependent upon the prices of, and demand for,
oil and natural gas. The price received by the Company for its oil and natural
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
natural gas-producing and oil-producing countries, the actions of OPEC and
domestic government regulation, legislation and policies. Decreases in the
prices of oil and natural gas could have a material 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 natural gas production,
market, transportation economic and regulatory factors may in the future
materially adversely affect the Company's ability to sell its oil or natural gas
production. See "Risk Factors -- Volatility of Oil
48
<PAGE>
and Natural Gas Prices; Marketability of Production" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The Company encounters competition from other companies in all areas of its
operations, including the acquisition of producing properties and its IPF
Program. The Company's competitors include major integrated oil and gas
companies and numerous independent oil and gas companies, individuals and
drilling and income programs and, in the case of its IPF Program, affiliates of
investment, commercial and merchant banking firms and affiliates of large
interstate pipeline companies. Many of its competitors are large, well-
established companies with substantially larger operating staffs and greater
capital resources than the Company's and which, in many instances, have been
engaged in the oil and gas business for a much longer time than the Company.
Such companies may be able to pay more for productive natural gas and oil
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, and to grow its IPF Program,
will be dependent upon its ability to evaluate and select suitable properties
and to consummate transactions in this highly competitive environment.
REGULATION
The availability of a ready market for oil and natural gas production
depends upon numerous factors beyond the Company's control. These factors
include regulation of oil and natural gas production, federal, state and local
laws and regulations governing environmental quality and pollution control,
state limits on allowable rates of production by a well or proration unit, the
supply of oil and natural gas available for sale, the availability of adequate
pipeline and other transportation and processing facilities and the marketing of
competitive fuels. For example, a productive natural gas well may be "shut-in"
because of an oversupply of natural gas or the lack of an available natural gas
pipeline in the areas in which the Company conducts its operations. Federal,
state and local laws and regulations generally are intended to prevent waste of
oil and natural gas, protect rights to produce oil and natural gas between
owners in a common reservoir, control the amount of oil and natural gas produced
by assigning allowable rates of production and control contamination of the
environment.
REGULATION OF OIL AND NATURAL GAS EXPLORATION AND PRODUCTION. The
Company's exploration and production operations are subject to various types of
regulation at the federal, state and local levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements in
order to drill or operate wells, and regulating the location of wells, the
method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilling and the plugging and abandonment of
wells. The Company's operations are also subject to various conservation laws
and regulations. These include the regulation of the size of drilling and
spacing units or proration units and the density of wells that may be drilled
and unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of lands and leases. In
addition, state conservation laws establish maximum rates of production from oil
and natural gas wells, generally prohibit the venting or flaring of natural gas
and impose certain requirements regarding the ratability of production. The
effect of these regulations is to limit the amounts of oil and natural gas the
Company's operator or the Company can produce from its wells, and to limit the
number of wells the Company can drill or the locations thereof. In addition,
numerous departments and agencies, both federal and state, are authorized by
statute to issue rules and regulations binding on the oil and gas industry and
its individual members, some of which carry substantial penalties for failure to
comply. The regulatory burden on the oil and gas industry increases the
Company's cost of doing business and, consequently, affects its profitability.
Inasmuch as such laws and regulations are frequently expanded, amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such regulations.
49
<PAGE>
NATURAL GAS MARKETING AND TRANSPORTATION. Federal legislation and
regulatory controls in the United States have historically affected the price of
the natural gas produced by the Company and the manner in which such production
is marketed. The transportation and sale for resale of natural gas in interstate
commerce are regulated pursuant to the Natural Gas Act of 1938 (the "NGA"),
the Natural Gas Policy Act of 1978 (the "NGPA") and the Federal Energy
Regulatory Commission (the "FERC"). Although maximum selling prices of natural
gas were regulated in the past, on July 26, 1989, the Natural Gas Wellhead
Decontrol Act of 1989 ("Decontrol Act") was enacted, which amended the NGPA to
remove completely by January 1, 1993 price and nonprice controls for all "first
sales" of domestic natural gas, which include all sales by the Company of its
production; consequently, sales of the Company's natural gas production
currently may be made at market prices, subject to applicable contract
provisions. The FERC's jurisdiction over natural gas transportation was
unaffected by the Decontrol Act.
The FERC also regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by the
Company, as well as the revenues received by the Company for sales of such
natural gas. Since the latter part of 1985, the FERC has endeavored to make
interstate natural gas transportation more accessible to natural gas buyers and
sellers on an open and nondiscriminatory basis. The FERC's efforts have
significantly altered the marketing and pricing of natural gas. Commencing in
April 1992, the FERC issued Order Nos. 636, 636-A and 636-B (collectively,
"Order No. 636"), which, among other things, require interstate pipelines to
"restructure" to provide transportation separate or "unbundled" from the
pipelines' sales of natural gas. Also, Order No. 636 requires pipelines to
provide open-access transportation on a basis that is equal for all natural gas
supplies. Order No. 636 has been implemented through negotiated settlements in
individual pipeline service restructuring proceedings. In many instances, the
result of the Order No. 636 and related initiatives has been to reduce
substantially or bring to an end the interstate pipelines' traditional role as
wholesalers of natural gas in favor of providing only storage and transportation
services. The FERC has issued final orders in virtually all pipeline
restructuring proceedings, and has now commenced a series of one year reviews to
determine whether refinements are required regarding individual pipeline
implementations of Order No. 636.
Recently, the FERC issued policy statements on how interstate natural gas
pipelines can recover the costs of new pipeline facilities and on how the FERC
intends to regulate natural gas gathering facilities owned (or previously owned
but either "spun down" to an affiliate or "spun off" to a non-affiliate) by
interstate pipeline companies after Order No. 636. While the FERC's policy
statement on new construction cost recovery affects the Company only indirectly,
in its present form, the new policy should enhance competition in natural gas
markets and facilitate construction of gas supply laterals. However, requests
for rehearing of this policy statement are currently pending. The FERC has
approved the spin down or spin off by several interstate pipelines of their
gathering facilities. These approvals were given despite the strong protests of
a number of producers concerned that any diminution in FERC's oversight of
interstate pipeline-related gathering services might result in a denial of open
access or otherwise enhance the pipelines' monopoly power. While the FERC has
stated that it will retain limited jurisdiction over such gathering facilities
and will hear complaints concerning any denial of access, it is unclear what
effect the FERC's new gathering policy will have on producers such as the
Company and the Company cannot predict what further action the FERC will take on
these matters.
Proposals and proceedings that might affect the natural gas industry are
considered from time to time by Congress, the FERC, state regulatory bodies and
the courts. The Company cannot predict when or if any such proposals might
become effective, or their effect, if any, on the Company's operations. The
natural gas industry historically has been very heavily regulated; therefore,
there is no assurance that the less stringent regulatory approach recently
pursued by the FERC and Congress will continue indefinitely into the future.
FEDERAL OFFSHORE LEASING. Certain of the Company's operations are
conducted on federal oil and gas leases administered by the Minerals Management
Service ("MMS"). The MMS issues such leases through competitive bidding. These
leases contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the Outer Continental Shelf
Lands Act ("OCSLA") (which are subject to change by the MMS). For offshore
operations, lessees must obtain MMS approval for
50
<PAGE>
exploration plans and development and production plans prior to the commencement
of such operations. In addition to permits required from other agencies (such as
the Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency), lessees must obtain a permit from the MMS prior to the commencement of
drilling. The MMS has promulgated regulations requiring offshore production
facilities located on the Outer Continental Shelf ("OCS") to meet stringent
engineering and construction specifications, and has recently proposed
additional safety-related regulations concerning the design and operating
procedures for OCS production platforms and pipelines. The MMS also has issued
regulations restricting the flaring or venting of natural gas, and has recently
proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the MMS has
promulgated other regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities. To cover the
various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other security can be
substantial and there is no assurance that the Company can obtain bonds or other
security in all cases. See " -- Environmental Matters."
The MMS has recently issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of royalties and the
valuation of natural gas produced from federal leases. The principal feature in
the amendments, as proposed, would establish an alternative market-index based
method to calculate royalties on certain natural gas production sold to
affiliates or pursuant to non-arm's-length contracts. The MMS has proposed this
rulemaking to facilitate royalty valuation in light of changes in the natural
gas marketing environment. The Company cannot predict what action the MMS will
take on these matters, nor can it predict at this state of the rulemaking
proceeding how the Company might be affected by amendments to the regulations.
The OCSLA requires that all pipelines operating on or across the OCS
provide open-access, non-discriminatory service. Although the FERC has opted not
to impose the regulations of Order No. 509, which implements these requirements
of the OCSLA, on gatherers and other non-jurisdictional entities, the FERC has
retained the authority to exercise jurisdiction over those entities if necessary
to permit non-discriminatory access to services on the OCS. If the FERC were to
apply Order No. 509 to gatherers in the OCS, eliminate the exemption of
gathering lines, and redefine its jurisdiction over gathering lines, the result
would be a reduction in available pipeline space for existing shippers in the
Gulf of Mexico and elsewhere.
OIL SALES AND TRANSPORTATION RATES. Sales of crude oil, condensate and gas
liquids by the Company are not regulated and are made at market prices. The
price the Company receives from the sale of these products is affected by the
cost of transporting the products to market. Effective as of January 1, 1995,
the FERC implemented regulations establishing an indexing system for
transportation rates for oil pipelines, which, subject to certain conditions and
limitations, would generally index such rates to inflation. The Company is not
able to predict with certainty what effect, if any, these regulations will have
on it, but other factors being equal, under certain conditions the regulations
may cause increased transportation costs and may reduce wellhead prices for such
commodities.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations may
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, require remedial measures to prevent
pollution from former operations, such as pit closure and plugging abandoned
wells, and impose substantial liabilities for pollution resulting from the
Company's operations. In addition, these laws, rules and regulations may
restrict the rate of oil and natural gas production below the rate that would
otherwise exist. The regulatory burden on the oil and gas industry increases the
cost of doing business and consequently affects its profitability. Changes in
environmental laws and regulations occur frequently, and any changes that result
in more stringent and costly waste handling, disposal and clean-up requirements
could have a significant impact on the operating
51
<PAGE>
costs of the Company, as well as the oil and gas industry in general. Management
believes that the Company is in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with existing
requirements will not have a material adverse impact on the Company.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances. Under CERCLA,
such persons may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment (including pre-remedial investigations and post-remedial
monitoring), for damages to natural resources. In some instances, neighboring
landowners and other third parties file claims based on common law theories of
tort liability for personal injury and property damage allegedly caused by the
release of hazardous substances at a CERCLA site.
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of requirements on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills in
"waters of the United States." A "responsible party" includes the owner or
operator of a facility or vessel, or the lessee or permittee of the area in
which an offshore facility is located. The term "waters of the United States"
has been broadly defined to include not only the waters of the Gulf of Mexico
but also inland waterbodies, including wetlands, playa lakes and intermittent
streams. A 1996 amendment to the OPA also requires owners and operators of
"offshore facilities" (including those located in coastal inland waters, such
as bays or estuaries) to establish $35.0 million in financial responsibility to
cover environmental cleanup and restoration costs likely to be incurred in
connection with an oil spill. Offshore facilities are facilities used for
exploring for, drilling for or producing oil or transporting oil from facilities
engaged in oil exploration, drilling or production. If it is determined that an
increase in the amount of financial responsibility required is warranted, the
President has the authority to raise such to an amount not exceeding $150.0
million. In any event, the impact of any adjustment to the annual required
financial responsibility is not expected to be any more burdensome to the
Company than it will be to other similarly situated companies involved in oil
and gas exploration and production.
OPA imposes a variety of additional requirements on responsible parties for
vessels or oil and gas facilities related to the prevention of oil spills and
liability for damages resulting from such spills in waters of the United States.
OPA assigns liability to each responsible party for oil spill removal costs and
a variety of public and private damages from oil spills. OPA establishes a
liability limit for offshore facilities of all removal costs plus $75.0 million.
A party cannot take advantage of liability limits if the spill is caused by
gross negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If a party fails to report a spill
or to cooperate fully in the cleanup, liability limits likewise do not apply.
Few defenses exist to the liability for oil spills imposed by OPA. OPA also
imposes other requirements on facility operators, such as the preparation of an
oil spill contingency plan. Failure to comply with ongoing requirements or
inadequate cooperation in a spill event may subject a responsible party to civil
or criminal enforcement actions. As of the date hereof, the Company is not the
subject of any civil or criminal enforcement actions under the OPA and is in
substantial compliance with the requirements of the OPA.
In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating in the
OCS. Specific design and operational standards may apply to OCS vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution. As of the date hereof, the Company
is not the subject of any civil or criminal enforcement actions under the OCSLA
and is in substantial compliance with the requirements under the OCSLA.
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The Clean Water Act ("CWA") imposes restrictions and strict controls
regarding the discharge of produced waters and other oil and gas wastes into
navigable waters. Permits must be obtained to discharge pollutants into state
and federal waters. The CWA provides for civil, criminal and administrative
penalties for any unauthorized discharges of oil and other hazardous substances
in reportable quantities and, along with the OPA, imposes substantial potential
liability for the costs of removal, remediation and damages. State laws for the
control of water pollution also provide civil, criminal and administrative
penalties and liabilities in the case of a discharge of petroleum or its
derivatives into state waters. The U.S. Environmental Protection Agency
("EPA") issued general permits prohibiting the discharge of produced water and
produced sand derived from oil and gas point source facilities into coastal
waters in Louisiana and Texas, which became effective as of January 1, 1997.
Although the costs of compliance with zero discharge mandates under federal or
state law may be significant, the entire industry will experience similar costs
and the Company believes that these costs will not have a material adverse
impact on the Company's financial condition and operations. Certain oil and gas
exploration and production facilities are required to obtain permits for their
storm water discharges and costs may be associated with treatment of wastewater,
or developing storm water pollution prevention plans. In addition, the Coastal
Zone Management Act authorizes state implementation and development of
management measures for nonpoint source pollution designed to restore and
protect coastal waters.
OPERATING HAZARDS AND DRILLING RISKS
The oil and natural gas business involves a variety of operating risks,
including the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards such as oil spills, gas leaks,
ruptures or discharges of toxic gases. Any of these occurrences could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, clean-up responsibilities, regulatory investigation
and penalties and suspension of operations. Moreover, offshore operations are
subject to a variety of operating risks peculiar to the marine environment, such
as hurricanes or other adverse weather conditions, to more extensive
governmental regulation, including regulations that may, in certain
circumstances, impose strict liability for pollution damage, and to interruption
or termination of operations by governmental authorities based on environmental
or other considerations. The presence of unanticipated pressure or
irregularities in formations, miscalculations or accidents may cause such
activity to be unsuccessful, resulting in a total loss of the Company's
investment in such activity. Although the Company maintains insurance coverage
considered to be customary in the industry, it is not fully insured against
certain of these risks, either because such insurance is not available or
because of the high premium costs. The Company does not carry business
interruption insurance. There can be no assurance that any insurance obtained by
the Company will be adequate to cover any losses or liabilities, or that such
insurance will continue to be available or available on terms which are
acceptable to the Company. See "Risk Factors -- 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 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.
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
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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 participation in drilling
programs will be successful or that unsuccessful drilling efforts will not have
a material adverse effect on the Company.
ABANDONMENT COSTS
The Company is responsible for the payment of abandonment costs on its oil
and natural gas properties pro rata to its working interest. The Company accrues
for its expected future abandonment liabilities as a component of depletion,
depreciation and amortization as the properties are produced. As of December 31,
1996, total pro forma undiscounted abandonment costs estimated to be incurred
through the year 2006 were approximately $16.6 million for properties in federal
and state waters. The Company does not consider abandonment costs estimated to
be incurred on its onshore properties to be significant at this time. Estimates
of abandonment costs and their timing may change due to many factors, including
actual drilling and production results, inflation rates, and changes in
environmental laws and regulations.
The MMS requires lessees of OCS properties to post bonds in connection with
the plugging and abandonment of wells located offshore on the federal OCS and
the removal of all production facilities. Operators in the OCS waters of the
Gulf of Mexico are currently required to post an area-wide bond of $3.0 million
or $500,000 per producing lease, which the Company has provided. Under certain
circumstances, the MMS has the authority to suspend or terminate operations on
federal leases for failure to comply with the applicable bonding requirements or
other regulations applicable to plugging and abandonment. Any such suspensions
or terminations of the Company's operations could have a material adverse effect
on the Company's financial condition and results of operations.
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. Prior to completing an acquisition of producing oil and natural gas
leases, the Company obtains title opinions on the most significant leases.
However, as is customary in the oil and gas industry, the Company makes only a
cursory review of title to farmout acreage and to undeveloped oil and natural
gas properties upon execution of the contracts pursuant to which the Company
acquires rights thereto. Prior to the commencement of drilling operations, a
thorough title examination is conducted and curative work is performed with
respect to significant defects. To the extent title opinions or other
investigations reflect title defects affecting farmout acreage or undeveloped
properties, the Company, rather than the seller of the undeveloped property, is
typically responsible for curing any such title defects at its expense. If the
Company were unable to remedy or cure any title defect of a nature such that it
would not be prudent to commence drilling operations on the property, the
Company could suffer a loss of its entire investment in the property. The
Company has obtained title opinions on substantially all of its producing
properties and believes that it has satisfactory title to such properties in
accordance with standards generally accepted in the oil and gas industry.
The Company's oil and natural gas properties are subject to customary
royalty interests, 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. Approximately 80% of the aggregate value of the Company's oil and
natural gas properties (other than the IPF Program properties) are and will
continue to be mortgaged to secure borrowings under the Revolving Credit
Facility. Although the remaining approximately 20% of the aggregate value of the
Company's oil and natural gas properties are not mortgaged to the Lenders under
the Revolving Credit Facility, such properties are nevertheless subject to the
restrictions set forth therein, including a prohibition on granting any security
interests therein.
EMPLOYEES
On February 28, 1997, the Company employed 38 full-time persons and four
full-time contractors. The Company believes that its relationships with its
employees are good. None of the Company's employees are covered by a collective
bargaining agreement.
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OFFICES
The Company currently leases approximately 31,000 square feet of office
space in Houston, Texas, where its principal offices are located.
LEGAL PROCEEDINGS
Various claims have been filed naming joint working interest owners of the
Company in the ordinary course of business, particularly claims alleging
personal injuries, for which the Company would be responsible for its pro rata
share of any uninsured damages or settlement costs. In addition, the Company's
partner in the Michigan Development Project has informed the Company that it
believes that is has a preferential purchase right with respect to a portion of
the Company's interests in the project that the Company plans to sell to another
party pursuant to the Michigan Disposition. Such partner has indicated that it
may take legal action to enforce its alleged preferential purchase right and
prevent the Company from consummating the Michigan Disposition. The Company
believes that such partner's claim has no merit and intends to proceed with the
Michigan Disposition. No pending or threatened claims, actions or proceedings
against the Company are expected to have a material adverse effect on the
Company's financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors currently has four members. Following the
Offering, the Company intends to increase the size of its Board of Directors to
six persons. The two individuals to be nominated for appointment to the Board of
Directors following the Offering will not be employees of or otherwise
affiliated with the Company, Fund VII or First Reserve. The new directors will
be elected by the current directors. All directors are elected annually to serve
until the next annual meeting of stockholders or until their successors are duly
elected and qualified. The officers of the Company are elected by, and serve
until their successors are elected by, the Board of Directors.
The following table sets forth certain information concerning the directors
and executive officers of the Company as of March 15, 1997.
NAME AGE POSITION
- --------------------------------- --- -------------------------------------
Michael V. Ronca................. 43 President and Chief Executive Officer
and Director
Herbert A. Newhouse.............. 52 Executive Vice President
Catherine L. Sliva............... 38 Executive Vice President and
Secretary
Rick G. Lester................... 45 Vice President, Chief Financial
Officer and Treasurer
Jonathan S. Linker............... 48 Director
William E. Macaulay.............. 51 Director
Steven H. Pruett................. 35 Director
Michael V. Ronca has been the President and Chief Executive Officer of the
Company and has served as a Director of the Company since its inception in 1996.
Mr. Ronca has been the President of Ventures Corporation since its inception in
1993. Prior to starting Ventures Corporation, Mr. Ronca served as Executive
Director, Investor Relations for Tenneco where he was responsible for the
development, implementation and management of a global investor relations
program. Mr. Ronca, who was an employee of Tenneco for over 20 years, moved to
Houston in 1984 to assume the position of administrative assistant to the
chairman and chief executive officer of Tenneco Inc. In this capacity he focused
on acquisition and disposition analysis, strategic planning and operational
issues. Mr. Ronca graduated from Villanova University in 1975 with a bachelor of
science degree in finance and marketing and later earned a master of business
administration degree from Drexel University.
Herbert A. Newhouse has been Executive Vice President of the Company since
its inception in 1996. Mr. Newhouse is responsible for exploration, production
and evaluation activities for the Company, including geological, geophysical and
engineering technical evaluations. Mr. Newhouse joined Ventures Corporation in
1995 as Vice President. He has more than 28 years operational and managerial
experience in oil and gas exploration and production, most recently having
served as Vice President of Production for North Central Oil Corporation for the
six years prior to 1995. Before joining North Central, Mr. Newhouse spent 17
years with the exploration and production division of Tenneco Oil Company
("Tenneco Oil"), rising to the position of Division Production Manager
responsible for drilling, production, development geology and reservoir
engineering. He graduated from Ohio State University in 1968, with a bachelor of
science degree in Chemical Engineering.
Catherine L. Sliva has been the Executive Vice President and Secretary of
the Company since its inception in 1996 and is principally responsible for the
IPF Program, strategic planning and analysis, and investor relations. Ms. Sliva
has been with Ventures Corporation since its inception in 1990. Ms. Sliva has 17
years experience in offshore and onshore petroleum engineering and economics and
is experienced in production finance, acquisition evaluations, reservoir
management, field development, economic analysis, coordination of budgets and
formulation of corporate goals and strategies. A registered professional
petroleum engineer, Ms. Sliva is a graduate of Texas A&M University, where she
received a bachelor of science degree in Petroleum Engineering in 1980. Ms.
Sliva joined Tenneco Oil in the Gulf Coast division
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in 1980. She remained in the Gulf Coast division for five years, advancing to
Senior Petroleum Engineer. In 1985, Ms. Sliva became a member of the Economic
Planning and Analysis Group at Tenneco Oil. She evaluated Tenneco Oil's
exploration results, conducted an analysis of Tenneco Oil's competitors and
evaluated each division's profitability, including operating results, manpower
efficiencies, capital investment levels and results.
Rick G. Lester has been Vice President, Chief Financial Officer, Treasurer
and Assistant Secretary of the Company since its inception in 1996 with overall
responsibility for its accounting, financial analysis, financing and banking
activities. Mr. Lester joined Ventures Corporation in 1991. Mr. Lester has 22
years experience in the financial area, including accounting, tax, corporate
finance, and planning and analysis. He received his bachelor of business
administration degree in Accounting from the University of Oklahoma in 1974 and
his Texas CPA certificate in 1977, and is a member of the AICPA and the Texas
Society of CPAs. Mr. Lester joined Tenneco Oil in 1981 and was responsible at
various times for managing several operational accounting groups and the tax
planning group. In 1988, Mr. Lester became Manager, Corporate Finance with
Tenneco where he was responsible for developing financing plans and negotiating
credit agreements for its U.S. and Canadian finance companies and for other
special projects including the review of its world-wide finance and stock
repurchase programs.
Jonathan S. Linker has served as a Director of the Company since its
inception in 1996. Mr. Linker has been a Managing Director of First Reserve
since 1996, the President and a director of IDC Energy Corporation since 1987,
and a Vice President and director of Sunset Production Corporation since 1988.
First Reserve Corporation is an investment management firm specializing in
making private equity investments in energy companies. IDC Energy Corporation
and Sunset Production Corporation are small, privately-held oil and gas
companies. Mr. Linker also serves as a director of Hugoton Energy Corporation,
an independent oil and gas exploration and production company. Mr. Linker earned
a bachelor of arts degree in Geology from Amherst College, a master of arts
degree in Geology from Harvard University and a master of business
administration degree from the Harvard Business School.
William E. Macaulay has served as a Director of the Company since March
1997. Mr. Macaulay has been the President and Chief Executive Officer of First
Reserve since 1983. Mr. Macaulay serves as a director of Weatherford Enterra,
Inc., an oilfield service company, Maverick Tube Corporation, a manufacturer of
steel pipe and casing, TransMontaigne Oil Company, an oil products distribution
and refining company, National-Oilwell, Inc., a manufacturer and distributor of
equipment and products used in oil and gas drilling and production, and Hugoton
Energy Corporation. Mr. Macaulay earned a bachelor of arts degree in Economics
from City University of New York and a master of business administration degree
in Finance from the Wharton School at the University of Pennsylvania.
Steven H. Pruett has served as a Director of the Company since March 1997.
Mr. Pruett has been a Vice President of First Reserve since 1995. Mr. Pruett has
been the President and Chief Executive Officer of First Reserve Oil & Gas Co.
since 1996. First Reserve Oil & Gas Co. is a privately-held company engaged in
the acquisition and development of oil and gas properties in the Midcontinent
Region and the Permian Basin. Prior to joining First Reserve, Mr. Pruett worked
for Credit Suisse First Boston as an investment banker in the Natural Resources
Group in New York and Houston from 1994 to 1995. Mr. Pruett worked for Amoco
Production Company in Planning and Economics from 1991 to 1994, following his
graduation from the Harvard Business School with a master of business
administration degree in 1991. After earning a bachelor of science degree in
Petroleum Engineering from the University of Texas at Austin in 1984, Mr. Pruett
was a Petroleum Engineer for ARCO Oil and Gas Company from 1984 to 1989.
COMMITTEES OF THE BOARD OF DIRECTORS
Following the Offering the Company will have an Audit Committee and a
Compensation Committee.
AUDIT COMMITTEE. The Board of Directors intends to name directors to an
Audit Committee after consummation of the Offering. The Audit Committee will
have responsibility for, among other things, (i) recommending the selection of
the Company's independent accountants, (ii) reviewing and approving the scope of
the independent accountants' audit activity and extent of non-audit services,
(iii) reviewing
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with management and the independent accountants the adequacy of the Company's
basic accounting systems, (iv) reviewing with management and the independent
accountants the Company's financial statements and exercising general oversight
of the Company's financial reporting process and (v) reviewing the Company's
litigation and other legal matters that may affect the Company's financial
condition and monitoring compliance with the Company's business ethics and other
policies.
COMPENSATION COMMITTEE. The Compensation Committee consists of Messrs.
Ronca, Linker and Pruett. This committee has general supervisory power over, and
the power to grant options under, the Stock Purchase and Option Plan. The
Compensation Committee additionally has responsibility for, among other things,
(i) reviewing the recommendations of the Chief Executive Officer as to
appropriate compensation of the Company's principal executive officers and
certain other key personnel and establishing the compensation of such key
personnel and the Chief Executive Officer, (ii) examining periodically the
general compensation structure of the Company and (iii) supervising the employee
benefit plans and compensation plans of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Company's fiscal year ended December 31, 1996, the Company had
no compensation committee or other committee of the Board of Directors
performing similar functions. Decisions concerning compensation of Mr. Ronca
were made during such fiscal year by the Compensation Committee of the board of
directors of Tenneco, the former indirect parent of the Company's operating
subsidiaries. Decisions concerning compensation of the other executive officers
of the Company were made during fiscal year 1996 by the compensation committee
of Tennessee Gas Pipeline Company, the former parent of the Company's operating
subsidiaries. Mr. Ronca served as a member of the compensation committee of
Tennessee Gas Pipeline Company during fiscal year 1996.
RONCA EMPLOYMENT AGREEMENT
In connection with the Acquisition, the Company entered into a three-year
employment agreement with Mr. Ronca on December 31, 1996 pursuant to which Mr.
Ronca serves as the Company's President and Chief Executive Officer. Under the
Ronca Employment Agreement, Mr. Ronca receives an annual base salary of $180,000
and is entitled to receive an annual cash bonus based on the satisfaction of
performance criteria determined by the Board of Directors, in target and maximum
amounts equal to 50% and 90%, respectively, of such base salary. The Ronca
Employment Agreement also provides that Mr. Ronca will receive $20,000 annually
to be used, at his discretion, for perquisites and other fringe benefits
associated with his position as President and Chief Executive Officer of the
Company. Mr. Ronca is additionally entitled to participate in all other employee
compensation and welfare benefit plans and programs available to the Company's
other senior executive officers, including health, dental, group life,
disability and retirement plans, and expense reimbursement. In the event Mr.
Ronca's employment is terminated prior to December 31, 1999 and under certain
circumstances, including an election by Mr. Ronca to terminate his employment
following a Change of Control (as therein defined) or for Good Reason (as
therein defined), he would be entitled under such employment agreement to
receive up to the full amount of the base salary he would have received
thereunder for the remaining term thereof had his employment not been so
terminated. Under the Ronca Employment Agreement, a "Change of Control" is
defined as the acquisition by any person or entity, or group thereof, excluding
Fund VII and other affiliates of First Reserve of more than 50% of the
outstanding voting stock of the Company, and "Good Reason" is defined to
include, among other things, material reductions in Mr. Ronca's duties,
responsibilities or base salary.
COMPENSATION OF DIRECTORS
Prior to the Offering, directors of the Company have not received
compensation for their services in such capacity. The Company anticipates that,
after consummation of the Offering, directors who are employees of the Company
will not be paid any fees or additional compensation for service as members of
the Board of Directors or any committee thereof and that the Company will enter
into customary
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arrangements respecting fees and other compensation (including expense
reimbursement) for other directors of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
compensation of the Company's chief executive officer and for each of its other
executive officers (the "named executive officers") during fiscal year 1996.
ANNUAL
COMPENSATION(1)
NAME AND --------------------- ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
- ----------------------------------- -------- -------- ----------------
Michael V. Ronca................... $185,120 $160,000 $9,500
President and Chief Executive
Officer
Herbert A. Newhouse................ 150,800 70,000 9,500
Executive Vice President
Catherine L. Sliva................. 98,040 38,400 7,843
Executive Vice President and
Secretary
Rick G. Lester..................... 114,060 39,200 9,125
Vice President, Chief Financial
Officer and Treasurer
- ------------
(1) Does not include the value of perquisites and other personal benefits,
securities or property because the aggregate amount of such compensation, if
any, does not exceed the lesser of $50,000 or 10 percent of the total amount
of annual salary and bonus for the named executive officers.
(2) Represents contributions of Tenneco under its 401(k) plan. Does not include
options to acquire shares of common stock of Tenneco granted to Mr. Ronca,
Mr. Newhouse, Ms. Sliva and Mr. Lester or restricted stock awards made to
Mr. Ronca and Mr. Newhouse, all of which were granted or awarded in January
1996 as compensation for performance in 1995.
STOCK PURCHASE AND OPTION PLAN
The Company recently adopted the Amended and Restated 1996 Stock Purchase
and Option Plan for Key Employees of Domain Energy Corporation and Affiliates
(the "Stock Purchase and Option Plan"). The objectives of the Stock Purchase
and Option Plan are (i) to attract and retain management personnel with the
training, experience and ability to enable them to make a substantial
contribution to the success of the Company's business, (ii) to motivate
management personnel by means of growth-related incentives to achieve long range
goals and (iii) to further the alignment of interests of participants with those
of the Company's stockholders through opportunities for increased stock or
stock-based ownership in the Company.
The Stock Purchase and Option Plan authorizes the issuance of options to
acquire up to 867,100 shares of Common Stock, and the Company has reserved
867,100 shares of Common Stock for issuance in connection therewith. The Stock
Purchase and Option Plan will be administered by the Compensation Committee of
the Board of Directors. Pursuant to the Stock Purchase and Option Plan, the
Company may grant to employees, directors or other persons having a unique
relationship with the Company or its affiliates, singly or in combination,
Incentive Stock Options, Other Stock Options, Stock Appreciation Rights,
Restricted Stock, Purchase Stock, Dividend Equivalent Rights, Performance Units,
Performance Shares or Other Stock-Based Grants, in each case as such terms are
defined therein. See " -- Stock Option Agreements." The terms of any such
grant will be determined by the Compensation Committee and set forth in a
separate grant agreement. The exercise price will be at least equal to 100% of
fair market value of the Common Stock on the date of grant in the case of
Incentive Stock Options and the exercise price of Other Stock Options will be at
least equal to 50% of fair market value of the Common Stock on the date of
grant, provided that options to purchase up to 433,550 shares of Common Stock
may be granted with an exercise price equal to $.01 per share, which is the par
value of the Common Stock. Non-Qualified Stock Options and Other Stock Options
may be exercisable for up to ten years. The Compensation Committee
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may provide that an optionee may pay for shares upon exercise of an option: (i)
in cash; (ii) in already-owned shares of Common Stock; (iii) by payment through
a cash or margin arrangement with a broker; (iv) in shares otherwise issuable
upon exercise of the option; or (v) by any combination of (i) through (iv) as
authorized by the Compensation Committee. In the event of certain extraordinary
transactions, including a merger, consolidation, a sale or transfer of all or
substantially all assets or an acquisition of all or substantially all the
Common Stock, vesting of such options will generally be accelerated. The Stock
Purchase and Option Plan will terminate on December 31, 2006.
STOCK OPTION AGREEMENTS
On February 21, 1997 (the "Grant Date"), the Company granted to the
following persons the following options under the Stock Purchase and Option
Plan, pursuant to separate Non-Qualified Stock Option Agreements between the
Company and each of such persons (collectively, as amended, the "Stock Option
Agreements"): (i) an option to purchase up to 339,300 shares of Common Stock to
Michael V. Ronca, the President and Chief Executive Officer of the Company, (ii)
an option to purchase up to 113,100 shares of Common Stock to Herbert A.
Newhouse, an Executive Vice President of the Company, (iii) an option to
purchase up to 113,100 shares of Common Stock to Catherine L. Sliva, an
Executive Vice President and the Secretary of the Company, (iv) an option to
purchase up to 50,267 shares of Common Stock to Rick G. Lester, a Vice
President, the Chief Financial Officer and the Treasurer of the Company, (v) an
option to purchase up to 50,267 shares of Common Stock to Douglas H. Woodul, the
Vice President -- Production of the Company, (vi) an option to purchase up to
50,267 shares of Common Stock to Steven M. Curran, the Vice
President -- Exploration of the Company, (vii) an option to purchase up to
18,850 shares of Common Stock to Dean R. Bouillion, the Vice President -- Land
of the Company, and (viii) an option to purchase up to 18,850 shares of Common
Stock to Lucynda S. Herrin, an Assistant Controller of the Company. In addition,
the Company has granted options to purchase an aggregate of 95,162 shares of
Common Stock to other employees of the Company. Under the terms of the Stock
Option Agreements, 50% of the options granted to each such person are designated
as time options (collectively, the "Time Options"), with an exercise price
equal to $4.18 per share, and 50% are designated as performance options
(collectively, the "Performance Options"), with an exercise price equal to
$.01 per share. The Time Options become exercisable as to 20% of the shares of
Common Stock subject thereto on the first anniversary of the Grant Date and are
thereafter exercisable as to an additional 20% of such shares upon each
anniversary thereafter. The Performance Options become exercisable at any time
following the second anniversary of the Grant Date, when the Investment Return
Hurdle (as such term is defined below) is met; provided that the Performance
Options become exercisable as to 100% of the shares of Common Stock subject
thereto on the ninth anniversary of the Grant Date.
The following terms have the following meanings under the Stock Option
Agreements:
"EQUITY VALUE" means the sum of:
(i) all amounts actually received by the FRC Entities from time to time
on a cumulative basis through the date of determination of (A) cash
(x) through any cash dividend or other distribution on account of the
Investor Stock or (y) in connection with either (1) any disposition
(whether by way of redemption, repurchase, repayment, merger or
otherwise) of all or any part of the Investor Stock or of securities
or other non-cash property previously received by way of a dividend
or other distribution on account of the Investor Stock, but only to
the extent Investor Stock or other securities or non-cash property is
so disposed and excluding any disposition to one or more other FRC
Entities, (2) a disposition of any or all of the assets of the
Company or any of its subsidiaries, or (3) a recapitalization of the
Company or its subsidiaries, or (B) securities or any other non-cash
property (valued at their fair market value) in connection with
either (x) any disposition (whether by sale, merger or otherwise) of
all or any part of the Investor Stock to a third party, but only to
the extent Investor Stock is so disposed and excluding any
disposition to one or more other FRC Entities, or (y) any disposition
of any or all of the assets of the Company or any of its subsidiaries
(it being understood that for purposes of this clause (i), the terms
"disposition," "dispose," and "disposed" shall not include the
creation of a pledge, lien or
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other similar encumbrance unless and until foreclosed upon);
PROVIDED, that when determining the amount actually received by the
FRC Entities after delivery of a notice that the options will be
terminated upon the merger of the Company, the exchange of all or
substantially all of its assets for the securities of another
Company, a Change of Control, or the recapitalization,
reclassification, liquidation or dissolution of the Company, the
amount actually received will be deemed to include any amounts to be
received by the FRC Entities pursuant to the transaction giving rise
to the termination of the options (to the extent such amounts would
otherwise qualify as amounts received pursuant to clauses (A) and (B)
above); plus, if applicable,
(ii) to the extent the Equity Value is being determined prior to the fifth
anniversary of the Grant Date, an amount with respect to each unsold
share of Common Stock then owned by the FRC Entities equal to the
Trading Value (as therein defined) thereof as of such date.
"FRC ENTITIES" means investment funds or other entities for which First
Reserve acts as a general and/or managing partner or in respect of which First
Reserve provides investment advice, either directly or through entities
controlled by it.
"INVESTMENT" means $30.0 million invested by the FRC Entities in Investor
Stock on the closing date of the Acquisition, plus the amount of any additional
cash invested by the FRC Entities in Investor Stock after such closing date.
Expressly excluded from such term is the $8.0 million loan made by Fund VII to
Domain Energy Guarantor Corporation and evidenced by the Subordinated Promissory
Note dated December 31, 1996. See "Certain Transactions -- Indebtedness to Fund
VII."
"INVESTMENT RETURN HURDLE" will be satisfied when the Equity Value with
respect to the Investor Stock is equal to or greater than, as of the date of
determination, the amount determined by increasing the Investment at a
compounded annual rate of 25% commencing on the date of any cash investment by
the FRC Entities (as to that portion of the Investment made on such date)
through and including such date of determination.
"INVESTOR STOCK" means issued and outstanding shares of capital stock of
any class or series of the Company, so long as such shares were originally
acquired by the FRC Entities from the Company.
401(K) PLAN
The Company has offered its employees an employee 401(k) savings plan (the
"401(k) Plan"), which became effective upon inception of the Company. The
401(k) Plan covers all employees and entitles each to contribute up to 15% of
his or her annual compensation subject to maximum limitations imposed by the
Internal Revenue Code. The 401(k) Plan allows for employer matching of up to 8%
of the employee's contributions based on years of participation in the plan,
including years of participation in the 401(k) plan previously offered by
Tenneco.
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty or the duty of care as a director, except for
liability for breach of the director's duty of loyalty, acts not in good faith,
intentional misconduct or knowing violations of law, unlawful payment of
dividends or stock purchases or redemptions, or transactions in which the
director derived an improper personal benefit. The Certificate of Incorporation
also provides for the indemnification of officers and directors to the fullest
extent permitted by Delaware law. The Company also maintains directors' and
officers' liability insurance coverage.
Generally, Section 145 of the Delaware General Corporation Law, as amended
(the "DGCL"), provides that a corporation may indemnify any person who is or
was a party or is threatened to be made a party to any threatened, pending or
completed action, including any action by or in the right of the corporation
(unless such person was adjudged liable to the corporation, in which event
indemnification is permitted if, but only to the extent that, the court in which
such action was brought determined such indemnification is fair and reasonable)
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 in such capacity for another
corporation or entity
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at the request of the corporation, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Such indemnification may
include all expenses (including attorneys' fees) and, in the case of any action
other than an action by or in the right of the corporation, all judgments, fines
and amounts paid in settlement, to the extent such expenses, judgments, fines
and amounts were actually paid and reasonably incurred by the indemnified party
in connection with such action.
CERTAIN TRANSACTIONS
SECURITYHOLDERS AGREEMENT
The Company, Fund VII and the Company's officers who have purchased Common
Stock (the "Management Investors") are parties to Securityholders Agreement
dated as of December 31, 1996 (the "Securityholders Agreement"). The
Securityholders Agreement contains provisions governing the management of the
Company, voting of shares, election of directors and restrictions on transfer of
shares, all of which terminate automatically upon the completion of the
Offering. In addition, the Securityholders Agreement provides Fund VII, after
the Offering, the right on four occasions to require the Company to register all
or part of Fund VII's registrable shares of Common Stock under the Securities
Act, and the Company is required to use its reasonable best efforts to effect
such registration, subject to certain conditions and limitations. Upon the
Company's receipt of a demand from Fund VII to register all or part of its
registrable shares, the Company is required to notify the other parties to the
Securityholders Agreement of the demand, and such parties shall, subject to
certain conditions and limitations, have the right to include the registrable
shares held by them in such registration. The Securityholders Agreement also
provides all the parties thereto with piggyback registration rights on any
offering by the Company of any of its securities to the public except a
registration on Forms S-4 or S-8 under the Securities Act; provided, however,
that until two years after the date of the Offering, the Management Investors
will not have piggyback registration rights with respect to any registration in
which Fund VII or any of its permitted transferees are not participating. The
Company will bear the expenses of all registrations under the Securityholders
Agreement. Fund VII has waived its registration rights with respect to a
Registration Statement filed by the Company with respect to the Offering.
MANAGEMENT INVESTOR SUBSCRIPTION AGREEMENTS AND RELATED TRANSACTIONS
Shortly before the Offering, each of the Management Investors entered into
a Management Investor Subscription Agreement with the Company pursuant to which
the Management Investors purchased an aggregate of 390,311 shares of Common
Stock. To facilitate such purchases, the Company loaned the Management Investors
the following amounts: (i) Mr. Ronca ($249,200), (ii) Mr. Newhouse ($87,000),
(iii) Ms. Sliva ($35,445), (iv) Mr. Lester ($50,011), (v) Mr. Woodul ($49,763),
(vi) Mr. Curran ($50,376) and (vii) Ms. Herrin ($24,231). All such indebtedness
of such persons accrues interest at the rate of 8% per annum, payable
semiannually; provided that each Management Investor may elect to satisfy his or
her semiannual interest payment obligation by increasing the principal amount of
the indebtedness owed to the Company by the amount of interest otherwise
payable. As security for such loans made by the Company, each Management
Investor pledged to the Company, and granted a first priority security interest
in, the shares of Common Stock purchased by such Management Investor pursuant to
its respective Management Investor Subscription Agreement and is required to
pledge, and grant a first priority security interest in, all other shares of
Common Stock that each such person may subsequently acquire, including, without
limitation, upon exercise of options to purchase shares of Common Stock. As of
March 31, 1997, the outstanding indebtedness of each Management Investor to the
Company was equal to the original principal amount loaned to such Management
Investor as indicated above plus interest accrued thereon.
INDEBTEDNESS TO FUND VII
Prior to the Acquisition, Tennessee Gas Pipeline Company ("TGPL"), the
former wholly-owning parent of Ventures Corporation, was a guarantor with
respect to certain indebtedness (the "Michigan Senior
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Debt") of a partnership formed to participate in the Michigan Development
Project in which Ventures Corporation was at the time a general partner. In
connection with the Acquisition, the Company formed Domain Energy Guarantor
Corporation, a Delaware corporation ("Guarantor Corporation"), for the sole
purpose of assuming the obligations of TGPL under such guaranty. As security for
its obligations under the guaranty, Guarantor Corporation purchased an $8.0
million certificate of deposit issued by the lender in respect of the Michigan
Senior Debt and assigned and pledged such certificate to the lender.
To enable Guarantor Corporation to purchase the $8.0 million certificate
pledged as collateral for its guaranty of the Michigan Senior Debt, Fund VII
loaned Guarantor Corporation $8.0 million evidenced by a Subordinated Promissory
Note dated December 31, 1996 (the "Note"). The full principal amount of the
Note matures on December 31, 1999. Interest accrues on the Note at a rate per
annum equal to the interest rate per annum earned by Guarantor Corporation on
the $8.0 million certificate and is payable quarterly. The obligations of
Guarantor Corporation under the Note are expressly made subordinate and subject
in right of payment to the prior payment in full of the Michigan Senior Debt.
Upon consummation of the Michigan Disposition, the Michigan Senior Debt will be
repaid in full and the pledge of the $8.0 million certificate will be released.
FUND VII OPTION TO ACQUIRE COMMON STOCK
Pursuant to the Subscription Agreement dated December 31, 1996 (the "First
Reserve Subscription Agreement"), between the Company and Fund VII, the Company
granted to Fund VII an option (the "First Reserve Option") to acquire
1,914,048 shares of Common Stock for an aggregate purchase price of $8.0 million
plus any cash interest payment on the Note actually received by Fund VII (the
"Option Price"). The Option Price may be paid by Fund VII (i) prior to the
date on which the Note has been paid in full, by delivery to the Company of the
Note together with the payment in cash of any principal or interest payments on
the Note previously received by Fund VII and (ii) after the date on which the
Note has been paid in full, by payment of the Option Price in cash. Fund VII has
irrevocably waived its right to exercise the First Reserve Option effective upon
consummation of the Offering. The Note will be repaid in full upon consummation
of the Offering with the proceeds of the liquidation of the $8.0 million
certificate pledged as collateral by Guarantor Corporation for its guaranty of
the Michigan Senior Debt.
FIRST RESERVE TRANSACTION FEE
In connection with the Acquisition, the Company agreed to pay First Reserve
a fee of $500,000. First Reserve has irrevocably waived its right to receive
this fee effective upon consummation of the Offering.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date of this
Prospectus concerning the persons known by the Company to be beneficial owners
of more than five percent of the Company's outstanding Common Stock, the members
of the Board of Directors of the Company, the named executive officers listed in
the Summary Compensation Table above and all directors and executive officers of
the Company as a group.
BENEFICIAL OWNERSHIP
------------------------------------------
PERCENT
---------------------------
PRIOR TO SUBSEQUENT
NAME OF BENEFICIAL OWNER SHARES OFFERING TO OFFERING
- ------------------------------------- --------- -------- -------------
First Reserve Corporation............ 7,177,682(1) 93.7% 52.5%
475 Steamboat Road
Greenwich, Connecticut 06830
Michael V. Ronca..................... 179,442 2.3 1.3
Herbert A. Newhouse.................. 59,814 * *
Catherine L. Sliva................... 39,956 * *
Rick G. Lester....................... 29,913 * *
Jonathan S. Linker................... -- (1) -- --
William E. Macaulay.................. -- (1) -- --
Steven H. Pruett..................... -- -- --
John A. Hill......................... -- (1) -- --
All directors and executive
officers as a group (7 persons).... 309,125(1) 4.0 2.3
- ------------
* Less than 1%.
(1) Shares of Common Stock shown as owned by First Reserve Corporation are owned
of record by Fund VII, of which First Reserve Corporation is the sole
general partner and as to which it possesses sole voting and investment
power. Messrs. Macaulay and John A. Hill are stockholders of First Reserve
Corporation and may therefore be deemed to share beneficial ownership of the
shares shown as beneficially owned by First Reserve Corporation. Mr. Linker
is the sole stockholder of an entity that is a limited partner of Fund VII
and may therefore be deemed to have beneficial ownership of the shares shown
as beneficially owned by First Reserve Corporation. Messrs. Macaulay, Hill
and Linker disclaim beneficial ownership of such shares.
DESCRIPTION OF CAPITAL STOCK
THE FOLLOWING SUMMARY DESCRIPTION OF THE COMPANY'S CAPITAL STOCK IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S CERTIFICATE OF
INCORPORATION, A COPY OF WHICH HAS BEEN INCLUDED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. ALL CAPITALIZED TERMS
USED AND NOT DEFINED BELOW HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN THE
CERTIFICATE OF INCORPORATION.
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$.01 par value per share. As of the date of this Prospectus, there were
7,663,695 shares of Common Stock issued and outstanding. Immediately after
completion of the Offering, 13,663,695 shares of Common Stock will be issued and
outstanding.
Holders of Common Stock are entitled to one vote for each share held, are
not entitled to cumulative voting for the purpose of electing directors and have
no preemptive or similar right to subscribe for, or to purchase, any shares of
Common Stock or other securities to be issued by the Company in the future.
Accordingly, the holders of more than 50% in voting power of the shares of
Common Stock voting generally for the election of directors will be able to
elect all of the Company's directors. Immediately after completion of the
Offering, Fund VII will own 52.5% of the outstanding shares of Common Stock of
the Company (or 49.3% if the over-allotment option is exercised in full) and
will be in a position to control actions that require the consent of
stockholders, including the election of directors, payment of dividends,
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amendment of the Certificate of Incorporation and mergers or a sale of
substantially all of the assets of the Company.
Holders of shares of Common Stock have no exchange, conversion or
preemptive rights and such shares are not subject to redemption. All outstanding
shares of Common Stock are, and upon issuance the shares of Common Stock offered
hereby will be, duly authorized, validly issued, fully paid and nonassessable.
Subject to the prior rights, if any, of holders of any outstanding class or
series of capital stock having a preference in relation to the Common Stock as
to distributions upon the dissolution, liquidation and winding-up of the Company
and as to dividends, holders of Common Stock are entitled to share ratably in
all assets of the Company which remain after payment in full of all debts and
liabilities of the Company, and to receive ratably such dividends, if any, as
may be declared by the Company's Board of Directors from time to time out of
funds and other assets legally available therefor. See "Dividend Policy" and
"Capitalization."
PREFERRED STOCK
The Board of Directors is authorized, without action by the holders of
Common Stock, to issue up to 5,000,000 shares of preferred stock, $.01 par value
(the "Preferred Stock"), in one or more series, to establish the number of
shares to be included in each such series and to fix the designations,
preferences, relative, participating, optional and other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. Such matters may include, among others, voting rights, conversion and
exchange privileges, dividend rates, redemption rights, sinking fund provisions
and liquidation rights that could be superior and prior to the Common Stock.
The issuance of one or more series of the Preferred Stock could, under
certain circumstances, adversely affect the voting power of the holders of the
Common Stock and could have the effect of discouraging or making more difficult
any attempt by a person or group to effect a change in control of the Company.
DELAWARE BUSINESS COMBINATION STATUTE
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL ("Section 203"). In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as therein defined) with a Delaware corporation for three years
following the time that such person became an interested stockholder, unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the business combination in question or the transaction
which resulted in such person becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming such, the interested stockholder owns at least 85% of the voting stock
of the corporation outstanding at the time such transaction commenced (excluding
stock held by directors who are also officers of the corporation and by employee
stock plans that do not provide employees with rights to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer), or (iii) at or following the transaction in which
such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of not less than
66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above 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 corporation and a person who had not been an
interested stockholder during the preceding three years or who became an
interested stockholder with the approval of the corporation's directors or at a
time when the restrictions imposed by Section 203 did not apply in accordance
with the terms thereof, and which transactions are approved or not opposed by a
majority of the members of the board of directors then in office who were
directors prior to any person becoming an interested stockholder during the
previous three years or were recommended for election or elected to succeed such
directors by a majority of such directors. Fund VII is not subject to the
restrictions contained in Section 203 because the transaction that resulted in
Fund VII becoming an interested stockholder (i.e., the sale of shares of Common
Stock to Fund
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VII to finance the Acquisition pursuant to the First Reserve Subscription
Agreement) was approved by the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of 13,663,695 shares of Common Stock. All of the 6,000,000 shares sold
in the Offering (6,900,000 shares if the over-allotment option granted to the
Underwriters is exercised in full) will be freely tradeable without restriction
or further registration under the Securities Act, except for any shares
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act (whose sales would be subject to certain limitations
and restrictions described below).
The 7,663,695 shares of Common Stock held by the Company's existing
stockholders were issued and sold by the Company in reliance on an exemption
from the registration requirements of the Securities Act. The outstanding shares
of Common Stock held by such stockholders after the Offering will be subject to
the "lock-up" agreement described below. After expiration of such lock-up
agreement 180 days after the date of this Prospectus, the Common Stock then
owned by such stockholders may be resold only upon registration under the
Securities Act or pursuant to an exemption from such registration requirements,
including exemptions contained in Rule 144. The Securityholders Agreement
provides Fund VII, after the Offering, the right on four occasions to require
the Company to register all or part of Fund VII's registrable shares of Common
Stock under the Securities Act, and the Company is required to use its
reasonable best efforts to effect such registration, subject to certain
conditions and limitations. Upon the Company's receipt of a demand from Fund VII
to register all or part of its registrable shares, the Company is required to
notify the other parties to the Securityholders Agreement of the demand and such
parties shall, subject to certain conditions and limitations, have the right to
include the registrable shares held by them in such registration. The
Securityholders Agreement also provides all the parties thereto with piggyback
registration rights on any offering by the Company of any of its securities to
the public except a registration on Forms S-4 or S-8 under the Securities Act;
provided, however, that until two years after the date of the Offering, the
Management Investors will not have piggyback registration rights with respect to
any registration in which Fund VII or any of its permitted transferees are not
participating. Fund VII has waived its registration rights with respect to a
Registration Statement filed by the Company with respect to the Offering and has
informed the Company that it has no immediate plans to sell or otherwise dispose
of shares of the Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares of a public
company for at least two years (including the holding period of any prior owner
except an affiliate) that were not acquired in a public offering is entitled to
sell in "broker's transactions" or to market makers, within any three-month
period, a number of shares that does not exceed the greater of (i) 1% of the
number of shares of Common Stock then outstanding (approximately 136,636 shares
immediately after the Offering) or (ii) generally, the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least three years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice filing provisions of Rule 144.
Effective as of April 29, 1997, the holding period requirements contained in
Rule 144 have been changed from two years and three years to one year and two
years, respectively.
As soon as practicable following the Offering, the Company intends to file
a registration statement on Form S-8 under the Securities Act covering 867,100
shares of Common Stock reserved for issuance pursuant to its Stock Purchase and
Option Plan. Shares of Common Stock issued upon exercise of the stock
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options granted under the Stock Purchase and Option Plan after the effective
date of such registration statement will be freely tradeable, except for any
such shares acquired by an "affiliate" of the Company, as that term is defined
in Rule 144 under the Securities Act.
The Company, each of the Company's directors and executive officers and
Fund VII have agreed not to sell, offer to sell, contract to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any Common Stock owned by any of them prior to the expiration
of 180 days from the date of this Prospectus, except (i) for shares of Common
Stock offered hereby, (ii) with the prior written consent of PaineWebber
Incorporated, and (iii) for the issuance of shares pursuant to employee benefit
plans of the Company, provided that the Company has agreed not to grant options
to purchase shares of Common Stock at a price less than the Offering price.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that future sales
of shares or the availability of shares for sale will have on the market price
for Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception of the availability of
shares for sale, could adversely affect the prevailing market price of the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of the Underwriters,
for whom PaineWebber Incorporated, Prudential Securities Incorporated, and
Morgan Keegan & Company, Inc. are acting as Representatives (the
"Representatives"), has severally agreed to purchase from the Company, the
respective number of shares set forth opposite their names below:
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------------- ---------
PaineWebber Incorporated................
Prudential Securities Incorporated......
Morgan Keegan & Company, Inc............
---------
Total.............................. 6,000,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions. The Underwriting Agreement also provides that the
Underwriters are committed to purchase, and the Company is obligated to sell,
all of the shares of Common Stock offered by this Prospectus, if any of the
shares of Common Stock being sold pursuant to the Underwriting Agreement are
purchased (without consideration of any shares that may be purchased through the
exercise of the Underwriters' over-allotment option).
The Representatives have advised the Company 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 to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession to other
dealers not in excess of $ per share. After the initial public offering of
the shares of the Common Stock, the public offering
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price, the concessions to selected dealers and the reallowance to other dealers
may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 900,000 shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discounts
and commissions. The Underwriters may exercise such option only to cover
over-allotments, if any, incurred in the sale of shares of Common Stock. To the
extent the Underwriters exercise such option, each of the Underwriters will
become obligated, subject to certain conditions, to purchase such percentage of
such additional shares of Common Stock as is approximately equal to the
percentage of shares of Common Stock that it is obligated to purchase as shown
in the table set forth above.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
The Company, each of the Company's directors and executive officers and
Fund VII have agreed not to sell, offer to sell, contract to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any Common Stock owned by any of them prior to the expiration
of 180 days from the date of this Prospectus, except (i) for shares of Common
Stock offered hereby, (ii) with the prior written consent of PaineWebber
Incorporated and (iii) for the issuance of shares pursuant to employee benefit
plans of the Company, provided that the Company has agreed not to grant options
to purchase shares of Common Stock at a price less than the Offering price.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined pursuant to
negotiations among the Company, First Reserve, and the Representatives. Among
the factors to be considered in determining the initial public offering price,
in addition to prevailing market conditions, will be certain financial
information of the Company, the history of, and the prospects for, the Company
and the industry in which it competes, an assessment of the Company's
management, its past and present operations, the prospects for, and timing of,
future revenues of the Company, the present state of the Company's development,
and the above facts in relation to market values and various valuation measures
of other companies engaged in activities similar to the Company. The initial
public offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Common Stock.
Such price is subject to change as a result of market conditions and other
factors. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
In connection with the Acquisition, the Company paid PaineWebber
Incorporated a fee of $2.1 million for financial advisory services.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
900,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, PaineWebber Incorporated, on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering)
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for the account of the other Underwriters, the selling concession with respect
to Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
Application will be made for approval for listing of the Common Stock on
the New York Stock Exchange. In connection with the possibility of the listing
of the Common Stock on the New York Stock Exchange, the Underwriters have
undertaken to sell round lots of 100 shares or more to a minimum of 2,000
beneficial owners.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed on
for the Company by Weil, Gotshal & Manges LLP, Houston, Texas and for the
Underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1996 and
the combined financial statements of the Company as of December 31, 1995, and
for each of the years in the three-year-period ended December 31, 1996, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The reserve reports and estimates of the Company's net proved oil and
natural gas reserves included herein have, to the extent described herein, been
prepared by DeGolyer and Netherland, Sewell. Summaries of these estimates and
the audit letters of DeGolyer and Netherland, Sewell have been included in this
Prospectus as Appendix A in reliance upon such firms as experts with respect to
such matters.
AVAILABLE INFORMATION
As a result of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith will file reports and other information with the
Commission. The reports and other information filed by the Company with the
Commission can be inspected and copies can be obtained at the public reference
facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. Such additional information may be
obtained at the locations listed above. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document filed as an
exhibit to the Registration Statement are summaries of the terms of such
contract, agreement or document and are not necessarily complete. Reference is
made to each such exhibit for a more complete description of the matters
involved.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and an opinion expressed by independent
auditors and with quarterly reports for the first three quarters of each fiscal
year containing unaudited summary financial information.
69
<PAGE>
GLOSSARY
The following are definitions of certain terms used in this Prospectus.
BBL. One barrel of crude oil, condensate or other liquids equal to 42 U.S.
gallons.
BCF. Billion cubic feet.
BCFE. Billion cubic feet of natural gas equivalent.
BTU. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 degrees Fahrenheit to 59.5
degrees Fahrenheit under specific conditions.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable
to producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive in an
attempt to recover proved undeveloped reserves.
EXPLORATORY WELL. 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.
FARMOUT. An assignment of an interest in a drilling location and related
acreage conditional upon the drilling of a well or the establishment of
production on that location. The assignor usually retains an overriding royalty
interest or a working interest after payout in the lease.
FINDING COSTS. Expressed in terms of dollars per Mcfe, calculated by
dividing the amount of total capital expenditures for oil and gas activities by
the amount of estimated net proved reserves added during the same period
(including the effect on proved reserves of reserve revisions).
GROSS ACRES OR GROSS WELLS. The number of acres or wells in which the
Company has a working interest.
LEASE OPERATING EXPENSE. Costs incurred to operate and maintain wells and
related equipment and facilities including applicable operating costs of support
equipment and facilities and other costs of operating and maintaining those
wells and related equipment and facilities.
MBBL. One thousand barrels.
MCF. One thousand cubic feet.
MCFE. One thousand cubic feet of natural gas equivalent.
MMBBL. One million barrels.
MMBTU. One million Btus.
MMCF. One million cubic feet.
MMCFE. One million cubic feet of natural gas equivalent.
NATURAL GAS EQUIVALENT. Cubic feet of natural gas equivalent, determined
using the ratio of one Bbl of crude oil, condensate or natural gas liquids to
six Mcf of natural gas.
NET ACRES OR NET WELLS. The sum of the fractional working interests owned
in gross acres or gross wells.
NET PROFITS INTEREST. An interest in an oil and gas property entitling the
owner to a share of the gross revenues from oil and gas production less all
operating, production, development, transportation, transmission and marketing
expenses, production, sales and ad valorem taxes attributable to such
production.
OVERRIDING ROYALTY INTEREST. A royalty interest which is carved out of a
lessee's working interest under an oil and gas lease.
PRODUCTION PAYMENT. A share of the oil or natural gas produced from a
specified tract of land, free of the costs of production at the surface,
terminating when a specified sum from the sale of such oil or natural gas has
been realized.
70
<PAGE>
PRODUCTIVE WELL. A well that is producing oil and gas or that is capable
of production.
PROVED DEVELOPED NONPRODUCING RESERVES. Proved developed reserves expected
to be recovered from zones behind casing in existing wells.
PROVED DEVELOPED PRODUCING RESERVES. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.
PROVED DEVELOPED RESERVES. Proved reserves that can be expected to be
recovered from completion intervals currently open in existing wells and able to
produce to market.
PROVED RESERVES. 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.
PROVED UNDEVELOPED RESERVES. Proved 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.
PV-10 RESERVE VALUE. The pre-tax present value, discounted at 10% per
annum, of future net cash flows from estimated proved reserves, calculated
holding prices and costs constant at amounts in effect on the date of the
estimate (unless such prices or costs are subject to change pursuant to
contractual provisions). The difference between the PV-10 Reserve Value and the
standardized measure of discounted future net cash flows is the present value of
income taxes applicable to such future net cash flows.
RECOMPLETION. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
RESERVE LIFE INDEX. Calculated by dividing year-end proved reserves by
annual production for the most recent year.
ROYALTY INTEREST. An interest in an oil and gas property entitling the
owner to a share of oil or gas production free of costs of production.
SPUD. To start (or restart) the drilling of a new well.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS. The present
value, discounted at 10% per annum, of future net cash flows from estimated
proved reserves, calculated holding prices and costs constant at amounts in
effect on the date of the estimate (unless such prices or costs are subject to
change pursuant to contractual provisions) and in all instances in accordance
with the Commission's rules for inclusion of oil and gas reserve information in
financial statements filed with the Commission.
TCF. One trillion cubic feet.
TERM OVERRIDING ROYALTY INTEREST. An overriding royalty interest with a
fixed duration.
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been
participated in or completed to a point that would permit the production of
commercial quantities of oil and gas regardless of whether such acreage contains
proved reserves.
WATERFLOOD. The injection of water into a reservoir to fill pores vacated
by produced fluids, thus maintaining reservoir pressure and assisting
production.
WORKING INTEREST. A cost bearing interest which gives the owner the right
to drill, produce and conduct oil and gas operations on the property, as well as
a right to a share of production therefrom.
WORKOVER. Operations on a producing well to restore or increase
production.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report......... F-2
Combined and Consolidated Balance
Sheets as of December 31, 1995 and
1996, respectively................. F-3
Combined Statements of Income for the
years ended December 31, 1994,
1995 and 1996...................... F-4
Combined Statements of Stockholder's
Equity for the years ended December
31, 1994, 1995 and 1996............ F-5
Combined Statements of Cash Flows for
the years ended December 31, 1994,
1995 and 1996...................... F-6
Notes to the Combined and
Consolidated Financial
Statements......................... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Domain Energy Corporation
We have audited the accompanying consolidated balance sheet of Domain Energy
Corporation and subsidiaries (the "Company"), the Successor, as of December
31, 1996 and the accompanying combined balance sheet of Tenneco Ventures
Corporation and Tenneco Gas Production Corporation (the "Tenneco Entities"),
the Predecessor, as of December 31, 1995 and the related combined statements of
income, stockholder's equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 1996 and the combined financial position of the
Tenneco Entities as of December 31, 1995 and the combined results of their
operations and their combined cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
April 3, 1997
Houston, Texas
F-2
<PAGE>
DOMAIN ENERGY CORPORATION
COMBINED AND CONSOLIDATED BALANCE SHEETS
(NOTE 1)
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------------
PREDECESSOR SUCCESSOR
1995 1996
------------ -------------
ASSETS
Cash and cash equivalents............ $ -- $ 736
Restricted certificate of deposit.... -- 8,000
Accounts receivable.................. 13,219 13,404
IPF Program notes receivable, current
portion............................ 2,247 7,874
Prepaid and other current assets..... 1,608 1,525
------------ -------------
Total current assets............ 17,074 31,539
IPF Program notes receivable......... 5,744 13,836
Oil and natural gas properties, full
cost method.......................... 137,975 88,648
Less: Accumulated depreciation,
depletion and amortization........... (26,251) --
Investments and other assets......... 2,554 3,103
------------ -------------
Total assets.................... $137,096 $ 137,126
============ =============
LIABILITIES
Accounts payable and accrued
expenses........................... $ 11,313 $ 15,888
Current maturities of long-term
debt............................... -- 25,900
------------ -------------
Total current liabilities....... 11,313 41,788
Long-term debt....................... -- 66,775
Deferred income taxes................ 13,349 --
Parent advances...................... 110,274 --
------------ -------------
Total liabilities............... 134,936 108,563
Minority interest.................... -- 986
Commitments and contingencies
STOCKHOLDER'S
EQUITY
Common stock:
Predecessor -- $5.00 par value,
400 shares authorized, issued
and outstanding at December 31,
1995.
Successor -- $0.01 par value,
20,000 shares authorized and
9,519.4717 issued and
outstanding at December 31,
1996........................... $ 2 $ --
Additional paid-in capital........... -- 27,577
Retained earnings.................... 2,158 --
------------ -------------
Total stockholder's equity...... 2,160 27,577
------------ -------------
Total liabilities and
stockholder's equity............ $137,096 $ 137,126
============ =============
The accompanying notes are an integral part
of the combined and consolidated financial statements.
F-3
<PAGE>
DOMAIN ENERGY CORPORATION
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
PREDECESSOR
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
REVENUES:
Oil and natural gas sales............... $ 5,340 $ 34,877 $ 52,889
IPF Activities.......................... 1,417 2,356 4,369
Other................................... 283 414 64
--------- --------- ---------
Total revenues................ 7,040 37,647 57,322
--------- --------- ---------
EXPENSES:
Lease operating......................... 1,790 7,980 10,962
Production and severance taxes.......... 18 710 1,372
Depreciation, depletion and
amortization.......................... 3,101 22,692 22,739
General and administrative.............. 52 4,050 8,188
--------- --------- ---------
Total operating expenses...... 4,961 35,432 43,261
Income from operations.................. 2,079 2,215 14,061
Interest expense........................ -- -- 470
--------- --------- ---------
Income before income taxes.............. 2,079 2,215 13,591
Income tax provision.................... 1,105 861 5,551
Minority interest....................... -- -- (157)
--------- --------- ---------
Net income.............................. $ 974 $ 1,354 $ 8,197
========= ========= =========
The accompanying notes are an integral part
of the combined and consolidated financial statements.
F-4
<PAGE>
DOMAIN ENERGY CORPORATION
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------------------
ADDITIONAL RETAINED TOTAL
COMMON PAID IN EARNINGS STOCKHOLDER'S
STOCK CAPITAL (DEFICIT) EQUITY
------ ---------- -------- --------------
<S> <C> <C> <C>
Balance at January 1, 1994.............. $ 2 -- $ (170) $ (168)
Net income.............................. -- -- 974 974
------ ---------- -------- --------------
Balance at December 31, 1994............ 2 -- 804 806
Net income.............................. -- -- 1,354 1,354
------ ---------- -------- --------------
Balance at December 31, 1995............ 2 -- 2,158 2,160
Net income.............................. -- -- 8,197 8,197
------ ---------- -------- --------------
Balance at December 31, 1996
(prior to the Acquisition)............ $ 2 $ -- $ 10,355 $ 10,357
====== ========== ======== ==============
</TABLE>
The accompanying notes are an integral part
of the combined and consolidated financial statements.
F-5
<PAGE>
DOMAIN ENERGY CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR
----------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 974 $ 1,354 $ 8,197
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization..................... 3,101 22,692 22,739
Deferred income taxes.............. 9,956 1,781 7,704
Minority interest.................. -- -- 904
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable....................... (713) (8,119) (210)
Decrease (increase) in prepaid and
other current assets............. (441) (956) 83
Increase (decrease) in accounts payable
and accrued expenses.................. (674) 8,935 (518)
---------- ---------- ----------
Net cash provided by operating
activities............................ 12,203 25,687 38,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in oil and natural gas
properties............................ (85,205) (43,645) (56,876)
Proceeds from sale of oil and gas
properties............................ -- 3,405 6,417
IPF Program investments of capital
(notes receivable).................... (3,315) (6,606) (18,608)
IPF Program return of capital (notes
receivable)........................... 3,507 2,638 4,618
Investment and other assets............. (1,428) 83 596
---------- ---------- ----------
Net cash used in investing activities... (86,441) (44,125) (63,853)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from debt borrowings....... -- -- 18,475
Advances from Parent, net............... 84,070 6,971 6,479
---------- ---------- ----------
Net cash provided by financing
activities............................ 84,070 6,971 24,954
Increase (decrease) in cash and cash
equivalents........................... 9,832 (11,467) --
Cash and cash equivalents, beginning of
period................................ 1,635 11,467 --
---------- ---------- ----------
Cash and cash equivalents, end of period
(Predecessor -- before Acquisition)... $ 11,467 $ -- $ --
========== ========== ==========
The accompanying notes are an integral part
of the combined and consolidated financial statements.
F-6
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BASIS OF PRESENTATION AND NATURE OF OPERATIONS
For the years ended December 31, 1994 and 1995 and for the period from
January 1, 1996 through December 11, 1996, Tenneco Ventures Corporation
("Ventures") and Tenneco Gas Production Corporation ("Production" and,
together with Ventures, the "Tenneco Entities") were indirect subsidiaries of
Tenneco, Inc. ("Tenneco"). As a result of a merger between Tenneco and a
subsidiary of El Paso Natural Gas Company ("El Paso"), Ventures and Production
became wholly owned indirect subsidiaries of El Paso for the period from
December 12, 1996 to December 31, 1996. On December 31, 1996, Domain Energy
Corporation ("Domain") acquired all of the outstanding common stock of
Ventures and Production (the "Acquisition"). Domain was incorporated in
Delaware in December 1996 to acquire such common stock and had no operations
prior to the Acquisition.
Unless otherwise indicated, references to the Company are to Domain and its
subsidiaries at and subsequent to December 31, 1996 and to the combined
activities of the Tenneco Entities prior to December 31, 1996. References to the
Parent are to Tenneco or its affiliates prior to December 11, 1996 and to El
Paso from December 12, 1996 to December 31, 1996.
The Company was capitalized on December 31, 1996 with the issuance of
9,519.4717 shares of common stock for $30.0 million and borrowings of $66.2
million under its credit facilities. The Company completed the Acquisition for a
total cash purchase price of approximately $95.8 million and the assumption of
liabilities of approximately $31.2 million. The Company has accounted for the
Acquisition using the purchase method of accounting. The assets and liabilities
of the Tenneco Entities have been recorded in the Company's balance sheet at
December 31, 1996 at their estimated fair market values, summarized as follows
(in thousands):.
ASSETS:
Accounts receivable -- trade.... $ 13,404
IPF Program notes receivable.... 21,710
Oil and gas properties.......... 88,648
Other assets.................... 3,238
----------
Total assets............... $ 127,000
==========
LIABILITIES:
Accounts payable................ (12,730)
Long-term debt.................. (18,475)
----------
Total liabilities.......... $ (31,205)
==========
The financial statements of the Tenneco Entities at December 31, 1995 and
for each of the years ended December 31, 1994, 1995 and 1996 have been combined
to reflect their combined historical financial position and historical results
of operations.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company for the years ended December 31, 1995 and 1996 as
if the Acquisition had occurred at the beginning of 1995 (in thousands):
1995 1996
--------- ---------
Revenues................................ $ 37,647 $ 57,322
Net income.............................. $ 4,682 $ 12,346
The Company is an independent oil and gas company engaged in the
exploration, development, production and acquisition of domestic oil and natural
gas properties, principally in the Gulf Coast region. The Company complements
these activities with its Independent Producer Finance Program (the "IPF
F-7
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Program") pursuant to which it invests in oil and natural gas reserves through
the acquisition of term overriding royalty interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION -- The consolidated balance
sheet at December 31, 1996 includes the accounts of the Company and its
majority-owned subsidiaries. The combined financial statements of the Tenneco
Entities include their combined accounts and the combined accounts of their
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
OIL AND GAS PROPERTIES -- Investments in oil and gas properties are
accounted for using the full cost method of accounting. All costs associated
with the acquisition, exploration, exploitation and development of oil and gas
properties are capitalized.
Oil and gas properties are amortized using the unit-of-production method
using estimates of proved reserve quantities. Investments in unproved properties
are not amortized until proved reserves associated with the projects can be
determined or until impairment occurs. If the results of the assessment indicate
that the properties are impaired, the amount of impairment is added to the
proved oil and gas property costs to be amortized. The amortizable base includes
future development costs and, where significant, dismantlement, restoration, and
abandonments costs, net of estimated salvage values. The depletion rate per Mcfe
for the years ended December 31, 1994, 1995 and 1996 was $1.03, $1.08 and $0.91,
respectively.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves. Abandonments of properties are accounted for as adjustments of
capitalized costs with no loss recognized.
In addition, the total capitalized costs of oil and gas properties are
subject to a "ceiling test", which limits such costs to the estimated present
value, discounted at a 10% interest rate, of future net cash flows from proved
reserves, based on current economic and operating conditions, plus the cost of
unproved prospects. If capitalized costs exceed this limit, the excess is
charged to depreciation, depletion and amortization.
INDEPENDENT PRODUCER FINANCE PROGRAM -- Through its IPF Program, the
Company acquires term overriding royalty interests in oil and gas properties
owned by independent producers. Because the funds advanced to a producer for
these interests are repaid from an agreed upon share of cash proceeds from the
sale of production until the amount advanced plus interest is paid in full, the
Company accounts for the term overriding royalty interests as notes receivable.
Under this accounting method, the Company recognizes only the interest income
portion of payments received from a producer as revenues on its income
statement. The remaining cash receipts are recorded as a reduction in notes
receivable on the Company's balance sheet and as IPF Program return of capital
on the Company's statement of cash flows. The Company records an impairment for
its investments on a case-by-case basis when it determines repayment to be
doubtful.
INCOME TAXES -- Through December 31, 1996, the Company's taxable income is
included in a consolidated United States income tax return with the Parent. The
intercompany tax allocation policy between the Company and the Parent provided
that each member of the consolidated group compute a provision for income taxes
on a separate return basis. The Company records its income taxes utilizing an
asset and liability approach which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets and
liabilities. All current amounts due to or from the Parent are included in
Parent advances on the combined balance sheet.
OIL AND GAS HEDGING ACTIVITIES -- The Company periodically uses derivative
financial instruments to manage price risks related to oil and natural gas sales
and not for speculative purposes. For book purposes,
F-8
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
gains and losses related to the hedging of anticipated transactions are
recognized as income when the hedged transaction occurs.
The Company primarily utilizes price swap agreements with major energy
companies to accomplish its hedging objectives. The price swap agreements
generally provide for the Company to receive or make counter-party payments on
the differential between a fixed price and a variable indexed price. Total oil
and natural gas sales hedged during the years ended December 31, 1996 and 1995
were 258,710 Bbls and 16,025 MMcf and 65,840 Bbls and -0- MMcf, respectively.
There were no hedging transactions in 1994. Gains (losses) realized by the
Company under such hedging arrangements, and reported as an increase (reduction)
of revenues, were ($10.5 million) and $0.2 million for the years ended December
31, 1996 and 1995, respectively. The following table sets forth the Company's
open hedging contracts for oil and natural gas under various price swap
agreements with major energy companies as of December 31, 1996:
<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
------------------------------ ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
BBLS FIXED SALES PRICE MMBTU FIXED SALES PRICE
--------- ------------------ ------ ------------------
<S> <C> <C> <C> <C>
Jan 1997 -- Dec 1997............ 244,540 $17.37 4,270 $ 2.58
Jan 1998 -- Dec 2000............ 442,550 $18.37 -- --
</TABLE>
REVENUE RECOGNITION -- The Company recognizes oil and gas revenue from its
interests in producing wells as oil and gas is produced from those wells. Oil
and gas sold in production operations is not significantly different from the
Company's share of production. The Company recognizes financing revenues from
its producer financing activities using the effective interest rate method.
The Company utilizes the sales method to account for gas production volume
imbalances. Under this method, income is recorded based on the Company's net
revenue interest in production taken for delivery. Management does not believe
that the Company had any material natural gas imbalances at December 31, 1996 or
1995.
FINANCIAL INSTRUMENTS -- The Company's financial instruments consist of
cash, accounts and notes receivable, payables, long-term debt and oil and
natural gas commodity hedges. The carrying amount of cash, accounts receivable
and payables approximates fair value because of the short-term nature of these
items. Based on current industry and other conditions, management believes that
the carrying value of its IPF Program notes receivable approximates, at a
minimum, their fair value. The carrying value of long-term debt approximates
fair value because the individual borrowings bear interest at floating market
rates. Assuming a market price based on the twelve-month strip as of December
31, 1996, the Company's projected losses from these open hedge contracts was
approximately $2.7 million as of December 31, 1996. Considerable judgment is
required in developing these estimates and, accordingly, no assurance can be
given that the estimated values presented herein are indicative of amounts that
would be realized in a full market exchange.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from these estimates.
Significant estimates include depreciation, depletion and amortization of proved
producing oil and natural gas properties; estimates of proved oil and natural
gas reserve volumes; and discounted future net cash flows.
CONCENTRATION OF RISK -- Substantially all of the Company's accounts and
notes receivable result from oil and natural gas sales, joint interest billings
and lending activities to third parties in the oil and natural gas industry.
This concentration of customers, joint interest owners and borrowers may impact
the Company's
F-9
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
overall credit risk in that these entities may be similarly affected by changes
in economic and other conditions. Historically, the Company has not experienced
credit losses on such accounts and notes receivable.
STATEMENTS OF CASH FLOWS -- The statements of cash flows are presented
using the indirect method and consider all highly liquid investments with
maturities at the time of purchase of three months or less to be cash
equivalents.
Supplemental cash flow information may be summarized as follows (in
thousands):
1994 1995 1996
---------- ---------- ----------
Interest expense paid................ $ -- $ -- $ 307
Income taxes paid to Parent.......... -- -- --
The Acquisition:
Total cash consideration........ $ -- $ -- $ 95,800
Fair value of assets acquired... -- -- 127,000
Liabilities assumed............. -- -- 31,200
EMPLOYEE STOCK-BASED COMPENSATION -- In October 1995, Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock Based Compensation"
("SFAS 123") was issued. Under SFAS No. 123, the Company is permitted to
either record expenses for stock options and other stock-based employee
compensation plans based on their fair value at the date of grant or to apply
the existing standard, Accounting Principles Board Opinion No. 25 ("APB 25")
and recognize compensation expense, if any, based on the intrinsic value of the
equity instrument at the measurement date. The Company has elected to continue
to follow APB 25. When applicable, the Company will disclose pro forma net
income and earnings per share computed as if the Company utilized SFAS 123.
3. NOTES RECEIVABLE -- INDEPENDENT PRODUCER FINANCING
At December 31, 1996 and 1995, the Company had total outstanding notes
receivable related to its IPF Program of $21.7 million and $8.0 million,
respectively. The notes receivable result from the Company's purchase of a
production payment in the form of a term overriding royalty interest in exchange
for an agreed upon share of revenues from identified properties until the amount
invested and a specified rate of return on investment is paid in full. While the
independent producer's obligation to deliver such revenues is nonrecourse to the
producer, management believes that the Company's overriding royalty interest
constitutes a property interest and therefore, such property interest and the
underlying oil and gas reserves effectively serves as security for the notes
receivable. Based on reserve data available, the Company has estimated that $7.9
million and $2.2 million of notes receivable at December 31, 1996 and 1995 will
be repaid in the next twelve months and has classified such amounts as current
assets.
4. UNEVALUATED PROPERTY
Oil and natural gas properties not subject to amortization consist of the
cost of undeveloped leaseholds, exploratory and developmental wells in progress,
and secondary recovery projects before the assignment of proved reserves. These
costs are reviewed periodically by management for impairment, with the
impairment provision included in the cost of oil and natural gas properties
subject to amortization. Factors considered by management in its impairment
assessment include drilling results by the Company and other operators, the
terms of oil and gas leases not held by production, production response to
secondary recovery activities
F-10
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and available funds for exploration and development. The following table
summarizes the cost of the properties not subject to amortization for the year
cost was incurred (in thousands):
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Year cost incurred:
Remainder
1993....................... $ 4,219 $ --
1994....................... 23,364 --
1995....................... 10,334 --
1996....................... -- 20,319
--------- ---------
$ 37,917 $ 20,319
========= =========
5. LONG-TERM DEBT
At December 31, 1995 and 1996, notes payable and long-term debt consisted
of the following (in thousands):
DECEMBER 31,
---------------------
1995 1996
--------- ----------
Revolving Credit Facility............ $ -- $ 61,200
Michigan Senior Debt................. -- 4,606
Indebtedness to Fund VII............. -- 8,000
Indebtedness to Westshore............ -- 7,657
IPF Company Credit Facility.......... -- 11,212
--------- ----------
Long-term debt....................... $ -- $ 92,675
Less current maturities.............. -- (25,900)
--------- ----------
$ -- $ 66,775
========= ==========
REVOLVING CREDIT FACILITY -- In connection with the Acquisition, the
Company entered into a $65.0 million revolving credit facility maturing on
December 31, 1999 (the "Revolving Credit Facility") with a group of banks led
by The Chase Manhattan Bank. The Revolving Credit Facility is secured by
approximately 80% of the aggregate value of the Company's oil and gas properties
and substantially all of the Company's other property (other than IPF Program
related properties), including the capital stock of Ventures and Production and
is also guaranteed by Ventures and Production. Amounts available under the
Revolving Credit Facility are subject to a borrowing base with scheduled
redeterminations every six months (and such other redeterminations as the lender
may elect to perform) by the lenders at the lenders' sole discretion and in
accordance with their customary practices and standards in effect from time to
time for reserve-based loans to borrowers similar to the Company. The borrowing
base under the Revolving Credit Facility at December 31, 1996 was $65.0 million.
On December 31, 1997, the Company is required to reduce its outstanding
indebtedness under the Revolving Credit Facility to $43.3 million. In addition,
if at the end of any fiscal quarter of the Company during 1997 the amount then
outstanding thereunder exceeds $43.3 million (as such amount may be adjusted
from time to time pursuant to the Revolving Credit Facility), the Company will
be obligated to prepay the outstanding indebtedness thereunder in an amount
equal to 100% of the Company's "excess cash flow" (as defined therein) for
such fiscal quarter. Excess cash flow is defined to include a portion of the net
proceeds to the Company of the Offering.
Absent a default or an event of default, borrowings under the Revolving
Credit Facility accrue interest at LIBOR plus a margin of 1.50% to 2.50% per
annum depending on the total amount outstanding or, at the option of the
Company, at the greater of (i) the prime rate and (ii) the federal funds
effective rate plus 0.50%, plus a margin of 0.50% to 1.50% depending on the
total amount outstanding. The Company also
F-11
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
incurs a quarterly commitment fee ranging from 0.375% to 0.50% per annum on the
average unused portion of the lenders' aggregate commitment depending on the
total amount outstanding. The interest rate on the amounts outstanding at
December 31, 1996 was 8.04%.
The Revolving Credit Facility contains a number of covenants that, among
other things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, pay dividends, enter into certain investments or
acquisition, repurchase or redeem capital stock, engage in mergers or
consolidations, or engage in certain transactions with subsidiaries and
affiliates and that will otherwise restrict corporate activities. In addition,
such facility requires the Company to maintain a specified minimum tangible net
worth and to comply with certain prescribed financial ratios. Further, under
such facility, an event of default is deemed to occur if any person, other than
the Company's officers, Fund VII or any other investment fund, the managing
general partner of which is First Reserve, becomes the beneficial owner,
directly or indirectly, of more than 40% of the outstanding shares of Common
Stock.
IPF COMPANY CREDIT FACILITY -- IPF Company, an indirect wholly-owned
subsidiary of the Company, has a $20.0 million revolving credit facility with
Compass Bank-Houston (the "IPF Company Credit Facility") pursuant to which it
finances a portion of the IPF Program. The IPF Company Credit Facility matures
June 1, 1998 at which time all amounts owed thereunder are due and payable. The
IPF Company Credit Facility is secured by substantially all of IPF Company's oil
and gas term overriding royalty interests, including the notes receivable
generated therefrom. The borrowing base under the facility as of February 28,
1997 was $18.0 million and is subject to a scheduled redetermination by the
lender every six months and such other redeterminations as the lender may elect
to perform each year. Absent a default or an event of default (as defined
therein), borrowings under the IPF Company Credit Facility accrue interest at
LIBOR plus a margin of 2.25% or, at the option of the IPF Company, the prime
rate published in THE WALL STREET JOURNAL.
The IPF Company Credit Facility contains a number of covenants that, among
other things, restrict the ability of IPF Company to incur additional
indebtedness or grant liens on its properties, guarantee indebtedness of any
other person, dispose of assets, make loans in excess of $100,000 other than in
the ordinary course of its business, issue additional shares of capital stock,
engage in certain transactions with affiliates, enter into any new line of
business or amend certain of its material contracts. In addition, such facility
requires IPF Company to maintain a specified minimum tangible net worth.
The IPF Company Credit Facility restricts the ability of IPF Company to
dividend cash to its parent, Ventures, or otherwise advance cash to the Company.
At December 31, 1996, IPF Company net assets of approximately $8.0 million were
restricted.
MICHIGAN SENIOR DEBT -- To finance the Company's Michigan Development
Project, two affiliates of the Company (Michigan Production Company, L.L.C.
("MPC") and Michigan Energy Company, L.L.C. ("MEC")) entered into a $30.0
million Credit Agreement with Bank of America Illinois (the "Bank of America
Facility") in May 1996. As of December 31, 1996, the two companies had
collectively borrowed $11.5 million under the facility. The Company fully
consolidates the activities of MPC, which borrowed $4.6 million of these
advances, and accounts for MEC on the equity based method of accounting. The
Bank of America Facility is secured by the assets of MPC and MEC, but has no
recourse to the assets of the Company. Advances under the facility bear interest
at LIBOR plus 2.0%, or, at the option of the companies, at the higher of (i) the
Bank of America prime rate or (ii) the federal funds rate plus .50%. A
commitment fee of .25% is payable quarterly. Additionally, Bank of America is
entitled to receive a net profits interest from MPC and MEC of 10% until the
bank receives a rate of return of 14%, after which the net profits interests
reduce to 2%. In 1996 the bank received no payments pursuant to the net profits
interests.
Bank of America will redetermine the borrowing base semi-annually beginning
on September 1, 1997. Certain financial covenants become effective after
September 1, 1997, including the maintenance of (i)
F-12
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tangible net worth in excess of $3.0 million, (ii) a current ratio greater than
1:1, and (iii) cash flow coverage greater than 1:1 until September 1, 1998 and
greater than 3:1 after September 1, 1998.
INDEBTEDNESS TO FUND VII -- Prior to the Acquisition, Tennessee Gas
Pipeline Company ("TGPL"), the former wholly-owning parent of Ventures, was a
guarantor with respect to certain indebtedness (the "Michigan Senior Debt") of
a partnership formed to participate in a development project in Michigan in
which Ventures was at the time a general partner. In connection with the
Acquisition, the Company formed Domain Energy Guarantor Corporation ("Guarantor
Corporation"), for the sole purpose of assuming the obligations of TGPL under
such guaranty. As security for its obligations under the guaranty, Guarantor
Corporation purchased an $8.0 million certificate of deposit issued by the
lender in respect of the Michigan Senior Debt and assigned and pledged such
certificate to the lender.
To enable Guarantor Corporation to purchase the $8.0 million certificate
pledged as collateral for its guaranty of the Michigan Senior Debt, First
Reserve Fund VII, Limited Partnership ("Fund VII"), the Company's sole
stockholder at December 31, 1996, loaned Guarantor Corporation $8.0 million
evidenced by a Subordinated Promissory Note dated December 31, 1996 (the
"Note"). The full principal amount of the Note matures on December 31, 1999.
Interest accrues on the Note at a rate per annum equal to the interest rate per
annum earned by Guarantor Corporation on the $8.0 million certificate and is
payable quarterly. The obligations of Guarantor Corporation under the Note are
expressly made subordinate and subject in right of payment to the prior payment
in full of the Michigan Senior Debt. As the Company expects that in 1997 the
Michigan properties will be sold, the Michigan Senior Debt will be repaid, the
restrictions on the certificate of deposit will be removed, and the Note will be
repaid, the Note has been classified at December 31, 1996 as current maturities
of long-term debt.
WESTSHORE LOAN AGREEMENT -- Effective October 1, 1996, Westshore Processing
Company, L.L.C. ("Westshore") and MPC entered into a non-recourse loan
agreement. This agreement provides term financing from Westshore to MPC for
construction of a 10-inch diameter natural gas pipeline. The note accrues
interest at an annual rate of 5.98%, compounded semi-annually, with all
outstanding principal and interest due and payable on the completion of the
pipeline. The Company at December 31, 1996 had outstanding debt under this
agreement in the amount of $7.7 million.
6. RELATED PARTY TRANSACTIONS
GENERAL AND ADMINISTRATIVE EXPENSES -- Prior to the Acquisition, the
Company paid an affiliate of the Parent for various administrative support
services. Included in general and administrative expenses was approximately $1.3
million and $4.8 million for the years ended December 31, 1995 and 1996.
Prior to the Acquisition, the Parent also advanced various amounts to the
Company for working capital and capital expenditure requirements. The Parent did
not charge the Company any interest expense on the funds utilized by the
Company. The average amounts of advances outstanding from the Parent were
approximately $31.6 million, $107.7 million and $118.5 million for the years
ended December 31, 1994, 1995 and 1996, respectively. A summary of the activity
in the advances from Parent account follows (in thousands):
1994 1995 1996
---------- ---------- ----------
Beginning balance, January 1,........ $ 19,234 $ 103,303 $ 110,274
Cash advances, net................... 90,431 5,545 1,737
Charges for administrative costs,
net................................ 3,506 1,270 4,827
Other allocations (accrued taxes).... (9,868) 156 4,734
Acquisition.......................... -- -- (121,572)
---------- ---------- ----------
Ending balance, December 31.......... $ 103,303 $ 110,274 $ --
========== ========== ==========
F-13
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Acquisition, the Company agreed to pay First Reserve
Corporation ("First Reserve"), the managing partner of Fund VII, a fee of
$500,000. First Reserve has waived its right to receive this fee effective upon
consummation of the Offering.
7. STOCKHOLDERS' EQUITY
COMMON STOCK -- Immediately prior to the Offering the Company will be
authorized to issue up to 25,000,000 shares of Common Stock, $.01 par value per
share. As of December 31, 1996, there were 9519.4717 shares of Common Stock
issued and outstanding. Immediately before consummation of the Offering, a
754-for-one stock split will be effected. Holders of Common Stock are entitled
to one vote for each share held and are not entitled to cumulative voting for
the purpose of electing directors and have no preemptive or similar right to
subscribe for, or to purchase, any shares of Common Stock or other securities to
be issued by the Company in the future. Accordingly, the holders of more than
50% in voting power of the shares of Common Stock voting generally for the
election of directors will be able to elect all of the Company's directors.
PREFERRED STOCK -- Immediately prior to the Offering the Board of Directors
will be authorized, without action by the holders of Common Stock, to issue up
to 5,000,000 shares of preferred stock, $.01 par value per share (the
"Preferred Stock"), in one or more series, to establish the number of shares
to be included in each such series and to fix the designations, preferences,
relative, participating, optional and other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. Such
matters may include, among others, voting rights, conversion and exchange
privileges, dividend rates, redemption rights, sinking fund provisions and
liquidation rights that could be superior and prior to the Common Stock. As of
December 31, 1996, no shares of preferred stock were issued and outstanding.
STOCK PURCHASE AND OPTION PLAN -- The Company recently adopted the Amended
and Restated 1996 Stock Purchase and Option Plan for Key Employees of Domain
Energy Corporation and Affiliates (the "Stock Purchase and Option Plan"). The
Stock Purchase and Option Plan authorizes the issuance of options to acquire up
to 867,100 shares of Common Stock and the Company has reserved 867,100 shares of
Common Stock for issuance in connection therewith. The Stock Purchase and Option
Plan will be administered by the Compensation Committee of the Board of
Directors. Pursuant to the Stock Purchase and Option Plan, the Company may grant
to employees, directors or other persons having a unique relationship with the
Company or its affiliates, singly or in combination, Incentive Stock Options,
Other Stock Options, Stock Appreciation Rights, Restricted Stock, Purchase
Stock, Dividend Equivalent Rights, Performance Units, Performance Shares or
Other Stock-Based Grants, in each case as such terms are defined therein. The
terms of any such grant will be determined by the Compensation Committee and set
forth in a separate grant agreement. The exercise price will be at least equal
to 100% of fair market value of the Common Stock on the date of grant in the
case of Incentive Stock Options and the exercise price of Other Stock Options
will be at least equal to 50% of fair market value of the Common Stock on the
date of grant, provided that options to purchase up to 433,550 shares of Common
Stock may be granted with an exercise price equal to $.01 per share, which is
the par value of the Common Stock. Non-Qualified Stock Options and Other Stock
Options may be exercisable for up to ten years.
On February 21, 1997 (the "Grant Date"), the Company granted to the
officers of the Company, pursuant to separate Non-Qualified Stock Option
Agreements (collectively the "Stock Option Agreements") between the Company
and each of such persons, options to purchase a total of 754,000 shares of
Common Stock under the Stock Purchase and Option Plan. In addition, the Company
has granted options to purchase an aggregate of 95,702 shares of Common Stock to
other employees of the Company. Under the terms of the Stock Option Agreements,
50% of the options granted to each such person are designated as time options
(collectively, the "Time Options"), with an exercise price equal to $4.18 per
share, and 50%
F-14
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are designated as performance options (collectively, the "Performance
Options"), with an exercise price equal to $.01 per share. The Time Options
become exercisable as to 20% of the shares of Common Stock subject thereto on
the first anniversary of the Grant Date and are exercisable as to an additional
20% of such shares upon each anniversary of the Grant Date thereafter. The
Performance Options become exercisable at any time following the second
anniversary of the Grant Date, when the Investment Return Hurdle (as such term
is defined) is met; provided that the Performance Options become exercisable as
to 100% of the shares of Common Stock subject thereto on the ninth anniversary
of the Grant Date.
MANAGEMENT INVESTOR SUBSCRIPTION AGREEMENTS AND RELATED TRANSACTIONS -- On
February 21, 1997, each of the Company's officers (the "Management Investors")
entered into a Management Investor Subscription Agreement with the Company
pursuant to which the Management Investors purchased an aggregate of 390,311
shares of Common Stock at an average price of $4.18 per share. To facilitate
such purchases, the Company loaned the Management Investors an aggregate of
approximately $546,000. All such indebtedness of such persons accrues interest
at the rate of 8% per annum, payable semiannually; provided that each Management
Investor may elect to satisfy his or her semiannual interest payment obligation
by increasing the principal amount of the indebtedness owed to the Company by
the amount of interest otherwise payable. As security for such loans made by the
Company, each Management Investor pledged to the Company, and granted a first
priority security interest in, the shares of Common Stock purchased by such
Management Investor pursuant to its respective Management Investor Subscription
Agreement and is required to pledge, and grant a first priority security
interest in, all other shares of Common Stock that each such person may
subsequently acquire, including, without limitation, upon exercise of options to
purchase shares of Common Stock. In addition, in April 1997, other employees of
the Company purchased 95,702 shares of Common Stock at an average price of $4.18
per share.
OPTION TO ACQUIRE COMMON STOCK -- Pursuant to the Subscription Agreement,
dated December 31, 1996 (the "First Reserve Subscription Agreement"), between
the Company and Fund VII, the Company granted to Fund VII an option (the "First
Reserve Option") to acquire 1,914,048 shares of Common Stock for an aggregate
purchase price of $8.0 million plus any cash interest payment on the Note (see
Note 5) actually received by Fund VII (the "Option Price"). The Option Price
may be paid by Fund VII (i) prior to the date on which the Note has been paid in
full, by delivery to the Company of the Note together with the payment in cash
of any principal or interest payments on the Note previously received by Fund
VII and (ii) after the date on which the Note has been paid in full, by payment
of the Option Price in cash. Fund VII has waived its right to exercise the First
Reserve Option effective upon consummation of the Offering. The Note will be
paid in full upon consummation of the Offering with the proceeds of the
liquidation of the $8.0 million certificate pledged as collateral by Guarantor
Corporation for its guaranty of the Michigan Senior Debt.
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal:
Current......................... $ (7,082) $ (518) $ (2,965)
Deferred........................ 7,606 1,241 6,838
State:
Current......................... (1,798) (14) 657
Deferred........................ 2,379 152 1,021
--------- --------- ---------
Income tax expense................... $ 1,105 $ 861 $ 5,551
========= ========= =========
F-15
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth a reconciliation of the statutory federal
income tax with the Company's effective taxes allocated by the Parent (in
thousands):
1994 1995 1996
--------- --------- ---------
Income before income taxes........... $ 2,079 $ 2,215 $ 13,591
Income tax computed at statutory
rates.............................. 727 775 4,757
State taxes, net of federal
benefit............................ 378 89 950
Other................................ -- (3) (156)
--------- --------- ---------
Income tax expense................... $ 1,105 $ 861 $ 5,551
========= ========= =========
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts calculated for income tax purposes.
The Company's deferred tax liability as of December 31, 1995 was
$13,349,000. This amount represents the temporary difference in the tax and book
basis of the Company's oil and natural gas properties and investments.
As of December 31, 1996, the Company had no deferred tax liability. As a
result of the Acquisition and the corresponding election made by El Paso and the
Company to step-up the tax basis in the assets acquired, there are no temporary
differences in the carrying amounts of assets and liabilities for financial
reporting and income tax purposes.
9. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is a party to certain lawsuits and claims
arising in the ordinary course of business. While the outcome of lawsuits and
claims cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the Company's financial
condition, results of operations or cash flow.
401(K) PLAN -- Effective December 31, 1996, the Company has offered its
employees an employee 401(k) savings plan (the "401(k) Plan"). The 401(k) Plan
covers all employees and entitles each to contribute up to 15% of his or her
annual compensation subject to maximum limitations imposed by the Internal
Revenue Code. The 401(k) Plan allows for employer matching of up to 8% of the
employee's contributions based on years of participation in the plan, including
years of participation in the 401(k) plan previously offered by Tenneco.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995(1)
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................. $ 6,499 $ 7,546 $ 7,681 $ 15,921
Operating income (loss).............. (115) 757 (208) 1,781
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996(1)
--------- -------- ------------- ------------
(IN THOUSANDS)
Revenues............................. $15,215 $ 15,743 $14,151 $ 12,213
Operating income (loss).............. 4,764 6,763 2,755 (221)
</TABLE>
- ------------
(1) The fourth quarter 1995 includes a charge for corporate overhead of $1.3
million. The fourth quarter 1996 includes $2.1 million of corporate overhead
which is $1.2 million greater than the average of the first three quarters.
This amount includes costs related to the merger between Tenneco and an
affiliate of El Paso.
F-16
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)
This footnote provides unaudited information required by SFAS No. 69,
"Disclosures About Oil and Gas Producing Activities."
CAPITALIZED COSTS -- Capitalized costs and accumulated depreciation,
depletion and amortization relating to the Company's oil and gas producing
activities, all of which are conducted within the continental United States, are
summarized below (in thousands):
YEAR ENDED DECEMBER 31,
---------------------
1995 1996
---------- ---------
Proved producing oil and gas
properties......................... $ 100,058 $ 68,329
Unevaluated properties............... 37,917 20,319
---------- ---------
137,975 88,648
Less: Accumulated depreciation,
depletion and amortization......... (26,251) --
---------- ---------
Net capitalized costs................ $ 111,724 $ 88,648
========== =========
COSTS INCURRED -- Costs incurred in oil and gas property acquisition,
exploration and development activities are summarized below (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Property acquisition costs:
Unproved........................ $ 1,967 $ 3,207 $ 732
Proved.......................... 63,234 15,186 22,596
Exploration costs.................... 15,121 23,677 12,126
Development costs.................... 4,883 7,834 15,163
--------- --------- ---------
Total costs incurred................. $ 85,205 $ 49,904 $ 50,617
========= ========= =========
RESERVES -- Proved reserves are estimated quantities of 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 proved reserves that can
reasonably be expected to be recovered through existing wells with existing
equipment and operating methods.
Proved oil and natural gas reserve quantities and the related discounted
future net cash flows before income taxes for the periods presented are based on
estimates prepared by DeGolyer and MacNaughton, Netherland, Sewell & Associates,
Inc., and other third-party independent petroleum engineers. Such estimates have
been prepared in accordance with guidelines established by the Securities and
Exchange Commission.
F-17
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's net ownership interests in estimated quantities of proved oil
and natural gas reserves and changes in net proved reserves, all of which are
located in the continental United States, are summarized below. These quantities
include the minority interest in the Michigan properties which are consolidated.
<TABLE>
<CAPTION>
OIL, CONDENSATE AND NATURAL GAS LIQUIDS
(BBLS)
--------------------------------------------
1994 1995 1996
------------ -------------- --------------
<S> <C> <C> <C>
Proved developed and undeveloped
reserves:
Beginning of year............... 419,253 4,109,442 2,197,181
Revisions of previous
estimates..................... (130,555) (704,308) (929,352)
Purchases of oil and gas
properties.................... 3,713,694 1,713,328 10,151,444
Extensions and discoveries...... 190,050 179,224 180,286
Sales of oil and gas
properties.................... -- (2,676,505) (127,305)
Production...................... (83,000) (424,000) (574,175)
------------ -------------- --------------
End of year..................... 4,109,442 2,197,181 10,898,079
============ ============== ==============
Proved developed reserves at end of
year............................... 3,124,873 1,701,656 9,442,495
Minority interest:
Proved developed and
undeveloped, end of year...... -- -- 812,000
Proved developed, end of year... -- -- 378,000
NATURAL GAS (MCF)
--------------------------------------------
1994 1995 1996
------------ -------------- --------------
Proved developed and undeveloped
reserves:
Beginning of year............... 10,073,576 73,398,877 82,682,380
Revisions of previous
estimates..................... (4,525,096) 5,769,806 4,913,237
Purchases of oil and gas
properties.................... 64,489,577 19,898,227 31,795,351
Extensions and discoveries...... 5,694,820 13,083,241 4,743,646
Sales of oil and gas
properties.................... -- (11,402,771) (3,218,665)
Production...................... (2,334,000) (18,065,000) (21,577,575)
------------ -------------- --------------
End of year..................... 73,398,877 82,682,380 99,338,374
============ ============== ==============
Proved developed reserves at end of
year............................... 58,005,413 65,178,731 83,229,776
============ ============== ==============
Minority interest:
Proved developed and
undeveloped, end of year...... -- -- 10,238,000
Proved developed, end of year... -- -- 9,096,000
</TABLE>
F-18
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL (MMCFE)
--------------------------------------------
1994 1995 1996
------------ -------------- --------------
<S> <C> <C> <C>
Proved developed and undeveloped
reserves:
Beginning of year............... 12,589,094 98,055,529 95,865,466
Revisions of previous
estimates..................... (5,308,426) 1,543,958 (662,875)
Purchases of oil and gas
properties.................... 86,771,741 30,178,195 92,704,015
Extensions and discoveries...... 6,835,120 14,158,585 5,825,362
Sales of oil and gas
properties.................... -- (27,461,801) (3,982,495)
Production...................... (2,832,000) (20,609,000) (25,022,625)
============ ============== ==============
End of year..................... 98,055,529 95,865,466 164,726,848
============ ============== ==============
Proved developed reserves at end of
year............................... 76,754,651 75,388,667 139,884,746
============ ============== ==============
Minority interest:
Proved developed and
undeveloped, end of year...... -- -- 15,110,000
Proved developed, end of year... -- -- 11,364,000
</TABLE>
STANDARDIZED MEASURE -- The table of the Standardized Measure of Discounted
Future Net Cash Flows relating to the Company's ownership interests in proved
oil and gas reserves as of year end is shown below (in thousands):
AS OF DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
Future cash inflows.................. $ 170,237 $ 210,818 $ 552,026
Future oil and natural gas operating
expenses........................... (47,895) (43,204) (253,230)
Future development costs............. (40,622) (38,680) (32,922)
Future income tax expenses........... (852) (14,422) (67,346)
---------- ---------- ----------
Future net cash flows................ 80,868 114,512 198,528
10% annual discount for estimated
timing of cash flows............... (12,376) (15,513) (41,351)
---------- ---------- ----------
Standardized measure of discounted
future net cash flows.............. $ 68,492 $ 98,999 $ 157,177
========== ========== ==========
The table of Standardized Measure of Discounted Future Net Cash Flows
includes the consolidation of the Michigan properties for 1996. The minority
interest's share of standardized measure of future net cash flows is
approximately $14,400.
Future cash flows are computed by applying year end prices of oil and
natural gas to year end quantities of proved oil and natural gas reserves.
Future operating expenses and development costs are computed primarily by the
Company's petroleum engineers by estimating the expenditures to be incurred in
developing and producing the Company's proved oil and natural gas reserves at
the end of the year, based on year end costs and assuming continuation of
existing economic conditions.
Future income taxes are based on year end statutory rates, adjusted for
operating loss carryforwards and tax credits. A discount factor of 10% was used
to reflect the timing of future net cash flows. The standardized measure of
discounted future net cash flows is not intended to represent the replacement
cost or fair market value of the Company's oil and gas properties.
The standardized measure of discounted future net cash flows does not
purport, nor should it be interpreted, to present the fair value of the
Company's oil and natural gas reserves. An estimate of fair value would also
take into account, among other things, the recovery of reserves not presently
classified as
F-19
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proved, anticipated future changes in prices and costs, and a discount factor
more representative of the time value of money, and the risks inherent in
reserve estimates.
CHANGE IN STANDARDIZED MEASURE -- Changes in standardized measure of future
net cash flows relating to proved oil and gas reserves are summarized below (in
thousands):
1994 1995 1996
---------- ---------- ----------
Changes due to current year
operations:
Sales of oil & gas, net of
production costs.............. $ (3,532) $ (26,200) $ (40,530)
Sales of reserves in place...... -- (20,027) (4,639)
Extensions & discoveries........ 4,977 18,595 7,941
Purchase of reserves in place... 54,134 21,143 68,737
Future development costs
incurred...................... 4,883 7,834 7,270
Changes due to revisions in
standardized variables
Price & production costs........ (8,793) 23,926 50,846
Revisions of previous quantity
estimates..................... (10,008) (950) (5,095)
Estimated future development
costs......................... (4,535) (8,825) (1,187)
Income taxes.................... 8,185 (11,613) (37,069)
Accretion of discount........... 1,211 6,181 10,393
Production rates (timing) and
other......................... 11,363 20,443 1,511
---------- ---------- ----------
Net increase......................... 57,885 30,507 58,178
Beginning of year.................... 10,607 68,492 98,999
---------- ---------- ----------
End of year.......................... $ 68,492 $ 98,999 $ 157,177
========== ========== ==========
Sales of oil and natural gas, net of oil and natural gas operating
expenses, are based on historical pre-tax results. Sales of oil and gas
properties, extensions and discoveries, purchases of minerals in place and the
changes due to revisions in standardized variables are reported on a pre-tax
discounted basis.
F-20
<PAGE>
DEGOLYER AND MACNAUGHTON
ONE ENERGY SQUARE
DALLAS, TEXAS 75206
APPRAISAL REPORT
AS OF
DECEMBER 31, 1996
ON
CERTAIN INTERESTS
OWNED BY
DOMAIN ENERGY VENTURES CORPORATION
AND
DOMAIN ENERGY PRODUCTION CORPORATION
PROVED RESERVES
FOREWARD
SCOPE OF INVESTIGATION
This report presents an appraisal, as of December 31, 1996, of the extent
and value of the proved crude oil, condensate, and natural gas reserves of
certain property interests owned by (i) Domain Energy Ventures Corporation
(Domain), (ii) the Matrix Limited Partnership owned by Domain, and (iii) Domain
Energy Production Corporation through the Investment Fund I (DEPC Fund I) and
the Investment Fund II (DEPC Fund II). DEPC Fund I is composed of four
investors, one of which is Domain Energy Corporation. Domain Energy Corporation
is the managing partner for DEPC Fund I and its ownership interest is 10 percent
of the total working interest owned by DEPC Fund I. The other investors
participate as net profits interest owners in the remaining 90 percent of the
total working interest taken by DEPC Fund I. The interests evaluated herein are
the total of Domain Energy Corporation's 10 percent and the 90 percent owned by
the other three Participants in DEPC Fund I. DEPC Fund II is composed of four
investors, one of which is Domain Energy Corporation. Domain Energy Corporation
is the managing partner for DEPC Fund II and its ownership interest is 30
percent of the total working interest owned by DEPC Fund II. The other investors
participate as net profits interest owners in the remaining 70 percent of the
total working interest taken by DEPC Fund II. The interest evaluated herein are
the total of Domain Energy Corporation's 30 percent and the 70 percent owned by
the other three participants in DEPC Fund II. Those properties consist of
certain productive leasehold interests located in Alabama, Louisiana,
Mississippi, and Texas and offshore from Alabama, Louisiana, and Texas.
This report estimates values for proved reserves using initial prices and
costs based on data provided by Domain with no increases in the future based on
inflation. A detailed explanation of the future price and cost assumptions is
included in the Valuation of Reserves section of this report.
Reserves estimated in this report are expressed as gross and net reserves.
Gross reserves are defined as the total estimated petroleum remaining to be
produced from these properties after December 31, 1996. Net reserves are defined
as that portion of the gross reserves attributable to the interests of Domain,
DEPC Fund I, or DEPC Fund II after deducting royalties and interests owned by
others.
Values of the net reserves in this report are expressed in terms of
estimated future gross revenue, future net revenue, and present worth. Future
gross revenue is that revenue which will accrue from the production and sale of
the estimated production taxes, operating expenditures, and capital costs from
the future gross revenue. Operating expenditures include field operating costs,
ad valorem taxes, and the estimated expenses of direct supervision but do not
include that portion of general administrative costs sometimes allocated to
production. Future income tax expenses were not taken into account in the
preparation of these estimates. Present worth is defined as future net revenue
discounted at a specified arbitrary discount rate compounded
A-1
<PAGE>
DEGOLYER AND MACNAUGHTON
monthly over the expected period of realization. This report shows present worth
values using a discount rate of 10 percent.
Estimates of oil, condensate, and gas reserves and future net revenue
should be regarded only as estimates that may change as further production
history and additional information become available. Not only are such reserves
and revenue estimates based on that information which is currently available,
but such estimates are also subject to the uncertainties inherent in the
application of judgmental factors in interpreting such information.
AUTHORITY
This report was prepared at the request of Mr. Douglas H. Woodul, Vice
President -- Production, Domain.
SOURCE OF INFORMATION
Information used in the preparation of this report was obtained from the
Domain files, from records on file with the appropriate regulatory agencies, and
from public sources. In the preparation of this report we have relied, without
independent verification, upon such information furnished by Domain with respect
to property interests, production from such properties, current costs of
operation and development, current prices for production, agreements relating to
current and future operations and sale of production, and various other
information and data that were accepted as represented. A field examination of
the properties was not considered necessary for the purposes of this report.
A-2
<PAGE>
DEGOLYER AND MACNAUGHTON
CLASSIFICATION OF RESERVES
Petroleum reserves included in this report are classified as proved and are
judged to be economically producible in future years from known reservoirs under
existing economic and operating conditions and assuming continuation of current
regulatory practices using conventional production methods and equipment. In the
analyses of production-decline curves, reserves were estimated only to the limit
of economic rates of production under existing economic and operating conditions
using prices and costs as of the date the estimate is made, including
consideration of changes in existing prices provided only by contractual
arrangements but not including escalations based upon future conditions. The
petroleum reserves are classified as follows:
PROVED -- Reserves that have been proved to a high degree of certainty
by analysis of the producing history of a reservoir and/or by volumetric
analysis of adequate geological and engineering data. Commercial
productivity has been established by actual production, successful testing,
or in certain cases by favorable core analyses and electrical-log
interpretation when the producing characteristics of the formation are
known from nearby fields. Volumetrically, the structure, areal extent,
volume, and characteristics of the reservoir are well defined by a
reasonable interpretation of adequate subsurface well control and by known
continuity of hydrocarbon-saturated material above known fluid contacts, if
any, or above the lowest known structural occurrence of hydrocarbons.
DEVELOPED -- Reserves that are recoverable from existing wells with
current operating methods and expenses.
Developed reserves include both producing and nonproducing reserves.
Estimates of producing reserves assume recovery by existing wells producing
from present completion intervals with normal operating methods and
expenses. Developed nonproducing reserves are in reservoirs behind the
casing or at minor depths below the producing zone and are considered
proved by production from other wells in the field, by successful
drill-stem tests, or by core analyses from the particular zones.
Nonproducing reserves require only moderate expense to be brought into
production.
UNDEVELOPED -- Reserves that are recoverable from additional wells yet
to be drilled.
Undeveloped reserves are those considered proved for production by
reasonable geological interpretation of adequate subsurface control in
reservoirs that are producing or proved by other wells but are not
recoverable from existing wells. This classification of reserves requires
drilling of additional wells, major deepening of existing wells, or
installation of enhanced recovery or other facilities.
Reserves recovered by enhanced recovery methods, such as injection of
external fluids to provide energy not inherent in the reservoirs, may be
classified as proved developed or proved undeveloped reserves depending upon the
extent to which such enhanced recovery methods are in operation. These reserves
are considered to be proved only in cases where a successful fluid injection
program is in operation, a pilot program indicates successful fluid injection,
or information is available concerning the successful application of such
methods in the same reservoir and it is reasonably certain that the program will
be implemented.
A-3
<PAGE>
DEGOLYER AND MACNAUGHTON
ESTIMATION OF RESERVES
Estimates of reserves were prepared by the use of standard geological and
engineering methods generally accepted by the petroleum industry. The method or
combination of methods used in the analysis of each reservoir was tempered by
experience with similar reservoirs, stage of development, quality and
completeness of basic data, and production history.
When applicable, the volumetric method was used to estimate the original
oil in place (OOIP) and original gas in place (OGIP). Structure maps were
prepared to delineate each reservoir, and isopach maps were constructed to
estimate reservoir volumes. Electrical logs, radioactivity logs, core analyses,
and other available data were used to prepare these maps as well as to calculate
representative values for porosity and water saturation. When adequate data were
available and when circumstances justified, material balance and other
engineering methods were used to estimate OOIP or OGIP.
Estimates of ultimate recovery were obtained after applying recovery
factors to OOIP or OGIP. These recovery factors were based on consideration of
the type of energy inherent in the reservoirs, analyses of the petroleum, the
structural positions of the properties, and the production histories. When
applicable, material balance and other engineering methods were used to estimate
recovery factors. An analysis of reservoir performance, including production
rate, reservoir pressure, and gas-oil ratio behavior, was used in the
calculation of reserves.
For depletion-type reservoirs or those whose performance disclosed a
reliable decline in producing-rate trends or other diagnostic characteristics,
reserves were estimated by the application of appropriate decline curves or
other performance relationships. In the analyses of production-decline curves,
reserves were estimated only to the limits of economic production based on
current economic conditions.
In certain cases, when the previously named methods could not be used,
reserves were estimated by analogy with similar wells or reservoirs for which
more complete data were available.
Future oil and gas producing rates estimated for this report are based on
production rates considering the most recent data available or, in certain
cases, are based on estimates provided by Domain. The rates used for future
production are estimated to be within the capacity of a well or reservoir to
produce.
Data available from wells drilled on the appraised properties through
December 31, 1996, were used in estimating gross ultimate recovery. Gross
production estimated to December 31, 1996, when applicable, was deducted from
gross ultimate recovery to arrive at estimates of gross reserves. This required
that production rates be estimated for up to 5 months since production data were
available only through July 1996 in certain fields.
Gas reserves are expressed as salable reserves at a temperature of 60
degrees Fahrenheit (degree F) and at the legal pressure bases of the states or
areas in which the reserves are located. Condensate reserves estimated herein
are those to be obtained by normal separator recovery.
A-4
<PAGE>
DEGOLYER AND MACNAUGHTON
The proved reserves, as of December 31, 1996, of the properties appraised
are estimated as follows, expressed in barrels (bbl) and thousands of cubic feet
(Mcf):
<TABLE>
<CAPTION>
GROSS RESERVES NET RESERVES
---------------------------- -------------------------
OIL AND OIL AND
CONDENSATE GAS CONDENSATE GAS
(BBL) (MCF) (BBL) (MCF)
----------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
DOMAIN
Proved
Developed............. 275,866,767 410,903,065 7,740,848 46,979,647
Undeveloped........... 268,052 40,304,512 46,463 9,744,742
----------- -------------- ---------- ------------
Total Proved............... 276,134,819 451,207,577 7,787,311 56,724,389
MATRIX LIMITED PARTNERSHIP
Proved
Developed............. 36,473 38,804,681 7,685 3,940,863
Undeveloped........... 3,333 2,564,000 178 137,217
----------- -------------- ---------- ------------
Total Proved............... 39,806 41,368,681 7,863 4,078,080
DEPC FUND I
Proved
Developed............. 359,641 86,955,018 49,983 14,317,813
Undeveloped........... 70,875 11,120,000 15,571 2,620,854
----------- -------------- ---------- ------------
Total Proved............... 430,516 98,075,018 65,554 16,938,667
DEPC FUND II
Proved
Developed............. 0 888,744 0 149,922
Undeveloped........... 0 0 0 0
----------- -------------- ---------- ------------
Total Proved............... 0 888,744 0 149,922
</TABLE>
A-5
<PAGE>
DEGOLYER AND MACNAUGHTON
VALUATION OF RESERVES
Revenue values in this report were estimated using the initial prices and
costs, as of December 31, 1996, provided by Domain. Future prices were estimated
using guidelines established by the Securities and Exchange Commission (SEC) and
the Financial Accounting Standards Board (FASB). The initial and future prices
and producing rates used in this report have been reviewed by Domain and it has
represented that the gas prices and rates used herein are those that Domain
could reasonably expect to receive.
In this report, values for proved reserves are based on projections of
estimated future production and revenue prepared for these properties. The
assumptions used for estimating future prices and costs are as follows:
DOMAIN
OIL AND CONDENSATE PRICES
Initial oil and condensate prices furnished by Domain range from $19.23 to
$24.71 per barrel and are held constant for the producing lives of the
properties.
NATURAL GAS PRICES
Initial gas prices, also furnished by Domain, range from $1.59 to $4.1403
per thousand cubic feet of gas and are held constant for the producing lives of
the properties.
MATRIX LIMITED PARTNERSHIP
OIL AND CONDENSATE PRICES
Initial oil and condensate prices furnished by Domain range from $20.98 to
$23.39 per barrel and are held constant for the producing lives of the
properties.
NATURAL GAS PRICES
Initial gas prices, also furnished by Domain, range from $2.50 to $3.9129
per thousand cubic feet of gas and are held constant for the producing lives of
the properties.
DEPC FUND I
OIL AND CONDENSATE PRICES
Initial oil and condensate prices furnished by Domain range from $22.85 to
$24.71 per barrel and are held constant for the producing lives of the
properties.
NATURAL GAS PRICES
Initial gas prices, also furnished by Domain, range from $1.641 to $4.0122
per thousand cubic feet of gas and are held constant for the producing lives of
the properties.
DEPC FUND II
OIL AND CONDENSATE PRICES
No oil or condensate reserves are assigned, therefore no price was
furnished.
NATURAL GAS PRICES
The initial gas price furnished by Domain is $1.641 per thousand cubic feet
of gas and are held constant for the producing life of the property.
For all properties, assumptions used for estimating operating and capital
costs are as follows:
A-6
<PAGE>
DEGOLYER AND MACNAUGHTON
OPERATING AND CAPITAL COSTS
Initial estimates of operating costs are based on data furnished by Domain
and are used for the lives of the properties with no increases in the future
based on inflation. Future capital expenditures are estimated using 1996 values
and are not adjusted for inflation.
The estimated future revenue to be derived from the production and sale of
the net proved reserves of the properties appraised herein under the economic
assumptions furnished by Domain is summarized as follows:
<TABLE>
<CAPTION>
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
($) ($) ($)
----------- ----------- --------------
<S> <C> <C> <C>
DOMAIN
Future Gross Revenue............... 340,203,048 37,704,437 377,907,485
Production Taxes................... 13,483,172 149,489 13,632,661
Operating Costs and Ad Valorem
Taxes............................ 185,033,938 3,267,082 188,301,020
Capital Costs...................... 11,954,105 8,535,145 20,489,250
Future Net Revenue*................ 129,731,833 25,752,721 155,484,554
Present Worth at 10 Percent*....... 108,460,234 14,303,791 122,764,025
MATRIX LIMITED PARTNERSHIP
Future Gross Revenue............... 12,957,212 541,077 13,498,289
Production Taxes................... 0 0 0
Operating Costs and Ad Valorem
Taxes............................ 1,758,862 93,600 1,852,462
Capital Costs...................... 910,967 97,500 1,008,467
Future Net Revenue*................ 10,287,383 349,977 10,637,360
Present Worth at 10 Percent*....... 9,327,934 244,630 9,572,564
DEPC FUND I
Future Gross Revenue............... 53,972,978 9,809,858 63,782,836
Production Taxes................... 387,065 171,027 558,092
Operating Costs and Ad Valorem
Taxes............................ 3,297,374 517,507 3,814,881
Capital Costs...................... 1,882,791 1,891,348 3,774,139
Future Net Revenue*................ 48,405,748 7,229,976 55,635,724
Present Worth at 10 Percent*....... 36,128,387 5,484,908 41,613,295
DEPC FUND II
Future Gross Revenue............... 246,021 0 246,021
Production Taxes................... 18,452 0 18,452
Operating Costs and Ad Valorem
Taxes............................ 38,940 0 38,940
Capital Costs...................... 0 0 0
Future Net Revenue*................ 188,629 0 188,629
Present Worth at 10 Percent*....... 173,247 0 173,247
</TABLE>
- ------------
* Future income tax expenses were not taken into account in the preparation of
these estimates.
A-7
<PAGE>
DEGOLYER AND MACNAUGHTON
In our opinion, the information relating to estimated proved reserves,
estimated future net revenue from proved reserves, and present worth of
estimated future net revenue from proved reserves of oil, condensate, and gas
contained in this report has been prepared in accordance with Paragraphs 10-13,
15 and 30(a)-(b) of Statement of Financial Account Standards No. 69 (November
1982) of the FASB and Rules 4-10(a) (1)-(13) of Regulation S-X and Rule 302(b)
of Regulation S-K of the SEC; provided, however, (i) certain estimated data have
not been provided with respect to changes in reserves information and (ii)
future income tax expenses have not been taken into account in estimating the
future net revenue and present worth values set forth herein.
To the extent the above-enumerated rules regulations, and statements
require determinations of an accounting or legal nature or information beyond
the scope of our report, we are necessarily unable to express an opinion as to
whether the above-described information is in accordance therewith or sufficient
therefor.
A-8
<PAGE>
DEGOLYER AND MACNAUGHTON
SUMMARY AND CONCLUSIONS
Evaluated herein are certain interests owned by Domain, the Matrix Limited
Partnership, and Domain Energy Production Corporation through DEPC Fund I and
DEPC Fund II. The appraised properties are located in Alabama, Louisiana,
Mississippi, and Texas and offshore from Alabama, Louisiana, and Texas. The net
proved reserves, as of December 31, 1996, of the property interests owned by
Domain are estimated as follows, expressed in barrels (bbl) and thousands of
cubic feet (Mcf):
OIL AND
CONDENSATE GAS
(BBL) (MCF)
---------- ------------
Net Proved Reserves.................. 7,787,311 56,724,389
Revenue and costs attributable to the production and sale of Domain's net
proved reserves as of December 31, 1996, of the properties evaluated, under the
aforementioned assumptions concerning future prices and costs, are estimated as
follows:
<TABLE>
<CAPTION>
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
($) ($) ($)
-------------- ----------- --------------
<S> <C> <C> <C>
DOMAIN
Future Gross Revenue............... 340,203,048 37,704,437 377,907,485
Production Taxes................... 13,483,172 149,489 13,632,661
Operating Costs and Ad Valorem
Taxes............................ 185,033,938 3,267,082 188,301,020
Capital Costs...................... 11,954,105 8,535,145 20,489,250
Future Net Revenue*................ 129,731,833 25,752,721 155,484,554
Present Worth at 10 Percent*....... 108,460,234 14,303,791 122,764,025
</TABLE>
* Future income tax expenses were not taken into account in the preparation of
these estimates.
The net proved reserves, as of December 31, 1996, of the properties owned
by the Matrix Limited Partnership are estimated as follows:
OIL AND
CONDENSATE GAS
(BBL) (MCF)
---------- -----------
Net Proved Reserves.................. 7,863 4,078,080
Revenue and costs attributable to the production and sale of Matrix Limited
Partnership's net proved reserves as of December 31, 1996, of the properties
evaluated, under the aforementioned assumptions concerning future prices and
costs, are estimated as follows:
<TABLE>
<CAPTION>
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
($) ($) ($)
------------ ----------- ------------
<S> <C> <C> <C>
MATRIX LIMITED PARTNERSHIP
Future Gross Revenue............... 12,957,212 541,077 13,498,289
Production Taxes................... 0 0 0
Operating Costs and Ad Valorem
Taxes............................ 1,758,862 93,600 1,852,462
Capital Costs...................... 910,967 97,500 1,008,467
Future Net Revenue*................ 10,287,383 349,977 10,637,360
Present Worth at 10 Percent*....... 9,327,934 244,630 9,572,564
</TABLE>
* Future income tax expenses were not taken into account in the preparation of
these estimates.
A-9
<PAGE>
DEGOLYER AND MACNAUGHTON
The net proved reserves, as of December 31, 1996, of the properties owned
by Domain Energy Production Corporation through DEPC Fund I are estimated as
follows:
OIL AND
CONDENSATE GAS
(BBL) (MCF)
---------- ------------
Net Proved Reserves.................. 65,554 16,938,667
Revenue and costs attributable to the production and sale of the net proved
reserves, as of December 31, 1996, of the DEPC Fund I properties, under the
aforementioned assumptions concerning future prices and costs, are estimated as
follows:
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
($) ($) ($)
------------ ----------- ------------
DEPC FUND I
Future Gross Revenue............. 53,972,978 9,809,858 63,782,836
Production Taxes................. 387,065 171,027 558,092
Operating Costs and Ad Valorem
Taxes.......................... 3,297,374 517,507 3,814,881
Capital Costs.................... 1,882,791 1,891,348 3,774,139
Future Net Revenue*.............. 48,405,748 7,229,976 55,635,724
Present Worth at 10 Percent*..... 36,128,387 5,484,908 41,613,295
* Future income tax expenses were not taken into account in the preparation of
these estimates.
The net proved reserves, as of December 31, 1996, of the properties owned
by Domain Energy Production Corporation through DEPC Fund II are estimated as
follows:
OIL AND
CONDENSATE GAS
(BBL) (MCF)
---------- ---------
Net Proved Reserves.................. 0 149,922
Revenue and costs attributable to the production and sale of the net proved
reserves, as of December 31, 1996, of the DEPC Fund II properties, under the
aforementioned assumptions concerning future prices and costs, are estimated as
follows:
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
($) ($) ($)
--------- ----------- ---------
DEPC FUND II
Future Gross Revenue............... 246,021 0 246,021
Production Taxes................... 18,452 0 18,452
Operating Costs and Ad Valorem
Taxes............................ 38,940 0 38,940
Capital Costs...................... 0 0 0
Future Net Revenue*................ 188,629 0 188,629
Present Worth at 10 Percent*....... 173,247 0 173,247
* Future income tax expenses were not taken into account in the preparation of
these estimates.
A-10
<PAGE>
DEGOLYER AND MACNAUGHTON
Gas reserves estimated herein are expressed at a temperature base of 60F
and at the legal pressure bases of the states or areas in which the reserves are
located.
Submitted,
/s/ DeGOLYER and MacNAUGHTON
DeGOLYER and MacNAUGHTON
SIGNED: March 26, 1997 /s/JAMES W. HAIL, JR., P.E.
James W. Hail, Jr., P.E.
Senior Vice President
DeGolyer and MacNaughton
A-11
<PAGE>
March 26, 1997
Mr. Herb A. Newhouse
Domain Energy Corporation
1100 Louisiana, Suite 1500
Houston, Texas 77002
Dear Mr. Newhouse:
In accordance with your request, we have estimated the proved reserves
and future revenue, as of December 31, 1996, to the Domain Energy Ventures
Corporation (Domain) interest and the Domain Energy Production Corporation Fund
II (DEPC Fund) interest in certain oil and gas properties located in the West
Delta 30 Field Area, federal waters offshore Louisiana. This letter summarizes
the results of our reports dated February 24, 1997, and February 26, 1997. This
report has been prepared using constant prices and costs and conforms to the
guidelines of the Securities and Exchange Commission (SEC).
We estimate the net reserves and future net revenue to the Domain
interest, as of December 31, 1996, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue
------------------------------ ----------------------------------
Oil Gas Present Worth
Category (Barrels) (MCF) Total at 10%
- ---------------------- ------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 92,463 129,699 $ 3,600 $ 103,100
Non-Producing 167,675 892,194 3,778,900 3,179,700
Proved Undeveloped 108,610 876,744 4,408,600 3,315,500
------------- ------------ --------------- ---------------
Total Proved 368,748 1,898,637 $ 8,191,100 $ 6,598,300
</TABLE>
We estimate the net reserves and future net revenue to the DEPC Fund
interest, as of December 31, 1996, to be:
<TABLE>
<CAPTION>
Net Reserves Future Net Revenue
------------------------------ ----------------------------------
Oil Gas Present Worth
Category (Barrels) (MCF) Total at 10%
- ---------------------- ------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
Proved Developed
Producing 554,797 778,206 $ 6,000 $ 610,400
Non-Producing 1,006,060 5,353,157 22,593,100 19,019,700
Proved Undeveloped 651,665 5,260,459 26,365,500 19,825,300
------------- ------------ --------------- ---------------
Total Proved 2,212,522 11,391,822 $48,964,600 $39,455,400
</TABLE>
The oil reserves shown include crude oil and condensate. Oil volumes are
expressed in barrels which are equivalent to 42 United States gallons. Gas
volumes are expressed in thousands of standard cubic feet (MCF) at the contract
temperature and pressure bases.
A-12
<PAGE>
The estimated reserves and future revenue shown are for proved developed
producing, proved developed non-producing, and proved undeveloped reserves. In
accordance with SEC guidelines, our estimates do not include any value for
probable or possible reserves which may exist for these properties. Our
estimates do not include any value which could be attributed to interests in
undeveloped acreage beyond those tracts for which undeveloped reserves have been
estimated.
Future gross revenue is Domain and DEPC Fund's share of the gross
(8/8ths) revenue from the properties. Future net revenue is after deducting
future capital costs, operating expenses, any applicable payments to net profits
interests, and abandonment costs, but before consideration of federal income
taxes. In accordance with SEC guidelines, the future net revenue has been
discounted at an annual rate of 10 percent to determine its "present worth." The
present worth is shown to indicate the effect of time on the value of money and
should not be construed as being the fair market value of the properties.
For the purposes of this report, a field inspection of the properties
has not been performed nor has the mechanical operation or condition of the
wells and their related facilities been examined. We have not investigated
possible environmental liability related to the properties; therefore, our
estimates do not include any costs which may be incurred due to such possible
liability. Also, our estimates do not include any salvage value for the lease
and well equipment, but do include our estimates of the costs to abandon the
wells, platforms, and production facilities. Abandonment costs are included with
other capital investments.
The oil and gas prices used in this report are the actual prices
received on December 31, 1996. Oil and gas prices are held constant in
accordance with SEC guidelines.
Lease and well operating costs are based on operating expense records of
Domain Energy Corporation. These costs include the per-well overhead expenses
allowed under joint operating agreements along with costs estimated to be
incurred at and below the district and field levels. Headquarters general and
administrative overhead expenses of Domain Energy Corporation are not included.
Lease and well operating costs are held constant in accordance with SEC
guidelines. Capital costs are included as required for workovers, new
development wells, and production equipment.
We have made no investigation of potential gas volume and value
imbalances which may have resulted from overdelivery or underdelivery to the
Domain or the DEPC Fund interests. Therefore, our estimates of reserves and
future revenue do not include adjustments for the settlement of any such
imbalances; our projections are based on Domain and the DEPC Fund receiving
their net revenue interest share of estimated future gross gas production.
A-13
<PAGE>
The reserves included in this report are estimates only and should not
be construed as exact quantities. They may or may not be recovered; if
recovered, the revenues therefrom and the costs related thereto could be more or
less than the estimated amounts. A substantial portion of these reserves are for
behind pipe zones and undeveloped locations. Therefore, these reserves are based
on estimates of reservoir volumes and recovery efficiencies along with analogies
to similar production. As such reserve estimates are usually subject to greater
revision than those based on substantial production and pressure data, it may be
necessary to revise these estimates up or down in the future as additional
performance data become available. The sales rates, prices received for the
reserves, and costs incurred in recovering such reserves may vary from
assumptions included in this report due to governmental policies and
uncertainties of supply and demand. Also, estimates of reserves may increase or
decrease as a result of future operations.
In evaluating the information at our disposal concerning this report, we
have excluded from our consideration all matters as to which legal or
accounting, rather than engineering and geological, interpretation may be
controlling. As in all aspects of oil and gas evaluation, there are
uncertainties inherent in the interpretation of engineering and geological data;
therefore, our conclusions necessarily represent only informed professional
judgments.
The titles to the properties have not been examined by Netherland,
Sewell & Associates, Inc., nor has the actual degree or type of interest owned
been independently confirmed. The data used in our estimates were obtained from
Domain Energy Ventures Corporation, Domain Energy Corporation, other interest
owners, various operators of the properties, and the nonconfidential files of
Netherland, Sewell & Associates, Inc. and were accepted as accurate. We are
independent petroleum engineers, geologists, and geophysicists; we do not own an
interest in these properties and are not employed on a contingent basis. Basic
geologic and field performance data together with our engineering work sheets
are maintained on file in our office.
Very truly yours,
/s/ CLARENCE NETHERLAND
A-14
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 3
Risk Factors............................ 12
Use of Proceeds......................... 19
Dividend Policy......................... 20
Capitalization.......................... 21
Dilution................................ 22
Condensed Pro Forma Financial
Statements............................ 23
Selected Historical Financial Data...... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 27
Business and Properties................. 36
Management.............................. 56
Certain Transactions.................... 62
Security Ownership of Certain Beneficial
Owners and Management................. 64
Description of Capital Stock............ 64
Shares Eligible for Future Sale......... 66
Underwriting............................ 67
Legal Matters........................... 69
Experts................................. 69
Available Information................... 69
Glossary................................ 70
Index to Financial Statements........... F-1
Reports of Independent Petroleum
Engineers............................. A-1
------------------------------
UNTIL , 1997, 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.
6,000,000 SHARES
DOMAIN ENERGY
CORPORATION
COMMON STOCK
------------------------------
P R O S P E C T U S
------------------------------
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
------------------------------
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses of the issuance and distribution
of the securities being registered payable by the Company.
Securities and Exchange Commission
Registration Fee................... $ 31,364
NASD filing fee...................... 10,850
New York Stock Exchange listing
fee................................ 90,000
Printing and engraving expenses...... 150,000
Blue Sky filing fees and expenses.... 10,000
Accountants' fees.................... 200,000
Counsel fees......................... 400,000
Transfer agent and registrar fees.... 5,000
Miscellaneous........................ 102,786
------------
Total........................... $ 1,000,000
============
- ------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the DGCL allows a corporation to eliminate the personal
liability of directors of a corporation to the corporation or to any of its
stockholders for monetary damage for a breach of his fiduciary duty as a
director, except in the case where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or knowingly
violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper
personal benefit. The Company's Certificate of Incorporation, a copy of which is
filed as Exhibit 3.1, contains a provision which, in substance, eliminates
directors' personal liability as set forth above.
Section 145 of the DGCL provides that a corporation may 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, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or was
serving at its request in such capacity in another corporation or business
association against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Company's Certificate
of Incorporation, a copy of which is filed as Exhibit 3.1, contains a provision
which, in substance, provides for indemnification as set forth above.
The Company has purchased directors' and officers' liability insurance,
which will indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims that might be made against them based on
their negligent acts or omissions while acting in their capacity as such.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Underwriters against civil
liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 31, 1996, the Company sold 7,177,682 shares of Common Stock at
$4.1796 per share to Fund VII and, through a wholly-owned subsidiary of the
Company, issued an $8.0 million promissory note in favor of Fund VII, which, at
the time of issuance, was convertible, at the option of Fund VII, into
II-1
<PAGE>
1,914,048 shares of the Company's Common Stock. The Company relied on Section
4(2) of the Securities Act in effecting these transactions.
On February 21, 1997 the Company sold an aggregate of 390,311 shares of
Common Stock at $4.1796 per share to eight members of the Company's management.
The Company relied on Section 4(2) of the Securities Act in effecting these
transactions.
On April 3, 1997 the Company sold an aggregate of 95,702 shares of Common
Stock at $4.1796 per share to 26 employees of the Company. The Company relied on
an exemption under Section 4(2) of the Securities Act in effecting these
transactions.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Form of Amended and Restated Certificate of Incorporation of the Company
3.2 -- Form of Second Amended and Restated By-Laws of the Company
4.1 -- Securityholders Agreement, dated as of December 31, 1996, among the Company and its
Securityholders.
5.1 -- Opinion of Weil, Gotshal & Manges LLP regarding legality of the securities being
registered*
10.1 -- Stock Purchase Agreement, dated as of December 24, 1996, between El Paso Natural Gas
Company and Teleo Ventures, Inc.
10.2 -- Assignment and Assumption Agreement, dated as of December 31, 1996, between Teleo
Ventures, Inc. and the Company
10.3 -- Credit Agreement, dated as of June 7, 1996, between Domain Energy Finance Corporation
(formerly known as Tenneco Ventures Finance Corporation) and Compass Bank -- Houston
10.4 -- Subscription Agreement, dated as of December 31, 1996, between First Reserve Fund VII,
Limited Partnership and the Company
10.5 -- Amended and Restated Management Investor Subscription Agreement, dated effective as of
December 31, 1996, between Michael V. Ronca and the Company
10.6 -- Management Investor Subscription Agreement, dated as of February 21, 1997, between Herbert
A. Newhouse and the Company, with similar agreements with Catherine L. Sliva, Rick G.
Lester, Douglas H. Woodul, Steven M. Curran, Dean R. Bouillion and Lucynda S. Herrin
10.7 -- Promissory Note, dated February 21, 1997, by Michael V. Ronca in favor of the Company,
with similar Promissory Notes by Herbert A. Newhouse, Catherine L. Sliva, Rick G. Lester,
Douglas H. Woodul, Steven M. Curran and Lucynda S. Herrin
10.8 -- Pledge Agreement, dated as of February 21, 1997, between the Company and Michael V. Ronca,
with similar agreements with Herbert A. Newhouse, Catherine L. Sliva, Rick G. Lester,
Douglas H. Woodul, Steven M. Curran and Lucynda S. Herrin
10.9 -- Employment Agreement, dated as of December 31, 1996, between Michael V. Ronca and the
Company
10.10 -- Credit Agreement, dated as of December 31, 1996, among the Company, Ventures Corporation,
Production Corporation, The Chase Manhattan Bank, Compass Bank, Toronto Dominion (Texas),
Inc. and The Chase Manhattan Bank as Administrative Agent
10.11 -- Amended and Restated 1996 Stock Purchase and Option Plan for Key Employees of Domain
Energy Corporation and Affiliates
10.12 -- Amended and Restated Non-Qualified Stock Option Agreement, dated as of April 3, 1997,
between the Company and Michael V. Ronca, with similar agreements with Herbert A.
Newhouse, Catherine L. Sliva, Rick G. Lester, Douglas H. Woodul, Steven M. Curran, Dean R.
Bouillion and Lucynda S. Herrin*
21.1 -- List of Subsidiaries of the Company
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1)
23.3 -- Consent of DeGolyer
23.4 -- Consent of Netherland, Sewell
24.1 -- Power of Attorney (included on page II-4)
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statements Schedules
SCHEDULE NO. DESCRIPTION
- -------------- -----------------------
I Condensed Balance Sheet
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
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 provisions described in Item 14, 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 in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person of the registrant 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.
The undersigned registrant 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS ON APRIL 4, 1997.
DOMAIN ENERGY CORPORATION
By: /s/ MICHAEL V. RONCA
Name: Michael V. Ronca
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
designates and appoints Michael V. Ronca and Rick G. Lester and each of them
(with full power to each of them to act alone) as its or his attorney-in-fact,
with full power of substitution and resubstitution (the "Attorneys-in-Fact"),
for it or him and in its or his name, place and stead, in any and all
capacities, to execute one or more amendments (including post-effective
amendments) to this Registration Statement, which amendments may make such
changes in this Registration Statement as the Attorney-in-Fact deems
appropriate, and to file each such amendment to this Registration Statement
together with all exhibits thereto and any and all documents in connection
therewith.
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- -------------------------------------------------------------------- ---------------
<S> <C> <C>
/s/MICHAEL V. RONCA President, Chief Executive Officer April 4, 1997
MICHAEL V. RONCA and Director (principal executive
officer)
/s/RICK G. LESTER Vice President and Chief Financial April 4, 1997
RICK G. LESTER Officer (principal financial and
accounting officer)
/s/JONATHAN S. LINKER Director April 4, 1997
JONATHAN S. LINKER
/s/STEVEN H. PRUETT Director April 4, 1997
STEVEN H. PRUETT
</TABLE>
II-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Domain Energy Corporation
We have audited the consolidated balance sheet of Domain Energy Corporation and
subsidiaries (the "Company") as of December 31, 1996 and have issued our
report thereon dated April 3, 1997 (included elsewhere in the Registration
Statement). Our audit also included the financial statement schedule listed in
Item 16 of this Registration Statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated balance sheet taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Houston, Texas
April 3, 1997
S-1
<PAGE>
DOMAIN ENERGY CORPORATION
CONDENSED BALANCE SHEET
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Investments in subsidiaries.......... $ 88,777
---------
LIABILITIES
Long-term debt....................... $ 61,200
STOCKHOLDER'S EQUITY
Common stock:
$0.01 par value, 20,000 shares
authorized and 9,519.4717
issued and
outstanding at December 31,
1996........................... --
Additional paid-in capital........... 27,577
Retained earnings.................... --
Total stockholder's
equity.............. 27,577
---------
Total liabilities and
stockholder's
equity.............. $ 88,777
=========
The notes to the consolidated balance sheet appearing on pages F-7 through
F-20, to the extent applicable, are incorporated herein by reference.
S-2
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOMAIN ENERGY CORPORATION
DOMAIN ENERGY CORPORATION, a corporation duly incorporated by the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware on December 30, 1996 (the "Company"), desiring to amend
said Certificate of Incorporation, such amended and restated Certificate of
Incorporation having been duly adopted in accordance with Section 245 of the
General Corporation Law of the State of Delaware, hereby certifies as follows:
1. Said Certificate of Incorporation is hereby restated, integrated
and further amended to read in its entirety as follows:
FIRST: The name of the Corporation is Domain Energy Corporation.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware. The name of the registered agent of the Corporation
in the State of Delaware at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation 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, as from time to time amended (the
"DGCL").
FOURTH: The total number of shares of all classes of capital stock
which the Company shall have authority to issue is 30,000,000 shares, consisting
of
1
<PAGE>
(i) 5,000,000 shares of Preferred
Stock, $.01 par value per
share, and
(ii) 25,000,000 shares of Common
Stock, $.01 par value per share.
Except as otherwise provided by law, the shares of capital stock
of the Company, regardless of class, may be issued by the Company from time to
time in such amounts, for such lawful consideration and for such corporate
purpose(s) as the Board of Directors may from time to time determine.
Shares of Preferred Stock may be issued from time to time in one
or more series of any number of shares as may be determined from time to time by
the Board of Directors; provided that the aggregate number of shares issued and
not cancelled of any and all such series shall not exceed the total number of
shares of Preferred Stock authorized by this paragraph FOURTH. Each series of
Preferred Stock shall be distinctly designated. The Board of Directors is hereby
expressly granted authority to fix, in the resolution or resolutions providing
for the issuance of a particular series of Preferred Stock, the voting powers,
if any, of each such series, and the designations, preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations and restrictions thereof to the fullest extent now
or hereafter permitted by this Amended and Restated Certificate of Incorporation
and the laws of the State of Delaware.
Subject to the provisions of applicable law or of the Company's
By-Laws with respect to the closing of the transfer books or the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided by law, by this Amended and Restated Certificate of
Incorporation or by the resolution or resolutions of the Board of Directors
providing for the issuance of any series of Preferred Stock as aforesaid, the
holders of outstanding shares of Common Stock shall exclusively possess the
voting power for the election of directors of the Company and for all other
purposes as prescribed by applicable law, with each holder of record of shares
of Common Stock having voting power being entitled to one vote for each share of
Common Stock registered in his or its name on the books, registers and/or
accounts of the Company.
2
<PAGE>
FIFTH: In furtherance and not in limitation of the powers conferred
by law, subject to any limitations contained elsewhere in this Amended and
Restated Certificate of Incorporation, by-laws of the Corporation may be
adopted, amended or repealed by a majority of the board of directors of the
Corporation, but any by-laws adopted by the board of directors may be amended or
repealed by the stockholders entitled to vote thereon. Election of directors
need not be by written ballot.
SIXTH: (a) A director of the Corporation shall not be personally
liable either to the Corporation or to any stockholder for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, or (ii) for
acts or omissions which are not in good faith or which involve intentional
misconduct or knowing violation of the law, or (iii) for any matter in respect
of which such director shall be liable under Section 174 of Title 8 of the DGCL
or any amendment thereto or successor provision thereto, or (iv) for any
transaction from which the director shall have derived an improper personal
benefit. Neither amendment nor repeal of this paragraph (a) nor the adoption of
any provision of the Certificate of Incorporation inconsistent with this
paragraph (a) shall eliminate or reduce the effect of this paragraph (a) in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this paragraph (a) of this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
(b) The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to, or
testifies in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, 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, employee benefit plan, 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 to the fullest extent permitted by law, and the Corporation
may enter into agreements with any such person for the purpose of providing for
such indemnification.
3
<PAGE>
2. Upon the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware (the
"Effective Time"), each share of the Common Stock, par value $0.01 per share, of
the Company issued and outstanding immediately prior to the Effective Time
shall, automatically by operation of law and without any further action on the
part of the Company or any holders of shares of capital stock of the Company, be
converted into and become 754 validly issued, fully paid and non-assessable
shares of the Common Stock, par value $.01 per share, of the Company authorized
for issuance pursuant to this Amended and Restated Certificate of Incorporation.
3. This Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of sections 242 and 245 of
the DGCL, and has been duly adopted by unanimous written consent of the
stockholders of the Company in accordance with the provisions of Section 228(a)
of the DGCL.
4
<PAGE>
IN WITNESS WHEREOF, Domain Energy Corporation, has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Michael V. Ronca, its President and Chief Executive Officer, and attested to by
Catherine L. Sliva, its Executive Vice President and Secretary, on this _____
day of ______________ 1997.
DOMAIN ENERGY CORPORATION
By: ___________________________
Michael V. Ronca
President and CEO
Attest:
Catherine L. Sliva
Vice President and Secretary
5
EXHIBIT 3.2
FORM OF
SECOND AMENDED AND RESTATED
BY-LAWS
OF
DOMAIN ENERGY CORPORATION
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time,
within or without the State of Delaware, as the Board of Directors shall
determine.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders for
the transaction of such business as may properly come before the meeting may be
called by order of the Board of Directors or by stockholders holding together at
least a majority of all the shares of the Corporation entitled to vote at the
meeting, and shall be held at such date and time, within or without the State of
Delaware, as may be specified by such order. Whenever the directors shall fail
to fix such place, the meeting shall be held at the principal executive office
of the Corporation.
SECTION 3. NOTICE OF MEETINGS. Written notice of all meetings of the
stockholders, stating the place, date and hour of the meeting and the place
within the city or other municipality or community at which the list of
stockholders may be examined, shall be mailed or delivered to each stockholder
not less than 10 nor more than 60 days prior to the meeting. Notice of any
special meeting shall state in general terms the purpose or purposes for which
the meeting is to be held.
SECTION 4. STOCKHOLDER LISTS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled
1
<PAGE>
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 5. QUORUM. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of stockholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the stockholders at which a quorum is present, all matters,
except as otherwise provided by law or the Certificate of Incorporation, shall
be decided by the vote of the holders of a majority of the shares entitled to
vote thereat present in person or by proxy. If there be no such quorum, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the
Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence a VicePresident, or,
if none of the foregoing is present, by a chairman to be chosen by the
stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present, the presiding officer of the
meeting
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shall appoint any person present to act as secretary of the meeting.
SECTION 7. VOTING; PROXIES; REQUIRED VOTE. (a) At each meeting of
stockholders, every stockholder shall be entitled to vote in person or by proxy
appointed by instrument in writing, subscribed by such stockholder or by such
stockholder's duly authorized attorney-in-fact (but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period), and, unless the Certificate of Incorporation provides otherwise,
shall have one vote for each share of stock entitled to vote registered in the
name of such stockholder on the books of the Corporation on the applicable
record date fixed pursuant to these By-laws. At all elections of directors the
voting may but need not be by ballot and a plurality of the votes cast there
shall elect. Except as otherwise required by law or the Certificate of
Incorporation, any other action shall be authorized by a majority of the votes
cast.
(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Certificate of
Incorporation, be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of record of the issued and outstanding capital stock of
the Corporation having a majority of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted, and the writing or writings are filed with the permanent
records of the Corporation. Prompt notice of the taking of corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 8. INSPECTORS. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take
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and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business, property and affairs of the
Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. QUALIFICATION; NUMBER; TERM; REMUNERATION. (a) Each
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be six
(6), or such larger number as may be fixed from time to time by action of the
stockholders or Board of Directors, one of whom may be selected by the Board of
Directors to be its Chairman. The use of the phrase "entire Board" herein refers
to the total number of directors which the Corporation would have if there were
no vacancies.
(b) Directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.
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(c) Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 3. QUORUM AND MANNER OF VOTING. Except as otherwise provided
by law, a majority of the entire Board shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
from time to time to another time and place without notice. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if there be one, shall be elected by a majority of the directors
present and shall preside at all meetings of the Board of Directors and shall
have such other powers and duties as may from time to time be assigned by the
Board of Directors.
SECTION 5. PLACES OF MEETINGS. Meetings of the Board of Directors
may be held at any place within or without the State of Delaware, as may from
time to time be fixed by resolution of the Board of Directors, or as may be
specified in the notice of meeting.
SECTION 6. ANNUAL MEETING. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine. Notice need not be given of regular
meetings of the Board of Directors held at times and places fixed by resolution
of the Board of Directors.
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SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, President
or by a majority of the directors then in office.
SECTION 9. NOTICE OF MEETINGS. A notice of the place, date and time
and the purpose or purposes of each meeting of the Board of Directors shall be
given to each director by mailing the same at least two days before the special
meeting, or by telegraphing or telephoning the same or by delivering the same
personally not later than the day before the day of the meeting.
SECTION 10. ORGANIZATION. At all meetings of the Board of Directors,
the Chairman, if any, or if none or in the Chairman's absence or inability to
act the President, or in the President's absence or inability to act any
Vice-President who is a member of the Board of Directors, or in such
Vice-President's absence or inability to act a chairman chosen by the directors,
shall preside. The Secretary of the Corporation shall act as secretary at all
meetings of the Board of Directors when present, and, in the Secretary's
absence, the presiding officer may appoint any person to act as secretary.
SECTION 11. RESIGNATION. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation. Any or all of the directors may be removed, with or without cause,
by the holders of a majority of the shares of stock outstanding and entitled to
vote for the election of directors.
SECTION 12. VACANCIES. Unless otherwise provided in these By-laws,
vacancies on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director, or at a
special meeting of the stockholders, by the holders of shares entitled to vote
for the election of directors.
SECTION 13. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or
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writings are filed with the minutes of proceedings of the Board of Directors.
ARTICLE III
COMMITTEES
SECTION 1. APPOINTMENT. From time to time the Board of Directors by
a resolution adopted by a majority of the entire Board may appoint any committee
or committees for any purpose or purposes, to the extent lawful, which shall
have powers as shall be determined and specified by the Board of Directors in
the resolution of appointment.
SECTION 2. PROCEDURES, QUORUM AND MANNER OF ACTING. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if all the members of the committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.
SECTION 4. TERM; TERMINATION. In the event any person shall cease to
be a director of the Corporation, such person shall simultaneously therewith
cease to be a member of any committee appointed by the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. ELECTION AND QUALIFICATIONS. The Board of Directors shall
elect the officers of the Corporation, which shall include a President and a
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Secretary, and may include, by election or appointment, one or more
Vice-Presidents (any one or more of whom may be given an additional designation
of rank or function), a Treasurer and such assistant secretaries, such Assistant
Treasurers and such other officers as the Board may from time to time deem
proper. Each officer shall have such powers and duties as may be prescribed by
these By-laws and as may be assigned by the Board of Directors or the President.
Any two or more offices may be held by the same person.
SECTION 2. TERM OF OFFICE AND REMUNERATION. The term of office of
all officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the
Corporation may be fixed by the Board of Directors or in such manner as the
Board of Directors shall provide.
SECTION 3. RESIGNATION; REMOVAL. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by vote of a majority of the entire Board.
SECTION 4. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President
shall be the chief executive officer of the Corporation, and shall have such
duties as customarily pertain to that office. The President shall have general
management and supervision of the property, business and affairs of the
Corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees; and may execute and deliver in the name
of the Corporation powers of attorney, contracts, bonds and other obligations
and instruments.
SECTION 5. VICE-PRESIDENT. A Vice-President may execute and deliver
in the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President.
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SECTION 6. TREASURER. The Treasurer shall in general have all duties
incident to the position of treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 7. SECRETARY. The Secretary shall in general have all the
duties incident to the office of secretary and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 8. ASSISTANT OFFICERS. Any assistant officer shall have such
powers and duties of the officer such assistant officer assists as such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE V
BOOKS AND RECORDS
SECTION 1. LOCATION. The books and records of the Corporation may be
kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the By-laws and by such officer or agent as shall be
designated by the Board of Directors.
SECTION 2. ADDRESSES OF STOCKHOLDERS. Notices of meetings and all
other corporate notices may be delivered personally or mailed to each
stockholder at the stock- holder's address as it appears on the records of the
Corporation.
SECTION 3. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) 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,
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. If no record date is fixed by the
Board of Directors, the
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record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, 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 date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in this State, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted and which record date shall be not more than 60 days
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prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
ARTICLE VI
CERTIFICATES REPRESENTING STOCK
SECTION 1. CERTIFICATES; SIGNATURES. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertifi- cated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
The name of the holder of record of the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the books of
the Corporation.
SECTION 2. TRANSFERS OF STOCK. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
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SECTION 3. FRACTIONAL SHARES. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a stockholder except as therein
provided.
The Board of Directors shall have power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
Corporation.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
may issue a new certificate of stock in place of any certificate, theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
DIVIDENDS
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise; and before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion,
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thinks proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE VIII
RATIFICATION
Any transaction, including any transaction questioned in any lawsuit
on the ground of lack of authority, defective or irregular execution, adverse
interest of director, officer or stockholder, non-disclosure, miscomputation, or
the application of improper principles or practices of accounting, may be
ratified before or after judgment, by the Board of Directors or by the
stockholders, and if so ratified shall have the same force and effect as if the
questioned transaction had been originally duly authorized. Such ratification
shall be binding upon the Corporation and its stockholders and shall constitute
a bar to any claim or execution of any judgment in respect of such transaction.
ARTICLE IX
CORPORATE SEAL
The corporate seal, if there be one, shall have inscribed thereon
the name of the Corporation and the year of its incorporation, and shall be in
such form and contain such other words and/or figures as the Board of Directors
shall determine. The corporate seal may be used by printing, engraving,
lithographing, stamping or otherwise making, placing or affixing, or causing to
be printed, engraved, lithographed, stamped or otherwise made, placed or
affixed, upon any paper or document, by any process whatsoever, an impression,
facsimile or other reproduction of said corporate seal.
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ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall be the calendar
year.
ARTICLE XI
WAIVER OF NOTICE
Whenever notice is required to be given by these By-laws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC.
SECTION 1. BANK ACCOUNTS AND DRAFTS. In addition to such bank
accounts as may be authorized by the Board of Directors, the primary financial
officer or any person designated by said primary financial officer, whether or
not an employee of the Corporation, may authorize such bank accounts to be
opened or maintained in the name and on behalf of the Corporation as he may deem
necessary or appropriate, payments from such bank accounts to be made upon and
according to the check of the Corporation in accordance with the written
instructions of said primary financial officer, or other person so designated by
the primary financial officer.
SECTION 2. CONTRACTS. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
SECTION 3. PROXIES; POWERS OF ATTORNEY; OTHER INSTRUMENTS. The
Chairman, the President or any other person designated by either of them shall
have the power and
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authority to execute and deliver proxies, powers of attorney and other
instruments on behalf of the Corporation in connection with the rights and
powers incident to the ownership of stock by the Corporation. The Chairman, the
President or any other person authorized by proxy or power of attorney executed
and delivered by either of them on behalf of the Corporation may attend and vote
at any meeting of stockholders of any company in which the Corporation may hold
stock, and may exercise on behalf of the Corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting, or
otherwise as specified in the proxy or power of attorney so authorizing any such
person. The Board of Directors, from time to time, may confer like powers upon
any other person.
SECTION 4. FINANCIAL REPORTS. The Board of Directors may appoint the
primary financial officer or other fiscal officer and/or the Secretary or any
other officer to cause to be prepared and furnished to stockholders entitled
thereto any special financial notice and/or financial statement, as the case may
be, which may be required by any provision of law.
ARTICLE XIII
AMENDMENTS
The Board of Directors shall have power to adopt, amend or repeal
By-laws. By-laws adopted by the Board of Directors may be repealed or changed,
and new By-laws made, by the stockholders, and the stockholders may prescribe
that any By-law made by them shall not be altered, amended or repealed by the
Board of Directors.
15
EXHIBIT 4.1
SECURITYHOLDERS AGREEMENT
among
DOMAIN ENERGY CORPORATION
and
its SECURITYHOLDERS
Dated as of December 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. Certain Definitions..................... 2
ARTICLE II. Management Agreements.................. 10
Section 2.1. Conduct of Business................................ 10
Section 2.2. Stock Purchase and Option Plan..................... 13
Section 2.3. Registration of Common Stock....................... 14
ARTICLE III. Corporate Governance.................. 14
Section 3.1. Board of Directors................................. 14
Section 3.2. Removal............................................ 17
Section 3.3. Vacancies.......................................... 17
ARTICLE IV. Transfers of Securities................ 17
Section 4.1. Restrictions on Transfer........................... 18
Section 4.2. Exceptions to Restrictions......................... 18
Section 4.3. Legending of Certificates.......................... 18
Section 4.4. Improper Transfer.................................. 19
ARTICLE V. Purchase Rights......................... 20
Section 5.1. Transfers by a Management Investor................. 20
Section 5.2. Puts and Calls..................................... 21
Section 5.3. Right of First Refusal for New Securities.......... 25
Section 5.4. Right to Join in Sale.............................. 26
Section 5.5. Rights to Compel Sale.............................. 27
ARTICLE VI. Registration Rights.................... 29
Section 6.1. Demand Registrations............................... 29
Section 6.2. Piggyback Registrations............................ 31
Section 6.3. Registration Procedures............................ 33
Section 6.4. Indemnification.................................... 37
Section 6.5. Contribution....................................... 40
Section 6.6. Rule 144........................................... 41
ARTICLE VII. Termination........................... 42
Section 7.1. Certain Terminations............................... 42
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PAGE
ARTICLE VIII. Miscellaneous........................ 42
Section 8.1. Successors and Assigns............................. 42
Section 8.2. Amendment and Modification; Waiver of
Compliance......................................... 42
Section 8.3. Notices............................................ 43
Section 8.4. Entire Agreement; Governing Law.................... 44
Section 8.5. Injunctive Relief.................................. 44
Section 8.6. Inspection......................................... 44
Section 8.7. Headings........................................... 44
Section 8.8. Recapitalizations, Exchanges, Etc.,
Affecting the Securities........................... 44
Section 8.9. Counterparts....................................... 45
Section 8.10. Additional Management Investors.................... 45
-ii-
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SECURITYHOLDERS AGREEMENT
SECURITYHOLDERS AGREEMENT, dated as of December 31, 1996, among
DOMAIN ENERGY CORPORATION, a Delaware corporation (together with its successors
and assigns, the "Company"), FIRST RESERVE FUND VII, LIMITED PARTNERSHIP
(together with its successors and Permitted Transferees, the "First Reserve
Stockholders"), and the individuals named on the signature page hereof under
"Management Investors" (collectively, together with their respective successors
and assigns and any other individuals who become a party to this agreement and
are designated as "Management Investors" and their successors and assigns, the
"Management Investors").
W I T N E S S E T H :
WHEREAS, the Company is authorized by its Certificate of
Incorporation (the "Certificate of Incorporation") (a true and correct copy of
which, as in effect on the date hereof, has been delivered to each
Securityholder) to issue capital stock consisting of 20,000 shares of Common
Stock, par value $.01 per share (the "Common Stock");
WHEREAS, on the date hereof an aggregate of 9,519.4717 shares of
Common Stock are owned of record and beneficially by the First Reserve
Stockholders and no other shares of Common Stock, or warrants, options, rights
or other securities exercisable for or convertible into Common Stock are issued
or outstanding (except pursuant to the First Reserve Option (as defined below)
and the Stock Option Agreements under the Stock Option and Purchase Plan);
WHEREAS, pursuant to a Management Investor's Agreement Subscription
Agreement of even date herewith, Michael V. Ronca, President and Chief Executive
Officer of the Company and a Management Investor, has subscribed for the
purchase of 206.2552 shares of Common Stock, subject to the terms and conditions
set forth therein;
WHEREAS, subject to compliance with the Securities Act, and all
relevant state securities acts, rules and regulations, promptly after the date
hereof, the Company intends to offer for sale to the other Management Investors
274.2731 shares of Common Stock;
<PAGE>
WHEREAS, the parties hereto deem it in their best interests and in
the best interests of the Company to provide consistent and uniform management
for the Company and desire to enter into this Agreement in order to effectuate
that purpose and to set forth their respective rights and obligations in
connection with their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the shares of Common
Stock and of any outstanding options therefor, including issued and outstanding
shares of Common Stock as well as shares of Common Stock that may be issued
hereafter, and to provide for certain rights and obligations in respect thereto
as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"Acquiror" shall have the meaning assigned to such term in Section
5.5(a).
"affiliate" shall mean with respect to any Person, (a) any Person
which directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, such Person, (b) any Person
who is a director or executive officer (i) of such Person, (ii) of any
subsidiary of such Person, or (iii) of any Person described in the foregoing
clause (a), or (c) any spouse, parent, sibling, mother-in-law, father-in-law,
brother-in-law, sister-in-law, aunt, uncle, first cousin or direct descendant of
any Person described in the foregoing clause (b). For purposes of this
definition, "control" of a Person shall mean the power, direct or indirect, (i)
to vote or direct the voting of 50% or more of the outstanding shares of voting
Capital Stock of such Person, or (ii) to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Agreement" shall mean this Agreement as in effect on the date
hereof and as hereafter from time to time amended, modified or supplemented in
accordance with the terms hereof.
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"Board of Directors" shall mean the Board of Directors of the
Company as from time to time hereafter constituted.
"Book Value" means in respect of each share of Fully Diluted Common
Stock an amount equal to the quotient of (a) the sum of (i) $30 million PLUS
(ii) the aggregate net income of the Company from and after the Closing Date (as
decreased by any net losses from and after the Closing Date) PLUS (iii) the
aggregate dollar amount contributed to the Company after the date of the Closing
Date as equity by the stockholders of the Company (including consideration to be
received upon exercise of Stock Rights) PLUS (iv) to the extent reflected as
deductions to Book Value in clause (ii) above, or MINUS, to the extent reflected
as additions to Book Value in clause (ii) above, extraordinary or unusual items
recognized by the Company, if and to the extent determined in the sole
discretion of the Compensation Committee of the Board of Directors of the
Company, MINUS, (v) the aggregate dollar amount of any dividends paid by the
Company after the Closing Date, divided by (b) the sum of the number of shares
of Fully Diluted Common Stock. The calculations set forth in clauses (a)(ii),
(a)(iii), (a)(iv) and (a)(v) of the immediately preceding sentence shall be
determined in accordance with GAAP applied on a basis consistent with any prior
periods as reflected in the consolidated financial statements of the Company.
For purposes of clause (iii), the amount contributed to the Company upon any
exercise of the First Reserve Option shall be deemed to equal $8 million.
"By-Laws" shall mean the By-Laws of the Company as in effect on the
date hereof and as hereafter amended in accordance with the terms hereof and
thereof.
"Call" shall have the meaning assigned to such term in Section
5.2(b)(i).
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated) of such Person's capital stock or equity capital, including, without
limitation, shares of common stock, shares of preferred or preference stock,
general and limited partnership interests, and any rights, warrants or options
exercisable for or convertible into such capital stock or equity capital.
"Cause" shall have the meaning set forth in the Stock Option
Agreements.
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"Certificate of Incorporation" is defined in the Recitals. Such term
shall also include the Certificate of Incorporation as hereafter from time to
time amended in accordance with the terms thereof and of this Agreement.
"Closing Date" shall have the meaning specified in the First Reserve
Subscription Agreement.
"Common Stock" shall have the meaning set forth in the preamble.
"Company" shall have the meaning assigned to such term in the
preamble.
"Company Securities" shall have the meaning assigned to such term in
Section 6.1(g).
"Compelled Sale Transfer Notice" shall have the meaning assigned to
such term in Section 5.5(b)(i).
"Cost" shall have the meaning assigned to such term in Section
5.2(b)(ii).
"Consolidated Total Capitalization" shall mean consolidated total
stockholders' equity plus consolidated total long-term debt of the Company and
its subsidiaries, all as determined in accordance with GAAP.
"Credit Agreement" shall mean that credit agreement dated as of
December 31, 1996 among Domain Energy Corporation, the parties thereto and The
Chase Manhattan Bank, as Administrative Agent.
"DGCL" shall have the meaning assigned to such term in Section 2.3.
"Disposing Stockholder" shall have the meaning assigned to such term
in Section 5.4(a).
"Event" shall have the meaning assigned to such term in Section
5.2(c).
"Exchange Act" shall mean, as of any date, the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Fair Market Value" shall mean, if not otherwise agreed upon by the
Company and the Management Investor or his Permitted
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Transferee at such time the valuation is made, with respect to the Common Stock,
(A) if on the date as of which Fair Market Value is being determined such class
of capital stock is listed on a national securities exchange or is quoted in the
NASDAQ System or the over-the-counter market, the last sale price, regular way,
of such security on the principal national securities exchange on which such
security is at the time listed, or (B) if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
such exchange at the end of such day, or (C) if on any day such security is not
so listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or (D) if on any day such security
is not quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case of clauses (A)-(D) averaged over a period of 20
days consisting of the day as of which Fair Market Value is being determined and
the latest 19 consecutive trading days prior to such day, or (E) if the Common
Stock is not publicly traded and the number of shares of Common Stock being
valued is greater than or equal to 3% of the Fully Diluted Common Stock, then
the fair market value of the Common Stock to be purchased as determined by a
nationally recognized investment bank (the fees and expenses of which will be
paid by the Company) selected by the Board of Directors and reasonably
acceptable to the Management Investor or his Permitted Transferee or (F) if the
Common Stock is not publicly traded and the number of shares of Common Stock
being valued is less than 3% of the Fully Diluted Common Stock, then the fair
market value of the Common Stock as determined in good faith by the Board of
Directors. If fair market value is determined by reference to (E) or (F) above,
the Common Stock shall be valued on a per share basis as if the entire Company
were being sold.
"First Reserve" shall mean First Reserve Corporation, a Delaware
corporation, and its successors.
"First Reserve Option" means the option to purchase 2,538.5258
shares of Common Stock (subject to adjustment as provided in the First Reserve
Subscription Agreement) granted by the Company to the First Reserve Stockholders
pursuant to the First Reserve Subscription Agreement.
"First Reserve Stockholders" shall have the meaning specified in the
preamble.
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"First Reserve Subscription Agreement" means the Subscription
Agreement, dated as of December 31, 1996, between the Company and the First
Reserve Stockholders, as amended, supplemented or otherwise modified from time
to time.
"Fully Diluted Common Stock" at any time shall mean all shares of
Common Stock then issued and outstanding plus all shares of Common Stock
issuable upon the exercise of any Stock Rights.
"GAAP" means generally accepted accounting principles from time to
time in effect in the United States.
"Good Reason" shall have the meaning set forth in the Form of
Non-Qualified Stock Option Agreement attached hereto as Exhibit A.
"Holder Request" shall have the meaning assigned to such term in
Section 6.1(a).
"initial shares" shall have the meaning assigned to such term in
Section 6.3(f).
"Liens" shall mean any lien, mortgage, pledge, charge, security
interest or similar encumbrance.
"Management Investors" shall have the meaning specified in the
preamble.
"Marketable Securities" shall mean securities that are publicly
traded and have a total market valuation for all outstanding securities of the
same publicly traded class after the relevant transaction of at least $150
million.
"NASD" means the National Association of Securities Dealers, Inc.,
or any successor regulatory body exercising similar functions.
"New Securities" shall have the meaning assigned to such term in
Section 5.3(b).
"Normal Retirement" shall have the meaning assigned to such term in
Section 5.2(a)(ii).
"Notice Designee" shall have the meaning assigned to such term in
Section 5.5(b)(i).
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"Option Put Price" shall have the meaning assigned to such term in
Section 5.2(a).
"option shares" shall have the meaning assigned to such term in
Section 6.3(f).
"permanent disability" shall mean a disability which renders an
individual unable to engage in the activities required by such individuals job
by reason of any medically determined physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
"Permitted Indebtedness" shall mean indebtedness for money borrowed
under the Credit Agreement, other indebtedness for borrowed money existing on
the date hereof and other indebtedness for borrowed money totalling less than
$100,000 in the aggregate and incurred in the ordinary course of business.
"Permitted Liens" shall mean "Permitted Encumbrances," as such term
is defined in the Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property including hydrocarbons) and
Fixture Filing dated as of December 31, 1996 for each of Tenneco Ventures
Corporation and Tenneco Gas Production Corporation in favor of The Chase
Manhattan Bank, as Administrative Agent for the Lenders party to the Credit
Agreement.
"Permitted Number" shall have the meaning set forth in Section
5.2(c)
"Permitted Transferee" shall mean, with respect to any Management
Investor or First Reserve Stockholder, those Persons to whom transfers of
Securities are permitted to be made by such Management Investor or First Reserve
Stockholder, as the case may be, pursuant to Subsection (a), (b) or (c) of
Section 4.2 hereof.
"Person" shall mean an individual or a corporation, association,
partnership, joint venture, organization, business, individual, trust, or any
other entity or organization, including a government or any subdivision or
agency thereof.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly announced
as being effective.
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"Proposed Purchaser" shall have the meaning assigned to such term in
Section 5.4(b).
"Public Offering" shall mean the sale of shares of Common Stock to
the public subsequent to the date hereof pursuant to a registration statement
under the Securities Act which has been declared effective by the SEC (other
than a registration statement on Form S-8 or any other successor form).
"Purchase Offer" shall have the meaning assigned to such term in
Section 5.4(b).
"Put" shall have the meaning assigned to such term in Section
5.2(a).
"Put Price" shall have the meaning assigned to such term in Section
5.2(a).
"Qualified Public Offering" shall mean a Public Offering of Common
Stock, at the conclusion of which the aggregate number of issued and outstanding
shares of Common Stock that have been sold to the public pursuant to one or more
effective registration statements under the Securities Act is equal to at least
20% of the Fully Diluted Common Stock after giving effect to such sale and the
listing of the Common Stock on the New York Stock Exchange, Inc., the American
Stock Exchange, the Nasdaq Stock Market or the National Association of
Securities Dealers, Inc., Automated Quotation System.
"Registrable Securities" shall mean the following:
(a) all shares of Common Stock (i) outstanding on the date hereof or
hereafter acquired by any Securityholder or (ii) issuable under warrants
or options outstanding on the date hereof or hereafter issued to any
Securityholder; and
(b) any shares of Common Stock issued or issuable by the Company in
respect of any shares of Common Stock referred to in the foregoing clause
(a) by way of a pay-in-kind dividend, stock dividend or stock split or in
connection with a combination or subdivision of shares, reclassification,
recapitalization, merger, consolidation or other reorganization of the
Company.
As to any particular Registrable Securities that have been issued,
such securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the
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Securities Act and such securities shall have been disposed of under such
registration statement, (ii) they shall have been distributed to the public
pursuant to Rule 144 under the Securities Act, (iii) they shall have been
otherwise transferred or disposed of, and new certificates therefor not bearing
a legend restricting further transfer shall have been delivered by the Company,
and subsequent transfer or disposition of them shall not require their
registration or qualification under the Securities Act or any similar state law
then in force, or (iv) they shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all out-of-pocket
expenses incident to the Company's performance of or compliance with Article VI
hereof, including, without limitation, all SEC, stock exchange or NASD
registration and filing fees, all fees and expenses of complying with all
applicable federal and state securities laws and blue sky laws (including the
reasonable fees and disbursements of underwriters' counsel in connection with
blue sky qualifications and NASD filings), all fees and expenses of the transfer
agent and registrar for the Registrable Securities, all printing expenses, the
fees and disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance, and, if any
Registrable Securities owned by the First Reserve Stockholders or the Management
Investors are included in such offering, the reasonable fees and disbursements
of one firm of counsel retained by the First Reserve Stockholders or the
Management Investors, respectively, but excluding underwriting discounts and
commissions and applicable transfer and documentary stamp taxes, if any, which
shall be borne by the seller of the securities in all cases.
"Remaining Securityholders" shall have the meaning assigned to such
term in Section 5.5(a).
"Repurchase Eligibility Date" shall have the meaning assigned to
such term in Section 5.2(c).
"Sale" shall have the meaning assigned to such term in Section
5.2(b).
"SEC" shall mean the Securities and Exchange Commission.
"Section 512(b)(ii) Call Price" shall have the meaning assigned to
such term in Section 5.2(b)(ii).
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"Securities" shall mean the Stock and the Stock Rights.
"Securities Act" shall mean, as of any date, the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
"Securityholder" shall mean any one of (i) the First Reserve
Stockholders, (ii) any Management Investor, and (iii) any Permitted Transferee
of any such Person, or of any other Permitted Transferee, who becomes a party to
or bound by the provisions of this Agreement in accordance with the terms
hereof.
"significant subsidiary" shall mean any subsidiary of the Company or
any other Person that constitutes a significant subsidiary within the meaning of
Rule 1-02 of Regulation S-X of the SEC.
"Significant Transaction" shall have the meaning assigned to such
term in Section 2.1(b) hereof.
"Stock" shall mean with respect to any Person, Capital Stock of such
Person of any class or classes, the holders of which are ordinarily (and not
only upon the happening of a contingency) entitled to vote for the election of
members of the board of directors (or Persons performing similar functions) of
such Person, including, without limitation, the Common Stock.
"Stock Option Agreements" means Non-Qualified Stock Option
Agreements to be entered into between the Company and key executives of the
Company, substantially in the form of Exhibit A hereto.
"Stock Purchase and Option Plan" shall mean the 1996 Stock Purchase
and Option Plan for Key Employees of Teleo Ventures, Inc. and Affiliates
attached hereto as Exhibit B.
"Stock Rights" shall mean at any time any and all warrants, options
and other rights outstanding at such time to purchase or otherwise acquire
Common Stock of the Company of any class, whether or not such warrants, options
or rights are exercisable at such time, including, without limitation, all
options now outstanding or hereafter granted pursuant to the First Reserve
Subscription Agreement or the Stock Purchase and Option Plan.
"subsidiary" shall mean as to any Person a corporation, partnership,
or similar entity of which (i) a majority of the outstanding shares of voting
Capital Stock, limited liability
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company interests, or other similar securities are at the time owned, directly
or indirectly through one or more intermediaries, or both, by such Person or
(ii) such Person is the general partner (or performs a role similar to a general
partner).
"Subsidiary Board" shall have the meaning assigned to such term in
Section 3.1(a).
"Substantial Assets" shall mean assets having a gross fair market
value in excess of, or assets to be acquired for consideration in excess of, 10%
of the Consolidated Total Capitalization of the Company and its subsidiaries, as
reflected on the consolidated balance sheet of the Company and its subsidiaries
as at the end of the last full fiscal quarter prior to the date such
determination is made.
"Tag-Along Offeree" shall have the meaning assigned to such term in
Section 5.4.
"transfer" shall, for the purposes of Articles IV and V hereof, have
the meaning assigned to such term in Section 4.1.
"Transfer Stock" shall have the meaning assigned to such term in
Section 5.5(a).
"Underwritten Offering" shall have the meaning assigned to such term
in Section 6.1(g).
"Vested Stock Rights" shall mean, at any time, those Stock Rights
that are then currently exercisable or which will become exercisable as a result
of the consummation of the relevant transaction.
ARTICLE II. MANAGEMENT AGREEMENTS
SECTION 2.1. CONDUCT OF BUSINESS.
(a) Each of the parties hereto agrees that, after the date hereof,
except in the case of (i) issuances of New Securities (as that term is defined
in Section 5.3), (ii) the issuance of shares of Common Stock pursuant to the
First Reserve Option and (iii) transactions expressly contemplated by this
Agreement, the Stock Purchase and Option Plan, or employment agreements between
the Company and its executive management approved by the Board of Directors,
neither the Company nor any of its subsidiaries will enter into any written or
oral contract, agreement or other arrangement to engage in business or enter
into any transaction, or will engage in business or enter into
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any transaction, with any Securityholder or any affiliate of a Securityholder
(other than the Company and its subsidiaries) unless the relevant transaction
(A) has been approved by a majority of the directors voting on such matter,
excluding any director designees of the Securityholder who (or whose affiliate)
has an interest in the transaction and such interest was disclosed to the Board
of Directors prior to such approval or (B) is a commercial transaction entered
into in the ordinary course of business by the Company or such subsidiary and
(x) such transaction has been negotiated on an arm's length basis between the
operating management or employees of the Company or such subsidiary and the
other party to the transaction and (y) the other party to the transaction is not
an affiliate of the managers or employees of the Company who negotiated such
transaction on behalf of the Company or such subsidiary.
(b) Notwithstanding the fact that no vote may be required, or that a
lesser percentage vote may be specified by law, by the Certificate of
Incorporation or By-Laws, by any agreement with any national securities exchange
or otherwise, except as hereinafter provided in this paragraph (b) or elsewhere
in this Agreement, the Company and the Securityholders shall not take or permit
any of the following actions (individually, a "Significant Transaction") unless
otherwise authorized by a vote of at least a majority of the whole Board of
Directors:
(i) Any recapitalization, merger, consolidation or other
similar transaction involving the Company or any subsidiary of the Company
(other than transactions involving the merger or consolidation of a
wholly-owned subsidiary of the Company into the Company or with or into
another wholly-owned subsidiary of the Company).
(ii) Any sale, lease, exchange, transfer or other
disposition, directly or indirectly, in a single transaction or series of
related transactions, of all or substantially all, or a substantial part
of, the assets of the Company or any of its subsidiaries, or of any of the
outstanding Capital Stock of the Company or any subsidiary of the Company,
to or with any Person other than to or with the Company or a wholly owned
subsidiary of the Company. The term "substantial part" means assets having
a gross fair market value which exceeds 10% of the Consolidated Total
Capitalization of the Company and its subsidiaries, as reflected on the
consolidated balance sheet of the Company and its subsidiaries as at the
end of the last full fiscal quarter prior to the date such determination
is made.
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(iii) Any purchase, lease, exchange or other acquisition of
assets (including securities) by the Company or any subsidiary of the
Company, in a single transaction or a series of related transactions, if
such assets constitute or would constitute Substantial Assets.
(iv) Any increase or reduction of the number of shares of
any class of the Company's authorized Capital Stock or the creation of any
additional class of Capital Stock of the Company, or the issuance or sale
of shares of Capital Stock of the Company or any of its subsidiaries (or
warrants, options or rights to acquire shares of Capital Stock or
securities convertible into or exchangeable for Capital Stock or any type
of debt instrument which has equity features), except the issuance or sale
of shares of Capital Stock of a wholly-owned subsidiary of the Company to
the Company or to another wholly-owned subsidiary of the Company or the
issuance or sale of Capital Stock under the Stock Purchase and Option Plan
in accordance with the applicable provisions of the Stock Purchase and
Option Plan.
(v) Any amendment to or modification or repeal of
any provision of the Certificate of Incorporation or By-Laws
of the Company.
(vi) The dissolution of the Company; the adoption of a plan
of liquidation of the Company or any significant subsidiary; any action by
the Company or any subsidiary of the Company to commence any suit, case,
proceeding or other action (A) under any existing or future law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief
of debtors seeking to have an order for relief entered with respect to the
Company or such subsidiary, or seeking to adjudicate the Company or such
subsidiary bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to the Company or such subsidiary, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official
for such Company or such subsidiary or for all or any substantial part of
its assets, or making a general assignment for the benefit of its
creditors.
(vii) Any redemption or offer to purchase made by the
Company or any of its subsidiaries or other acquisition of Capital Stock
of the Company or any of its subsidiaries, except (A) the purchase of
Stock or Stock Rights held by any of the Management Investors in
accordance with Section 5.2
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of this Agreement or (B) the purchase or redemption of Stock or Stock
Rights issued under the Stock Purchase and Option Plan, in each case in
accordance with the applicable provisions of the Stock Purchase and Option
Plan.
(viii) Any amendment, modification or supplement to
the Stock Purchase and Option Plan.
(ix) Adopt, or cause or permit any subsidiary to adopt, any
operating or capital budget or business plan for any fiscal year or other
period, amend or materially deviate from, or cause or permit any of its
subsidiaries to amend or materially deviate from, any such budget or
business plan as to expenditures;
(x) Become subject to, or cause or permit any of its
subsidiaries to become subject to (in each case including, by way of
amendment to or modification of), any agreement or instrument (other than
the Credit Agreement and the security instruments executed and delivered
in connection therewith) which by its terms would (under any
circumstances) (a) restrict the right of any subsidiary to make loans or
advances or pay dividends to, transfer property to, or repay any
indebtedness owed to, the Company or any subsidiary or (b) restrict the
ability of the Company or any subsidiary thereof to perform the provisions
of, or performance of which would otherwise conflict with, any provision
of this Agreement or the documents entered into in connection with this
Agreement;
(xi) Establish or acquire after the date hereof, or cause
or permit any subsidiary to establish or acquire after the date hereof,
(a) any subsidiary other than a wholly-owned subsidiary or (b) any
subsidiary organized outside of the United States and its territorial
possessions;
(xii) Create, incur, assume or suffer to exist, or cause or
permit or cause any subsidiary to create, incur, assume or suffer to
exist, any indebtedness other than Permitted Indebtedness, or amend or
modify after the date hereof, or cause or permit any subsidiary to amend
or modify after the date hereof, the Credit Agreement or any other any
bank loan agreement or any other agreement or instrument relating to any
indebtedness or establish or modify any banking relationship;
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(xiii) Create, incur, assume or suffer to exist, or cause or
permit any subsidiary to create, incur, assume or suffer to exist, any
Liens on any of its properties or assets other than Permitted Liens;
(xiv) Institute or settle, or cause or permit any subsidiary
to institute or settle, any claim or lawsuit (or series of related claims
and/or lawsuits) for any amount in excess of $100,000 individually, or
involving equitable relief; or
(xv) Agree to, or cause or permit any of its
subsidiaries to agree to, do any of the foregoing prohibited
acts.
SECTION 2.2. STOCK PURCHASE AND OPTION PLAN. (a) The Board of
Directors has adopted the Stock Purchase and Option Plan. Options and other
rights granted under the Stock Purchase and Option Plan shall be granted to such
persons, in such amounts and on such terms as shall be approved by a majority of
the whole Board of Directors, which majority shall include at least one director
designated by the First Reserve Securityholders, one director designated by the
Management Investors and the Chief Executive Officer of the Company (which Chief
Executive Officer and which director designated by the Management Investors may
be the same person). The persons participating in the Stock Purchase and Option
Plan and the amount and other terms of such participation shall be approved by a
majority of the whole Board of Directors, which majority shall include at least
one director designated by the First Reserve Stockholders, one director
designated by the Management Investors and the Chief Executive Officer of the
Company (which Chief Executive Officer and which director designated by the
Management Investors may be the same person).
(b) The Board of Directors of the Company has authorized the
issuance of up to 1,000 options to purchase shares of Common Stock on the terms
set forth in the Stock Option Agreements. The Company will not issue any such
options except upon the terms and subject to the conditions of the Stock Option
Agreements and will not enter into any Stock Option Agreement unless the
optionee thereunder and his/her spouse (if applicable) becomes a "Management
Investor" party to this Agreement pursuant to a written instrument in form and
substance satisfactory to the First Reserve Stockholders and the Company. The
Securityholders acknowledge that, subject to the foregoing, the Chief Executive
Officer is authorized to cause such options to be issued to key managers of the
Company and its affiliates, provided that the
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number of such options to be issued to the Chief Executive Officer will not
exceed 450.
SECTION 2.3. REGISTRATION OF COMMON STOCK. In the event of a Public
Offering of Common Stock, each Securityholder shall, at a meeting convened for
the purpose of amending the Certificate of Incorporation (or by means of written
consent pursuant to the applicable provisions of the Delaware General
Corporation Law (the "DGCL")), vote to increase the number of issued and
outstanding shares of Common Stock, whether by stock split, stock dividend or
otherwise, or change in its par value or increase the authorized number of
shares of stock, as recommended by a majority of the members of the Board of
Directors in order to facilitate such Public Offering.
ARTICLE III. CORPORATE GOVERNANCE
SECTION 3.1. BOARD OF DIRECTORS.
(a) The Securityholders and the Company hereby agree that at all
times after the Closing Date, the Board of Directors of the Company and the
board of directors (or comparable governance body of any partnership or similar
entity) of each significant subsidiary (each, a "Subsidiary Board"), shall
consist entirely of the members described in this Section 3.1(a), except that
(i) the First Reserve Stockholders may in their discretion elect (which election
may be revoked at any time by the First Reserve Stockholders) to designate fewer
than three persons, or no persons at all, to be members of any Subsidiary Board
and (ii) the Management Investors may in their discretion elect (which election
may be revoked at any time by the Management Investors) to designate fewer than
two persons, or no persons at all, to be members of any Subsidiary Board,
PROVIDED, HOWEVER, that if the Management Investors designate only one person to
any such board of directors, such person must be the Chief Executive Officer of
the Company. On the Closing Date, and from time to time thereafter, the
Securityholders shall take all such actions as may be necessary or appropriate
to cause the persons described below to be elected or re-elected as the members
of the Board of Directors and each Subsidiary Board and to be maintained in such
positions at all times:
(i) three persons designated by the First Reserve
Stockholders; and
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(ii) two persons designated by the Management Investors, one
of whom must be the Chief Executive Officer of the Company;
PROVIDED, HOWEVER, that (i) if Michael V. Ronca is not the Chief
Executive Officer of the Company, the First Reserve Stockholders shall have the
right to designate all of the members of the Board of Directors and the right of
the Management Investors to designate members of the Subsidiary Boards shall
terminate, (ii) if the First Reserve Stockholders own less than 50% of the
outstanding Common Stock, calculated on a fully diluted basis, the First Reserve
Stockholders shall have the right to designate two members of the Board of
Directors and (iii) if the First Reserve Stockholders own less than 10% of the
outstanding Common Stock, calculated on a fully diluted basis, the First Reserve
Stockholders shall have the right to designate one member of the Board of
Directors. For the purposes of this Article III, all actions to be taken by the
First Reserve Stockholders shall be taken only by the holders of a majority of
the Stock owned by the First Reserve Stockholders at the time such action is
taken. For the purposes of this Article III, all actions to be taken by the
Management Investors will be taken only by the holders of a majority of the
Stock owned by the Management Investors at the time such action is taken.
(b) Each Securityholder hereby agrees to vote all shares of Stock
owned or held of record by such Securityholder, at each annual or special
meeting of stockholders of the Company at which directors of the Company are to
be elected, in favor of, or to take all actions by written consent in lieu of
any such meeting as are necessary to cause, the election or re-election as
members of the Board of Directors of those individuals described in Section
3.1(a), and to otherwise effect the intent of the provisions of Section 3.1(a).
(c) Each committee of the Board of Directors and each Subsidiary
Board shall include a number of directors designated by the First Reserve
Stockholders and the Management Investors (rounded up to the nearest whole
number) equivalent in each case to the proportion of directors designated by
each of them who are then serving on the whole Board of Directors or such whole
Subsidiary Board, as applicable; PROVIDED, HOWEVER that the Management Investors
shall not have the right to designate any directors to serve on any audit
committee or similar committee of the Board of Directors or any Subsidiary Board
and the Compensation Committee of the Board of Directors will be constituted as
described below. The committees of the Board of Directors shall consist of an
Audit Committee and a Compensation
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Committee each of which shall, subject to Section 2.1, have functions
customarily performed by such committees. The Audit Committee shall consist of
two directors, each of whom were designated by the First Reserve Stockholders to
sit on the Board of Directors. The Compensation Committee shall consist of three
directors, two of whom were designated by the First Reserve Stockholders to sit
on the Board of Directors and one of whom is the Chief Executive Officer of the
Company.
(d) Unless otherwise agreed by the parties hereto, the Board of
Directors and each Subsidiary Board shall follow the following procedures:
(i) MEETINGS. Special Meetings of the applicable board of
directors may be held at any time upon the call of at least two directors,
including (in the event the First Reserve Stockholders have a designee on
such board of directors) one designee of the First Reserve Stockholders,
by oral, telephonic, telegraphic or facsimile notice duly given or sent at
least one day, or by written notice sent by express mail at least three
days, before the meeting to each director. Reasonable efforts shall be
made to ensure that each director actually receives timely notice of any
meeting. The annual meeting of the Board of Directors and each Subsidiary
Board shall be held without notice immediately following the annual
meeting of stockholders of the Company or such subsidiary, as the case may
be.
(ii) AGENDA. A reasonably detailed agenda shall be supplied
to each director reasonably in advance of each meeting of the applicable
board of directors, together with other appropriate documentation with
respect to agenda items calling for board action, to inform adequately
directors regarding matters to come before the board. Any director wishing
to place a matter on the agenda for any meeting of the applicable board of
directors may do so by communicating with the chairman of such board of
directors sufficiently in advance of the meeting of the applicable board
of directors so as to permit timely dissemination to all directors of
information with respect to the agenda items.
(e) Each of the First Reserve Stockholders that is not directly
represented on the Board of Directors or any Subsidiary Board shall be entitled
to designate a nonvoting observer to attend meetings of any such Board of
Directors or Subsidiary Board (which designation shall be provided in writing to
the Company or a Subsidiary, as the case may be, a reasonable time in advance of
such meetings). The Company or the subsidiary, as the
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case may be, shall provide each such observer with the same notice of, and
information regarding, meetings of the Board of Directors or Subsidiary Board as
that provided to directors. Each such observer shall be provided reasonable
access to the books, records and properties of the Company or the subsidiary and
shall be provided with a reasonable opportunity to discuss the business and
affairs of the Company or subsidiary with the officers of the Company or
subsidiary, provided that the First Reserve Stockholders shall cause all
information relating to the Company or the subsidiary that is provided to such
observer to be held in strict confidence.
(f) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending (i) the meetings of the
Board of Directors, any Subsidiary Board and any committee thereof and (ii) any
other meetings at the request of the Company or any of its subsidiaries. So long
as any director designated pursuant to Section 3.1(a) serves on the Board of
Directors or a Subsidiary Board and for six years thereafter, the Company shall
maintain directors and officers indemnity insurance coverage satisfactory to the
holders of a majority of the then outstanding Common Stock and the
organizational documents of each of the Company and each of its subsidiaries, as
appropriate, shall provide for indemnification and exculpation of directors to
the fullest extent permitted under applicable law.
SECTION 3.2. REMOVAL. If a director designated and elected pursuant
to Section 3.1,
(i) has been designated pursuant to Section 3.1(a)(i),
and, during such director's term as director, the First Reserve
Stockholders request by written notice to the other Securityholders that
such director be removed;
(ii) has been designated pursuant to Section 3.1(a)(ii),
and, during such director's term as director, the Management Investors
request by written notice to the other Securityholders that such directors
be removed; or
(iii) has been designated pursuant to Section 3.1(a)(ii) and
Michael V. Ronca is not the Chief Executive Officer of the Company, and
the First Reserve Stockholders request by written notice to the other
Securityholders that such director be removed;
then such director shall be removed upon the affirmative vote of the holders of
a majority of the outstanding shares of Stock, and
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each Securityholder hereby agrees promptly to vote all shares of Stock owned or
held of record by it and to take all such other actions as may be necessary or
appropriate to effect such removal in accordance with such request.
SECTION 3.3. VACANCIES. In the event that a vacancy is created on
the Board of Directors at any time by the death, disability, retirement,
resignation or removal of any director or for any other reason there shall exist
or occur any vacancy on the Board of Directors, each Securityholder hereby
agrees to take such actions as will result in the election or appointment of a
new director or directors in accordance with Section 3.1.
ARTICLE IV. TRANSFERS OF SECURITIES.
SECTION 4.1. RESTRICTIONS ON TRANSFER. (a) Each Securityholder
agrees that it will not, directly or indirectly, offer, sell, transfer, assign
or otherwise dispose of (or make any exchange, gift, assignment or pledge of)
(collectively, for purposes of Articles IV and V hereof only, a "transfer") any
of its shares of Stock or Stock Rights, except (i) as provided in Section 4.2,
(ii) in accordance with Article V or (iii) other than in connection with an
exercise of any Stock Right in accordance with its terms.
(b) In addition to the other restrictions prescribed by this
Article IV, each Securityholder agrees that it will not, directly or indirectly,
offer, sell, transfer, assign or otherwise dispose of any of its Securities
except as permitted under the Securities Act and other applicable securities
laws.
SECTION 4.2. EXCEPTIONS TO RESTRICTIONS. The provisions of Section
4.1 (a) shall not apply to any of the following transfers:
(a) From any First Reserve Stockholder to any affiliate of the First
Reserve Stockholders, provided that such affiliate shall assume in writing the
obligations hereunder of a First Reserve Stockholder, which writing shall in
form and substance be reasonably satisfactory to the Company and the Management
Investors' board designees.
(b) From any Management Investor to a trust solely for such Person's
benefit or the benefit of such Person's spouse or children (a "Purchaser's
Trust"), PROVIDED that such Person acts as trustee and retains the sole power to
direct voting and disposition of such shares; and, PROVIDED, FURTHER, that any
such
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Purchaser's Trust shall agree in a writing in form and substance reasonably
satisfactory to the Company and the First Reserve Stockholders to be bound and
shall become bound by the terms of this Agreement;
(c) From any First Reserve Stockholder to any Person, subject only
to the requirements of Section 5.4, PROVIDED that such transferee shall assume
in writing the obligations hereunder of a First Reserve Stockholder; and
(d) Pursuant to any merger or consolidation of the Company; and
(e) To the public pursuant to a Public Offering.
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SECTION 4.3. LEGENDING OF CERTIFICATES.
(a) In addition to any other legend which the Company may reasonably
deem advisable under the Securities Act and applicable state securities laws,
the certificates representing all shares of Stock and all Stock Rights subject
to this Agreement shall be legended at all times during the term of this
Agreement as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND ARE
SUBJECT TO THE PROVISIONS (INCLUDING THE RESTRICTIONS ON TRANSFER)
SET FORTH IN THAT CERTAIN SECURITYHOLDERS AGREEMENT DATED AS OF
DECEMBER 31, 1996 AMONG DOMAIN ENERGY CORPORATION (THE "COMPANY"),
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP, AND THE INDIVIDUALS AND
TRUSTS SIGNATORY THERETO, AS SUCH AGREEMENT MAY BE AMENDED (AS
AMENDED, IF AMENDED, THE "SECURITYHOLDERS AGREEMENT"), A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT (AND THE HOLDER OF THIS
CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES THAT SUCH
SECURITIES MAY NOT AND WILL NOT) BE TRANSFERRED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF (1) EXCEPT IN
COMPLIANCE WITH THE SECURITYHOLDERS AGREEMENT AND (2) EXCEPT AS
OTHERWISE PROVIDED IN THE SECURITYHOLDERS AGREEMENT, UNLESS AND
UNTIL SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL FOR THE
HOLDER SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
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ADDITIONALLY, IF THE HOLDER IS A CITIZEN OR RESIDENT OF ANY COUNTRY
OTHER THAN THE UNITED STATES, OR THE HOLDER DESIRES TO EFFECT ANY
SUCH TRANSACTION IN ANY SUCH COUNTRY, THE COMPANY MUST BE FURNISHED
WITH A SATISFACTORY OPINION OR OTHER ADVICE OF COUNSEL FOR THE
HOLDER THAT SUCH TRANSACTION WILL NOT VIOLATE THE LAWS OF SUCH
COUNTRY."
(b) The obligations of each party hereto shall be binding upon each
transferee to whom shares of Stock or Stock Rights are transferred by any party
hereto (including, without limitation, any third party to whom shares are
transferred pursuant to Article V) except shares transferred pursuant to a
Public Offering. Prior to consummation of any applicable transfer, such party
shall cause the transferee to execute an agreement in form and substance
reasonably satisfactory to the other parties hereto, providing that such
transferee shall fully comply with the terms of this Agreement. Prompt notice
shall be given to the Company, the First Reserve Stockholders and by the
transferor of any transfer of any of its Stock or Stock Rights.
SECTION 4.4. IMPROPER TRANSFER. Any attempt to transfer any shares
of Stock or any Stock Rights not in accordance with this Agreement shall be null
and void and neither the Company nor any transfer agent shall give any effect to
such attempted transfer or encumbrance in its stock records.
ARTICLE V. PURCHASE RIGHTS.
SECTION 5.1. TRANSFERS BY A MANAGEMENT INVESTOR.
Except for transfers permitted by Section 4.2(b) or a sale of shares
of Stock pursuant to an effective registration statement under the Securities
Act filed by the Company or pursuant to Sections 5.2, 5.4 or 5.5 of this
Agreement, each Management Investor agrees that he will not transfer any shares
of the Stock of the Company at any time prior to the fifth anniversary of the
date hereof. No transfer of any such shares in violation hereof shall be made or
recorded on the books of the Company and any such transfer shall be void and of
no effect.
If at any time after the fifth anniversary of the date hereof and
prior to a Public Offering, a Management Investor receives a bona fide offer to
purchase any or all of his shares of Stock (the "Offer") from a third party (the
"Offeror") which such Management Investor wishes to accept, such Management
Investor shall cause the Offer to be reduced to writing and shall
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notify the Company in writing of his wish to accept the Offer. A Management
Investor's notice shall contain an irrevocable offer to sell such shares of
Stock to the Company (in the manner set forth below) at a purchase price equal
to the price contained in, and on the same terms and conditions of, the Offer,
and shall be accompanied by a true copy of the Offer (which shall identify the
Offeror). At any time within 30 days after the date of the receipt by the
Company of a Management Investor's notice, the Company shall have the right and
option to purchase, or to arrange for a third party to purchase, all of the
shares of Stock covered by the Offer either (i) at the same price and on the
same terms and conditions as the Offer or (ii) if the Offer includes any
consideration other than cash, then at the sole option of the Company, at the
equivalent all cash price, determined in good faith by the Company's Board of
Directors, by delivering a certified bank check or checks in the appropriate
amount (and any such non-cash consideration to be paid) to the applicable
Management Investor at the principal office of the Company against delivery of
certificates or other instruments representing the shares of the Stock so
purchased, appropriately endorsed by the applicable Management Investor. If at
the end of such 30 day period, the Company has not tendered the purchase price
for such shares in the manner set forth above, the applicable Management
Investor may during the succeeding 60 day period sell not less than all of the
shares of Stock covered by the Offer to the Offeror at a price and on terms no
less favorable to such Management Investor than those contained in the Offer.
Promptly after such sale, the applicable Management Investor shall notify the
Company of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such sale and of the terms thereof as may
reasonably be requested by the Company. If, at the end of 60 days following the
expiration of the 30 day period for the Company to purchase the Stock, the
applicable Management Investor has not completed the sale of such shares of the
Stock as aforesaid, all the restrictions on sale, transfer or assignment
contained in this Agreement shall again be in effect with respect to such shares
of the Stock.
SECTION 5.2. PUTS AND CALLS.
The Company and each Management Investor (which term, for purpose of
this Section 5.2, shall include all Permitted Transferees thereof as the context
may require) shall be subject to the following purchase and sale obligations and
rights:
(a) Subject to Section 5.2(c), upon any termination of employment of
a Management Investor by reason of:
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(i) death or permanent disability,
(ii) retirement from the Company and its subsidiaries at age 62 or
over (or such other age as may be approved by the Board of
Directors of the Company) after having been employed by the
Company or any subsidiary for at least three years after the
Closing Date ("Normal Retirement"), or
(iii) involuntary termination from the Company and its subsidiaries
without Cause or voluntary termination from the Company and
its subsidiaries for Good Reason,
the Management Investor and his Permitted Transferees or his or their
representative shall be entitled for a period of 120 days following the
effective date of such termination of employment to exercise a put (any such
put, a "Put") to the Company of all of the Stock and Vested Stock Rights of such
Management Investor or Permitted Transferees by requiring the Company to (A)
purchase such Stock at a price per share (the "Put Price") equal to (i) if such
purchase is consummated prior to the second anniversary of the Closing Date, the
Book Value or (ii) if such purchase is consummated on or after the second
anniversary of the Closing Date, the Fair Market Value and (B) purchase such
Vested Stock Rights at a price (the "Option Put Price") equal to the excess of
(x) the product of the Put Price multiplied by the number of shares to be
received upon exercise of the Vested Stock Rights over (y) the aggregate
exercise price of those shares. A Put shall be exercised by delivery of written
notice to the Company. The purchase shall be consummated within 30 days after
receipt of such notice by the Company.
(b) (i) Subject to Section 5.2(c), upon the termination of
employment of any Management Investor for any reason, including, without
limitation, death or permanent disability, and provided such Management
Investor or his Permitted Transferee shall not have previously exercised a
Put pursuant to Section 5.2(a), the Company shall be entitled for a period
of one year after the effective date of such termination of employment to
exercise a call (any such call, a "Call") on all of the shares of Stock
and all Vested Stock Rights owned by such Management Investor and his
Permitted Transferees by requiring such Management Investor and his
Permitted Transferees to sell to the Company all of such shares at the Put
Price and all of such Vested Stock Rights at the Option Put Price;
provided, however, if a Management Investor's employment is terminated by
the Company without Cause or by the Management Investor
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for Good Reason and the Management Investor does not desire to exercise a
Put pursuant to Section 5.2(a), the Company shall defer its Call pursuant
to this Section 5.2(b)(i) until the second anniversary of the date of this
Agreement. The Company may exercise its Call by delivery of written notice
to such Management Investor and his Permitted Transferees. Consummation of
the sale shall occur within 30 days after delivery of such notice, at a
purchase price per share, subject to Section 5.2(b)(ii), determined in
accordance with the provisions of Section 5.2(a).
(ii) Notwithstanding Section 5.2(b)(i), any purchase of
Stock by the Company pursuant to the exercise of any Call as a result of
termination by the Company for Cause or termination by the Management
Investor without Good Reason shall be made at a purchase price per share
(the "Section 5.2(b)(ii) Call Price") equal to (1) if such purchase is
consummated prior to the second anniversary of the Closing Date, the lower
of (x) Book Value and (y) the price per share originally paid by such
Management Investor (appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like
occurring after the Closing Date) ("Cost"), or (2) if such purchase is
consummated on or after the second anniversary of the Closing Date, the
lower of (x) Book Value and (y) Fair Market Value.
(iii) Notwithstanding Section 5.2(b)(i), any purchase of
Vested Stock Rights by the Company pursuant to any Call as a result of
termination by the Company for Cause or termination by the Management
Investor without Good Reason shall be made at a price equal to the excess
of (x) the product of the Section 5.2(b)(ii) Call Price multiplied by the
number of shares to be received upon exercise of the Vested Stock Rights
over (y) the aggregate exercise price of those shares.
(c) Notwithstanding anything in Section 5.2(a) or 5.2(b) to the
contrary, if there exists and is continuing a default or an event of default on
the part of the Company or any subsidiary of the Company under any loan,
guarantee or other agreement under which the Company or any subsidiary of the
Company has borrowed money or if the repurchases referred to in Section 5.2(a)
or 5.2(b) would result in a default or an event of default on the part of the
Company or any subsidiary of the Company under any such agreement or if a
repurchase would not be permitted under the DGCL (or if the Company
reincorporates in another state, the business corporation law of such state)
(each
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such occurrence being an "Event"), the Company shall not be obligated to
repurchase any of the Stock or the Vested Stock Rights from the Management
Investor or the Permitted Transferee, as the case may be, until the first
business day which is 10 calendar days after all of the foregoing Events have
ceased to exist (the "Repurchase Eligibility Date"); provided, that the Company
shall repurchase an amount of Stock or Stock Rights (the "Permitted Number")
which is less than all of the Stock or Stock Rights held by such Management
Investor or Permitted Transferee but as to which, the purchase of a single
additional share of Stock would violate applicable law or any loan, guarantee or
other agreement described above.
(d) The Board of Directors shall determine whether the Company will
exercise its call rights to purchase a Management Investor's (or Permitted
Transferee's) Stock pursuant to Sections
5.2(b) or 5.2(c) hereof.
(e) If any Management Investor's marital relationship is terminated
by the death of his spouse or divorce and he does not succeed to his or her
spouse's interest in any Stock or Stock Rights, he shall have the option to
purchase all such spouse's interest and the interests of any of his or her
Permitted Transferees in any shares of Stock or Stock Rights, but only to the
extent such interests arise from such spouse's community or marital property
rights and such spouse or the executor or administrator of his or her estate and
any such Permitted Transferees (any such spouse, executor, administrator or
Permitted Transferee, the "Spouse") shall be obligated to sell such Stock or
Stock Rights to such Management Investor. The price per share at which such
Stock and Stock Rights shall be purchased shall be determined in accordance with
the provisions of Section 5.2(a). Such option must be exercised within 90 days
after such death or divorce. If such Management Investor should fail to exercise
such option within such 90 day period, the Spouse shall give prompt written
notice of such failure to the Company and each of the other Management
Investors, which notice shall describe the nature of the above referenced
interests of the Spouse in such Stock and Stock Rights. The Company shall be
entitled to exercise a call (a "Spouse Call") on all of the shares of such Stock
and on all Stock Rights owned by such Spouse, within 120 days after receiving
such notice, by requiring such Spouse to sell to the Company all of such shares.
The Company may exercise its call by delivery of written notice to such Spouse.
Consummation of the sale shall occur within 30 days after delivery of such
notice at a purchase price per share determined in accordance with the
provisions of Section 5.2(a).
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(f) If by reason of Section 5.2(c) above the Company purchases less
than all (or none) of the shares of Stock and Vested Stock Rights held by a
Seller (provided that the Company shall have purchased the Permitted Number),
then notwithstanding anything to the contrary in Section 5.2(a), 5.2(b) or
5.2(c), the Company may elect, in the case of any such Call or Spouse Call, and
shall elect, in the case of any such Put, by delivering written notice to such
Seller at the time of such purchase (or, if no such shares are purchased, within
30 days after delivery of the notice, in accordance with the provisions of
Sections 5.2(a), 5.2(b) or 5.2(c), as the case may be, of the Put or Call in
respect of such Seller), to purchase, as soon as possible after all of the
Events have ceased to exist, the remainder of such Stock and Vested Stock
Rights, up to but in no event more than the Permitted Number at the time of each
purchase and each subsequent purchase necessary to allow purchase of all the
shares and Vested Stock Rights subject to the Put or Call. In such event the
Company shall deliver to such Seller as soon as it is possible to purchase such
shares a written notice of such purchase, and such purchase shall be on the
terms and subject to the limitations contained in this Section 5.2 (including
Section 5.2(c) above), except that the purchase price to be paid shall be the
price determined with reference to the first notice given exercising the Put or
Call with respect to such Seller, plus interest thereon from the 31st day after
the date of delivery of the first notice to the closing of the applicable
purchase at the Prime Rate.
(g) The Company shall exercise its call rights to purchase a
Management Investor's (or a Spouse's or Permitted Transferee's) Stock and Vested
Stock Rights pursuant to Sections 5.2(b), 5.2(c) or 5.2(d) hereof.
Notwithstanding the foregoing, the Company may request, but not require, the
First Reserve Stockholders to exercise the Company's rights and obligations to
purchase such Stock and Vested Stock Rights (and, if such request is made, the
First Reserve Stockholders may decide in their sole discretion whether to
exercise the Company's rights and obligations). Should the Board of Directors
fail to exercise a call on the Stock as provided in Sections 5.2(b), 5.2(c) or
5.2(d), or be unable to purchase all of the Stock and Vested Stock Rights for
cash pursuant to a Put or Call, (an "Unexercised Right"), each Management
Investor (and his Permitted Transferees) then owning Stock, other than the
Management Investor (and his Permitted Transferees) subject to the call, shall
be entitled to exercise a call (any such call, a "Management Call"), on up to a
pro rata basis (based upon the number of shares of Fully Diluted Common Stock
then beneficially owned, within 10 days after notice by the Company to the
Management Investor that it will not
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exercise its call or is unable to purchase all of the Stock for cash and Vested
Stock Rights pursuant to a Put or a Call. A Management Call shall be exercised
by delivery of written notice to the Company and to the Management Investor (or
Spouse or Permitted Transferee) whose shares and Vested Stock Rights were
subject to the Unexercised Right.
SECTION 5.3. RIGHT OF FIRST REFUSAL FOR NEW SECURITIES.
(a) The Company hereby grants to the Securityholders a pro rata
right of first refusal to purchase shares of any New Securities (as defined
below) which the Company may, from time to time, propose to sell and issue. Such
right of first refusal shall allow each Securityholder to purchase a pro rata
portion of the shares of Stock or Stock Rights or other securities as may be
included in the New Securities proposed to be issued. Such pro rata portions
shall be determined by reference to the aggregate number of shares of (i) Fully
Diluted Common Stock in the case of issuances to the First Reserve Stockholders
or any of their affiliates or (ii) outstanding Common Stock in the case of
issuances to Persons other than to the First Reserve Stockholders or any of
their affiliates, as the case may be, owned in each case by each Securityholder
(including the First Reserve Stockholders) before the proposed issuance of New
Securities. The right of first refusal granted hereunder shall terminate if
unexercised within thirty (30) days after receipt of the notice described in
Section 5.3(c) below.
(b) "New Securities" shall mean any authorized but unissued shares,
and any treasury shares, of Capital Stock (including, without limitation, Common
Stock) of the Company and all rights, options or warrants to purchase Capital
Stock of the Company (including, without limitation, Stock Rights), and
securities of any type whatsoever that are, or may become, convertible into
Capital Stock of the Company; PROVIDED, HOWEVER, that the term "New Securities"
does not include (i) shares of Common Stock issued upon the exercise of Stock
Rights or other rights to acquire Stock that are (x) outstanding on the date
hereof (including, without limitation, the First Reserve Option) or (y) issued
after the date hereof in a transaction in which the Securityholders have the
right to purchase their respective pro rata portions of the relevant Stock
Rights or other rights pursuant to Section 5.3(a) hereof, in each such case in
accordance with the terms thereof or (ii) shares of Stock issued in connection
with any stock split, stock dividend or recapitalization of the Company, (iii)
securities issued by the Company pursuant to the acquisition of another
corporation or
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other entity by merger, purchase of all or substantially all of the assets or
other recapitalization, reorganization or business combination, (iv) shares of
Common Stock and Options to purchase shares of Common Stock issued to employees,
officers or directors of the Company pursuant to the Stock Purchase and Option
Plan, provided that the aggregate number of shares of Common Stock issued
pursuant to the Stock Purchase and Option Plan shall not exceed 1,000 or (v) up
to 529 shares of Common Stock issued and sold by the Company to the Management
Investors at a price per share of $3,151.4354, PROVIDED, such issuance and sale
shall have been consummated on or before February 15, 1997.
(c) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Securityholder written notice of its
intention, describing the number of shares of Stock and/or Stock Rights or other
securities it intends to issue as New Securities, the purchase price therefor
(which shall be payable solely in cash) and the terms upon which the Company
proposes to issue the same. Each Securityholder shall have 30 days from the date
such notice is received to determine whether to purchase all or any portion of
the Securityholder's pro rata share of such New Securities for the purchase
price and upon the terms specified in the Company's notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
(d) The obligations of the Company under this Section 5.3 shall
terminate immediately prior to any Public Offering pursuant to a firm
underwriting commitment.
SECTION 5.4. RIGHT TO JOIN IN SALE.
(a) If any Securityholder or group of Securityholders proposes to
sell, dispose of or otherwise transfer in any single transaction or series of
related transactions any Securities representing more than 10% of the Fully
Diluted Common Stock (each a "Disposing Stockholder") other than (i) to the
Company, (ii) to the Company or its designee pursuant to Section 5.1 hereof or
(iii) any transfer by a First Reserve Stockholder to any affiliate of such First
Reserve Stockholder, such Disposing Stockholder shall refrain from effecting
such transaction unless, prior to the consummation thereof, each other
Securityholder shall have been afforded the opportunity to join in such sale on
a pro rata basis, as hereinafter provided.
(b) Prior to consummation of any proposed sale, disposition or
transfer (a "Sale") of the Securities described in Section 5.4(a), the Disposing
Stockholder shall cause the Person
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or group that proposes to acquire such shares (the "Proposed Purchaser") to
offer (the "Purchase Offer") in writing to each other Securityholder (each, a
"Tag-Along Offeree") to purchase shares of Stock and/or Stock Rights owned by
such Tag-Along Offeree which are the same type, class or series proposed to be
sold by the Disposing Stockholders, such that the sum of the number of shares of
such Stock so offered to be purchased and the number of shares of Stock then
represented by the Stock Rights so offered to be purchased from such Tag-Along
Offeree shall be equal to the product obtained by multiplying the total number
of shares of the same type, class or series of Stock or other Securities being
sold by the Disposing Stockholder then owned by such Tag-Along Offeree by a
fraction, the numerator of which is the aggregate number of shares of each type,
class or series of Stock or other Securities proposed to be purchased by the
Proposed Purchaser from the Disposing Stockholder and the denominator of which
is the aggregate number of outstanding shares of each type, class or series of
Stock or other Securities that are owned by the Disposing Stockholder; PROVIDED,
however, that if after the consummation of such Sale the First Reserve
Stockholders will own less than 50% of the outstanding Common Stock, then each
Tag-Along Offeree may elect to include in such Sale all of the shares of Stock
and/or Stock Rights owned by such Tag-Along Offeree and any Purchase Offer shall
be amended to reflect any such election by the Tag-Along Offeree. Such purchase
shall be made at the price per share and on such other terms and conditions as
the Proposed Purchaser has offered to purchase each type, class or series of
Stock or other Securities, as the case may be, to be sold by the Disposing
Stockholder. Each Tag-Along Offeree shall have 20 calendar days from the date of
receipt of the Purchase Offer in which to accept such Purchase Offer, and the
closing of such purchase shall occur at the same time as the closing of the
Sale. The number of shares of Stock and/or Stock Rights, as the case may be, to
be sold to the Proposed Purchaser by the Disposing Stockholder shall be reduced
by the aggregate number of shares of Stock and/or Stock Rights, as the case may
be, purchased by the Proposed Purchaser from the Tag-Along Offerees pursuant to
the acceptance by them of Purchase Offers in accordance with the provisions of
this Section 5.4(b). In the event that a sale or other transfer subject to this
Section 5.4 is to be made to a Proposed Purchaser who is not a Securityholder,
the Disposing Stockholder shall notify the Proposed Purchaser that the sale or
other transfer is subject to this Section 5.4 and shall ensure that no sale or
other transfer is consummated without the Proposed Purchaser first complying
with this Section 5.4. It shall be the responsibility of each Disposing
Stockholder to determine whether any transaction to which it is a party is
subject to this Section 5.4.
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SECTION 5.5. RIGHTS TO COMPEL SALE.
(a) If the First Reserve Stockholders and their respective
affiliates propose to make a transfer of 100% of their Stock in the Company, at
any time when the First Reserve Stockholders and their affiliates own at least
50% of the Fully Diluted Common Stock, to a Person that is neither an affiliate
of the First Reserve Stockholders nor a Person with respect to which the First
Reserve Stockholders or any of their affiliates has a direct or indirect
economic interest, then the First Reserve Stockholders shall have the right,
exercisable as set forth below, to require all of the other Securityholders (the
"Remaining Securityholders") to sell all of the Stock and Vested Stock Rights
then owned by such Remaining Securityholders (the "Transfer Stock") to the
proposed transferee (the "Acquiror") for the same consideration per share of
Stock or Vested Stock Right as is being paid to the First Reserve Stockholders,
which consideration shall consist entirely of cash and/or Marketable Securities
and otherwise on the same terms as are applicable to the First Reserve
Stockholders. The purchase price for each Vested Stock Right in any such
transfer shall equal the "spread" between the exercise price for such Vested
Stock Right and the purchase price per share of Stock. The terms and conditions
other than the consideration to be received by the Remaining Securityholders for
Stock and Vested Stock Rights sold pursuant to this Section 5.5 shall be as set
forth in the applicable Purchase Agreement between the First Reserve
Stockholders and the Acquiror.
(b) (i) the First Reserve Stockholders shall cause the terms of the
transfer to be reduced to writing and shall provide a written notice (the
"Compelled Sale Transfer Notice") of such transfer to the Company and the
Company shall provide such Compelled Sale Transfer Notice to the Remaining
Securityholders. The Compelled Sale Transfer Notice shall contain written
notice of the exercise of the First Reserve Stockholders rights pursuant
to Section 5.5(a) hereof, setting forth the consideration to be paid by
the Acquiror for each type of Stock and Stock Right and the other terms
and conditions of the transfer. Within 20 calendar days following the date
of receipt of the Compelled Sale Transfer Notice, each of the Remaining
Securityholders shall deliver to the First Reserve Stockholders (the
"Notice Designee") certificates representing the Stock and instruments
representing Stock Rights owned by such Remaining Stockholder, duly
endorsed, together with all other documents required to be executed in
connection with such transfer or, if such delivery is not permitted by
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applicable law, an unconditional agreement to deliver such certificates
pursuant to this Section 5.5(b) at the closing for such transfer against
delivery to such Remaining Securityholder of the consideration therefor.
Such certificates shall be held by the First Reserve Stockholders in
escrow for the benefit of the appropriate Remaining Securityholder and, if
requested by the Remaining Securityholder, the First Reserve Stockholders
shall execute such form of escrow agreement as is reasonably satisfactory
to the First Reserve Stockholders and such Remaining Securityholder and
which assures that the relevant Stock and/or Stock Rights are not
considered property of the First Reserve Stockholders. In the event that a
Remaining Securityholder should fail to deliver such certificates as
aforesaid, the Company shall cause the books and records of the Company to
show that such Stock and Stock Rights are bound by the provisions of this
Section 5.5(b) and that such Stock and Stock Rights shall be transferred
only to the Acquiror upon surrender for transfer by the Remaining
Securityholder thereof.
(ii) If, within 150 calendar days (or such longer period
not exceeding 210 calendar days as may be necessary to comply with any
applicable provisions of the Hart-ScottRodino Antitrust Improvements Act
of 1976, as amended, or to obtain other required regulatory approval)
after the First Reserve Stockholders give the Compelled Sale Transfer
Notice, it has not completed the sale of all the Transfer Stock, the First
Reserve Stockholders shall return to each of the Remaining Securityholders
all certificates representing Stock and Stock Rights that such Remaining
Securityholders delivered for sale pursuant hereto, and all the
restrictions on sale or other disposition contained in this Agreement with
respect to such Stock and Stock Rights and the Stock owned by the First
Reserve Stockholders shall again be in effect.
(iii) Upon the consummation of the sale of Stock held by the
First Reserve Stockholders and the Remaining Securityholders pursuant to
this Section 5.5, the First Reserve Stockholders shall give notice thereof
to the Remaining Securityholders, shall (or shall cause the purchaser to)
remit to each of the Remaining Securityholders a net amount with respect
to the Stock and Stock Rights of such Remaining Securityholders sold
pursuant thereto, after deduction of a pro rata portion of any related
out-of-pocket fees and expenses payable to Persons other than the First
Reserve Stockholders or any of its affiliates, and shall
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furnish such other evidence of the completion and time of completion of
such sale or other disposition and the terms thereof as may be reasonably
requested by such Remaining Securityholders, PROVIDED that if the cash or
the fair market value of the Marketable Securities payable to any
Remaining Securityholder exceeds $5,000,000, such Remaining Securityholder
shall be entitled to have such cash and/or Marketable Securities (net of
any fees and expenses that are to be deducted in accordance with this
Section) paid directly to the Remaining Securityholder by the Acquiror at
the closing of the transaction.
ARTICLE VI. REGISTRATION RIGHTS.
SECTION 6.1. DEMAND REGISTRATIONS.
(a) At any time after the first to occur of (1) a Qualified Public
Offering or (2) the first anniversary of the Closing Date, the First Reserve
Stockholders may request in writing that the Company effect the registration
under the Securities Act (other than a shelf registration made pursuant to Rule
415 of the Securities Act) of all or part of their Registrable Securities,
specifying in the request the number and types of Registrable Securities to be
registered by each such holder and the intended method of disposition thereof
(such notice is hereinafter referred to as a "Holder Request"). Upon receipt of
such Holder Request, the Company will promptly give written notice of such
requested registration to all other holders of Registrable Securities, which
other holders shall have the right, subject to the provisions of Section 6.1(h)
hereof, to include the Registrable Securities held by them in such registration
and thereupon the Company will, as expeditiously as possible, use reasonable
best efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has
been so requested to register by the First Reserve
Stockholders; and
(ii) all other Registrable Securities which the Company has been
requested to register by any other holder thereof by written request given
to the Company within 30 calendar days after the giving of such written
notice by the Company,
all to the extent necessary to permit the disposition of the Registrable
Securities so to be registered pursuant to an
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Underwritten Offering or by such other method of disposition as the First
Reserve Stockholders may specify in the Holder Request; PROVIDED, HOWEVER, that
the Company shall not be obligated to file a registration statement pursuant to
any Holder Request under this Section 6.1(a):
(A) Unless the Company shall have received requests for such
registration with respect to at least 10% of the Fully Diluted
Common Stock; or
(B) Other than a registration statement on Form S-3 or a
successor short form registration statement, within a period of 6
months after the effective date of any other registration statement
relating to any registration request under this Section 6.1(a) that
was not effected on Form S-3 (or any successor short form).
(C) Within the six month period immediately following the
effective date of a registration previously effected by the Company
pursuant to this Section 6.1.
(b) Notwithstanding the foregoing provisions of Section 6.1(a), and
except as provided in Section 6.1(h), the Company shall not be obligated to file
more than an aggregate of four (4) registration statements pursuant to this
Section 6.1.
(c) If the Company proposes to effect a registration requested
pursuant to this Section 6.1 by the filing of a registration statement on Form
S-3 (or any successor short-form registration statement), the Company will
comply with any request by the managing underwriter to effect such registration
on another permitted form if such managing underwriter advises the Company that,
in its opinion, the use of another form of registration statement is of material
importance to the success of such proposed offering.
(d) A registration requested pursuant to Section 6.1 (a) will not be
deemed to have been effected unless the applicable registration statement has
become effective; PROVIDED, that, if after it has become effective, the offering
of Registrable Securities pursuant to such registration statement is interfered
with by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court, such registration will be deemed not to have
been effected.
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(e) The Company will pay all Registration Expenses in connection
with each of the registrations of Registrable Securities effected by it pursuant
to this Section 6.1.
(f) Subject to any existing commitments of the Company, the First
Reserve Stockholders shall have the right to select the investment bank (or
investment banks) that shall manage the offering (collectively, the "managing
underwriter") involving a registration under this Section 6.1; provided that
such managing underwriter is reasonably acceptable to the Company.
(g) Whenever a requested registration pursuant to this Section 6.1
involves a firm commitment underwriting (an "Underwritten Offering"), the only
shares that may be included in such Underwritten Offering are (i) Registrable
Securities, and (ii) securities of the Company which are not Registrable
Securities included in such Underwritten Offering upon the written consent of
the First Reserve Stockholders ("Company Securities").
(h) If a registration pursuant to this Section 6.1 involves an
Underwritten Offering and the managing underwriter shall advise the Company
that, in its judgment, the number of shares proposed to be included in such
Underwritten Offering should be limited due to market conditions, then the
Company will promptly so advise each holder of Registrable Securities that has
requested registration, and the Company Securities, if any, shall first be
excluded from such Underwritten Offering to the extent necessary to meet such
limitation; and if further exclusions are necessary to meet such limitation,
Registrable Securities requested to be registered pursuant to Section 6.1(a)(i)
or Section 6.1(a)(ii) shall be excluded pro rata, based on the respective
numbers of shares of Common Stock as to which registration shall have been
requested by such Persons. If the number of Registrable Securities requested to
be registered pursuant to Section 6.1(a)(i), but that are excluded from
registration pursuant to this Section 6.1(h), is equal or greater to 10% of the
total number of Registrable Securities requested to be so registered, then such
registration by the Company shall not count as a registration for the purposes
of Section 6.1(b) only.
(i) Notwithstanding the foregoing, this Section 6.1 shall not apply
at such time as the First Reserve Stockholders own less than 5% of the Fully
Diluted Common Stock.
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SECTION 6.2. PIGGYBACK REGISTRATIONS.
(a) If the Company at any time proposes to register any of its
equity or debt securities under the Securities Act (other than a registration on
Form S-4 or S-8 or any successor or similar forms thereto and other than
pursuant to a registration under Section 6.1), whether or not for sale for its
own account, on a form and in a manner that would permit registration of
Registrable Securities for sale to the public under the Securities Act, it will
give written notice to all the holders of Registrable Securities promptly of its
intention to do so, describing such securities and specifying the form and
manner and the other relevant facts involved in such proposed registration
(including, without limitation, (x) whether or not such registration will be in
connection with an underwritten offering of Registrable Securities and, if so,
the identity of the managing underwriter and whether such offering will be
pursuant to a "best efforts" or "firm commitment" underwriting and (y) the price
(net of any underwriting commissions, discounts and the like) at which the
Registrable Securities are reasonably expected to be sold) if such disclosure is
acceptable to the managing underwriter. Upon the written request of any such
holder delivered to the Company within 30 calendar 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 reasonable best efforts to effect the registration
under the Securities Act of all of the Registrable Securities that the Company
has been so requested to register; PROVIDED, HOWEVER, that:
(i) If, at any time after giving such 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 such securities,
the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities who made a request
as provided herein and thereupon the Company shall be relieved of its
obligation to register any Registerable 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 the
holders of the Registrable Securities to request that such registration be
effected as a registration under Section 6.1; and
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(ii) If such registration involves an Underwritten Offering, all
holders of Registrable Securities requesting some or all of their
Registrable Securities to be included in the Company's registration must
sell that portion of their Registrable Securities to the underwriters
selected by the Company on the same terms and conditions as apply to the
Company.
No registration effected under this Section 6.2 shall relieve the Company of its
obligation to effect registration upon request under Section 6.1.
(b) The Company shall not be obligated to effect any registration of
Registrable Securities under this Section 6.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans.
(c) The Registration Expenses incurred in connection with each
registration of Registrable Securities requested pursuant to this Section 6.2
shall be paid by the Company.
(d) If a registration pursuant to this Section 6.2 involves an
Underwritten Offering and the managing underwriter advises the Company that, in
its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, then the Company will
include in such registration (i) first, the securities the Company proposes to
sell, and (ii) second, the number of shares of Common Stock requested to be
included in such registration that, in the opinion of such managing underwriter,
can be sold, such amount to be allocated pro rata among all such requesting
holders on the basis of the class of securities and the relative number of
shares of Registrable Securities, as the case may be, each such holder has
requested to be included in such registration.
(e) In connection with any Underwritten Offering with respect to
which holders of Registrable Securities shall have requested registration
pursuant to this Section 6.2, the Company shall have the right to select the
managing underwriter with respect to the offering; provided that such managing
underwriter is reasonably acceptable to the First Reserve Stockholders if
Registrable Securities of such First Reserve Stockholders are being registered
in connection therewith.
(f) Notwithstanding the foregoing, until the earlier of (i) the
second anniversary of the date of a Qualified Public
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Offering and (ii) January 1, 2000, Management Investors and their Permitted
Transferees shall not have piggyback registration if none of the First Reserve
Stockholders are participating in the Public Offering to which this Section 6.2
could apply.
SECTION 6.3. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required to use its reasonable
best efforts to effect or cause the registration of any Registrable Securities
under the Securities Act as provided in Section 6.1 or 6.2, the Company will, as
expeditiously as possible:
(i) Prepare and, in any event within 60 calendar days after the
end of the period within which requests for registration may be given to
the Company, file with the SEC a registration statement with respect to
such Registrable Securities and use reasonable best efforts to cause such
registration statement to become and remain effective, PROVIDED that the
Company may discontinue any registration of its securities that is being
effected pursuant to Section 6.2 at any time prior to the effective date
of the registration statement relating thereto.
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period as may be
requested by the First Reserve Stockholders (if Registrable Securities of
such First Reserve Stockholders are being registered) not exceeding nine
months and to comply with the provisions of the Securities Act with
respect to the disposition of all Securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such
registration statement, PROVIDED, that before filing a registration
statement or prospectus relating to the sale of Registrable Securities, or
any amendments or supplements thereto, the Company will furnish to counsel
and to each holder of Registrable Securities covered by such registration
statement or prospectus, copies of all documents proposed to be filed,
which documents will be subject to the review of such counsel, and the
Company will give reasonable consideration in good faith to any comments
of such counsel.
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(iii) Furnish to each holder of Registrable Securities covered by
the registration statement and to each underwriter, if any, of such
Registrable Securities, such number of copies of a prospectus and
preliminary prospectus for delivery in conformity with the requirements of
the Securities Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities.
(iv) Use its reasonable best efforts to register or qualify such
Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to
consummate the disposition of the Registrable Securities owned by such
seller, in such jurisdictions, except that the Company shall not for any
such purpose be required (A) to qualify to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
Section 6.3(a)(iv), it is not then so qualified, or (B) to subject itself
to taxation in any such jurisdiction, or (C) to take any action which
would subject it to general or unlimited service of process in any such
jurisdiction where it is not then so subject.
(v) Use its reasonable best efforts to cause such 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.
(vi) Immediately 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
within the appropriate period mentioned in Section 6.3(a)(ii), if the
Company becomes aware that 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 then existing, and, at the request of any such seller,
deliver a reasonable number of copies of an amended or supplemented
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an
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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 then existing.
(vii) Otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC and make generally available
to its security holders, in each case as soon as practicable, but not
later than 45 calendar days after the close of the period covered thereby
(90 calendar days in case the period covered corresponds to a fiscal year
of the Company), an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act.
(viii) Use its reasonable best efforts in cooperation with the
underwriters to list such Registrable Securities on each securities
exchange as they may reasonably designate.
(ix) In the event the offering is an Underwritten Offering, use
its reasonable best efforts to obtain a "cold comfort" letter from the
independent public accountants for the Company in customary form and
covering such matters of the type customarily covered by such letters and
as the First Reserve Stockholders may reasonably request (if Registrable
Securities of such First Reserve Stockholder are being registered), in
order to effect an underwritten public offering of such Registrable
Securities.
(x) Execute and deliver all instruments and documents (including
in an Underwritten Offering an underwriting agreement in customary form)
and take such other actions and obtain such certificates and opinions as
the First Reserve Stockholders may reasonably request (if Registrable
Securities of such First Reserve Stockholders are being registered) in
order to effect an underwritten public offering of such Registrable
Securities.
(xi) Make available for inspection by the seller of such
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller,
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underwriter, attorney, accountant or agent in connection with such
registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for the Company in customary form and in form and
scope reasonably satisfactory to such underwriter or agent and their
counsel.
(b) Each holder of Registrable Securities will, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 6.3(a)(vi), forthwith discontinue disposition of the Registrable
Securities pursuant to the registration statement and prospectus covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 6.3(a)(vi).
(c) If a registration pursuant to or described in Section 6.1 or 6.2
involves an Underwritten Offering, each holder of Registerable Securities
agrees, whether or not such holder's Registrable Securities are included in such
registration, not to effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act, of any Registrable Securities, or
of any security convertible into or exchangeable or exercisable for any
Registrable Securities (other than as part of such Underwritten Offering),
without the consent of the managing underwriter, during a period commencing
seven calendar days before and ending 180 calendar days (or such lesser number
as the managing underwriter shall designate) after the effective date of such
registration.
(d) If a registration pursuant to or described in Section 6.1 or 6.2
involves an Underwritten Offering, the Company agrees, if so required by the
managing underwriter, not to effect any public sale or distribution of any of
its equity or debt securities, as the case may be, or securities convertible
into or exchangeable or exercisable for any of such equity or debt securities,
as the case may be, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration, except for such
Underwritten Offering or except in connection with a stock option plan, stock
purchase plan, savings or similar plan, or an acquisition, merger or exchange
offer.
(e) If a registration pursuant to or described in Section 6.1 or 6.2
involves an Underwritten Offering, any holder of Registrable Securities
requesting to be included in such
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registration may elect, in writing, prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration, unless such
holder has agreed with the Company or the managing underwriter to limit its
rights under this Section 6.3.
(f) It is understood that in any Underwritten Offering in addition
to any shares of stock (the "initial shares") the underwriters have committed to
purchase, the underwriting agreement may grant the underwriters an option to
purchase up to a number of additional shares of stock (the "option shares")
equal to 15% of the initial shares (or such other maximum amount as the NASD may
then permit), solely to cover overallotments. Shares of stock proposed to be
sold by the Company and the other sellers shall be allocated between initial
shares and option shares as agreed or, in the absence of agreement, pro rata
among the Company and all such Sellers on the basis of the relative number of
shares to be included by each in such registration.
SECTION 6.4. INDEMNIFICATION.
(a) In the event of any registration of any securities of the
Company under the Securities Act pursuant to Section 6.1 or 6.2, the Company
will, and it hereby agrees to, indemnify and hold harmless, to the extent
permitted by law, each seller of any Registrable Securities covered by such
registration statement, each affiliate of such seller and their respective
directors, officers, employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) and, if such seller is a
portfolio or investment fund, its investment advisors or agents, each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, as follows:
(i) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of
an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or prospectus (or any amendment or
supplement thereto) or the omission or alleged omission
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therefrom of a material fact required to be stated therein or necessary in
order to make the statements therein not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
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,
employee, agent, general or limited partner, investment advisor or agent,
underwriter or controlling Person and shall survive the transfer of such
securities by such seller.
Notwithstanding the foregoing, the Company shall not be liable to
any person described in Section 6.4(a) in any such case to the extent that any
such loss, liability, claim, damage or expense whatsoever arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
and in conformity with written information furnished to the Company through an
instrument duly executed by such person specifically stating that it is for use
in the preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such person or the
Company and shall survive the transfer of such securities by such seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 6.1 or 6.2, that the
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Company shall have received an undertaking reasonably satisfactory to it from
the prospective seller of such Registrable Securities or any underwriter, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 6.4(a)) the Company and its directors, officers, employees,
agents and controlling Persons with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary, final or summary prospectus contained therein, or any amendment
or supplement, 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 by or on behalf of such seller or underwriter
specifically stating that it is for use in the preparation of such registration
statement, preliminary, final or summary prospectus or 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,
employee, agent or controlling Person and shall survive the transfer of such
securities by such seller. In that event, the obligations of the Company and
such sellers pursuant to this Section 6.4 are to be several and not joint;
PROVIDED, HOWEVER, that, with respect to each claim pursuant to this Section,
the Company shall be liable for the full amount of such claim, and each such
seller's liability under this Section 6.4 shall be limited to an amount equal to
the net proceeds (after deducting the underwriting discount and expenses)
received by such seller from the sale of Registrable Securities held by such
seller pursuant to this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a claim
referred to in this Section 6.4, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to such indemnifying party of the commencement of such action; PROVIDED,
HOWEVER, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 6.4, except to the extent (not including any such notice of an
underwriter) that the indemnifying party is materially 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 (in which case the indemnifying party shall not be
liable for the fees and expenses of, with respect to the First Reserve
Stockholders, more than one firm of counsel selected by the First Reserve
44
<PAGE>
Stockholders, or with respect to the underwriters, more than one firm of counsel
for the underwriters in connection with any one action or separate but similar
or related actions), the indemnifying party will 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 will not be liable to such indemnified party for
any legal or other expenses subsequently incurred by such indemnifying party in
connection with the defense thereof provided that the indemnifying party will
not agree to any settlement without the prior consent of the indemnified party
(which consent shall not be unreasonably withheld) unless such settlement
requires no more than a monetary payment for which the indemnifying party agrees
to indemnify the indemnified party and includes a full, unconditional and
complete release of the indemnified party, provided, however, that the
indemnified party shall be entitled to take control of the defense of any claim
as to which, in the reasonable judgment of the indemnifying party's counsel,
representation of both the indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional conduct due to
actual or potential differing interests between them. In the event that the
indemnifying party does not assume the defense of a claim pursuant to this
Section 6.4(c), the indemnified party will have the right to defend such claim
by all appropriate proceedings, and will have control of such defense and
proceedings, and the indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying party. Each indemnified
party shall, and shall cause its legal counsel to, provide reasonable
cooperation to the indemnifying party and its legal counsel in connection with
its assuming the defense of any claim, including the furnishing of the
indemnifying party with all papers served in such proceeding. In the event that
an indemnifying party assumes the defense of an action under this Section
6.4(c), then such indemnifying party shall, subject to the provisions of this
Section 6.4, indemnify and hold harmless the indemnified party from any and all
losses, claims, damages or liabilities by reason of such settlement or judgment.
(d) The Company and each seller of Registerable Securities shall
provide for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any registration or other qualification
of securities under any federal or state law or regulation of any governmental
authority.
45
<PAGE>
SECTION 6.5. CONTRIBUTION. In order to provide for just and
equitable contribution in circumstances under which the indemnity contemplated
by Section 6.4 is for any reason not available or insufficient for any reason to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, the parties required to indemnify by the terms
thereof shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
the Company, any seller of Registrable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11(f) of the Securities Act. In determining the amounts which the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of the Registrable Securities
by taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. The Company and each Person selling securities agree with
each other that no seller of Registrable Securities shall be required to
contribute any amount in excess of the amount such seller would have been
required to pay to an indemnified party if the indemnity under Section 6.4(b)
were available. The Company and each such seller agree with each other and the
underwriters of the Registrable Securities, if requested by such underwriters,
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the underwriters were
treated as one entity for such purpose) or for the underwriters' portion of such
contribution to exceed the percentage that the underwriting discount bears to
the initial public offering price of the Registrable Securities. For purposes of
this Section 6.5, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the Securities Act shall have the same rights to
contribution as such underwriter, and each director and each officer of the
Company who signed the registration statement, and each Person, if any, who
controls the Company or a seller of Registrable Securities within the meaning of
Section 15 of the Securities Act shall have the same rights to contribution as
the Company or a seller of Registrable Securities, as the case may be.
SECTION 6.6. RULE 144. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to
46
<PAGE>
the requirements of the Securities Act, the Company covenants that it 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 SEC thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
holder of Registrable Securities, make publicly available other information),
and it 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 shares of Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the SEC. 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,
ARTICLE VII. TERMINATION.
SECTION 7.1. CERTAIN TERMINATIONS.
(a) Except to the extent specifically provided elsewhere in this
Agreement, the provisions of Articles II, III, IV and V shall terminate on the
date on which there occurs a Qualified Public Offering.
(b) Notwithstanding the foregoing, and except as specifically
provided elsewhere in this Agreement, this Agreement shall in any event
terminate with respect to any Securityholder when such Securityholder no longer
owns any shares of Common Stock or Stock Rights.
ARTICLE VIII. MISCELLANEOUS.
SECTION 8.1. SUCCESSORS AND ASSIGNS. Except as provided in Section
4.2 and as otherwise provided herein, all of the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective successors and assigns of the parties hereto. No
Securityholder may assign any of its rights hereunder to any Person other than a
transferee that has complied with the requirements of Sections 4.1 and 4.2 as
provided therein in all respects. The Company may not assign any of its rights
hereunder to any Person other than an affiliate of the Company. If any
transferee of any Securityholder shall acquire any shares of
47
<PAGE>
Stock or Stock Rights, in any manner, whether by operation of law or otherwise,
such Stock or Stock Rights shall be held subject to all of the terms of this
Agreement, and by taking and holding such Securities such Person shall be
entitled to receive the benefits of and be conclusively deemed to have agreed to
be bound by and to comply with all of the terms and provisions of this
Agreement, provided, however, that any transferee from a Management Investor
shall have only those rights, benefits and obligations of a Management Investor
hereunder.
SECTION 8.2. AMENDMENT AND MODIFICATION; WAIVER OF COMPLIANCE.
(a) This Agreement may be amended only by a written instrument duly
executed by the First Reserve Stockholders. No amendment to this Agreement which
adversely affects the rights of the Management Investors hereunder may be
effected without the prior written consent of Management Investors holding a
majority of the shares of Stock or Stock Rights at the time held by the
Management Investors, calculated on the basis of Fully Diluted Common Stock. In
the event of the amendment or modification of this Agreement in accordance with
its terms, the Securityholders shall cause the Board of Directors of the Company
to meet within 30 calendar days following such amendment or modification or as
soon thereafter as is practicable for the purpose of adopting any amendment to
the Certificate of Incorporation and By-Laws of the Company that may be required
as a result of such amendment or modification to this Agreement, and, if
required, proposing such amendments to the Securityholders entitled to vote
thereon, and the Securityholders agree to vote in favor of such amendments.
(b) Except as otherwise provided in this Agreement, any failure of
any of the parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the party entitled to the benefits thereof
only by a written instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail, except as otherwise provided herein.
SECTION 8.3. NOTICES. Any notice, request, claim, demand, document
or other communication hereunder to any party
48
<PAGE>
shall be effective upon receipt (or refusal of receipt) and shall be in writing
and delivered personally or sent by telex or telecopy (with such telex or
telecopy confirmed promptly in writing sent by first class mail), or first class
mail, or other similar means of communication, as follows:
(i) If to the Company, addressed to its principal
executive offices to the attention of its Secretary;
(ii) If to a Securityholder other than the First
Reserve Stockholders to the address of such Securityholder
set forth in the stock records of the Company; and
(iii) If to the First Reserve Stockholders or to
First Reserve, to:
First Reserve Corporation
475 Steamboat Road
Greenwich, CT 06830
Attn: William E. Macaulay
Telecopy: (203) 661-6729
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attn: Richard Capelouto
Telecopy: (212) 455-2502
or, in each case, to such other address or telex or telecopy number as such
party may most recently designate, in writing to the Company and each
Securityholder in the manner specified above.
All such communications shall be deemed to have been given or made when so
delivered by hand or sent by telex (answer back received) or telecopy, or if
mailed, five business days after being so mailed.
SECTION 8.4. ENTIRE AGREEMENT; GOVERNING LAW.
(a) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
among the parties hereto with respect to the subject transactions contemplated
hereby and supersede all prior oral and written agreements and memoranda and
undertakings among the parties hereto with regard to this subject
49
<PAGE>
matter. The Company represents to the Securityholders that the rights granted to
the holders hereunder do not in any way conflict with and are not inconsistent
with the rights granted or obligations accepted under any other agreement
(including the Certificate of Incorporation) to which the Company is a party.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN DELAWARE).
SECTION 8.5. INJUNCTIVE RELIEF. The Securityholders acknowledge and
agree that a violation of any of the terms of this Agreement will cause the
Securityholders irreparable injury for which adequate remedy at law is not
available. Therefore, the Securityholders agree that each Securityholder shall
be entitled to an injunction, restraining order or other equitable relief from
any court of competent jurisdiction, restraining any Securityholder from
committing any violations of the provisions of this Agreement.
SECTION 8.6. INSPECTION. For so long as this Agreement shall be in
effect, this Agreement shall be made available for inspection by any
Securityholder at the principal executive offices of the Company.
SECTION 8.7. HEADINGS. The section and paragraph headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 8.8. RECAPITALIZATIONS, EXCHANGES, ETC., AFFECTING THE
SECURITIES. The provisions of this Agreement shall apply to the full extent set
forth herein with respect to the Stock and the Stock Rights, and to any and all
equity or debt securities of the Company or any successors or assigns of the
Company (whether by merger, consolidation, sale of assets, or otherwise) which
may be issued in respect of, in exchange for, or in substitution of, such Stock
and Stock Rights or equity or debt securities and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
SECTION 8.9. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be
50
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deemed an original, but all of which together shall constitute one and the same
instrument.
SECTION 8.10. ADDITIONAL MANAGEMENT INVESTORS. If the Company shall
at any time issue, grant, sell or otherwise transfer any options, shares of
Common Stock or other equity securities of the Company to any employee of the
Company or its Affiliates then, prior to such issuance such employee and his/her
spouse (if applicable) will become a "Management Investor" party to this
Agreement pursuant to a written instrument in form and substance reasonably
satisfactory to the First Reserve Investors and the Company. Upon execution and
delivery of such written instrument, such employee shall become a "Management
Investor" party to this Agreement and have all of the rights and obligations of
a Management Investor hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed as of the date first above written.
DOMAIN ENERGY CORPORATION
By:
Name: Michael V. Ronca
Title: President and Chief
Executive Officer
FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP
By: First Reserve Corporation,
as Managing General Partner
By:
Name: Jonathan S. Linker
Title: Managing Director
51
<PAGE>
MANAGEMENT INVESTOR SPOUSE
By: By:
Name: Michael V. Ronca Name:
52
EXHIBIT 10.1
Execution Copy
STOCK PURCHASE AGREEMENT
Dated as of December 24, 1996
by and between
EL PASO NATURAL GAS COMPANY,
as the Seller
and
TELEO VENTURES, INC.
as the Buyer
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I....................................................................2
TERMS OF PURCHASE AND SALE...................................................2
1.01. Sale of the Stock....................................................2
1.02. The Closing..........................................................2
1.03. Purchase Price and Payment...........................................2
1.04. Statement; Adjusted Purchase Price...................................2
1.05. TGP Consents.........................................................5
1.06. NPI Conversion.......................................................5
1.07. TGP Stock Closing Adjustments........................................6
1.08. Escrow Closing.......................................................6
ARTICLE II...................................................................6
REPRESENTATIONS AND WARRANTIES OF THE SELLER.................................6
2.01. Capitalization.......................................................6
2.02. Litigation...........................................................7
2.03. Corporate Power and Authority; Effect of Agreement...................7
2.04. Consents.............................................................7
2.05. Intercompany Agreements..............................................8
2.06. Disclaimer...........................................................8
ARTICLE III..................................................................9
REPRESENTATIONS AND WARRANTIES OF THE BUYER..................................9
3.01. Organization.........................................................9
3.02. Corporate Power and Authority; Effect of Agreement...................9
3.03. Consents.............................................................9
3.04. Availability of Funds................................................9
3.05. Litigation..........................................................10
3.06. Purchase for Investment.............................................10
ARTICLE IV..................................................................10
COVENANTS OF THE SELLER.....................................................10
4.01. Cooperation by the Seller...........................................10
4.02. Conduct of Business.................................................10
4.03. Access..............................................................11
4.04. Further Assurances..................................................12
4.05. Contribution of Property............................................13
4.06. Delivery of Proprietary Information.................................13
4.07. Exclusivity.........................................................13
4.08. Access to Books and Records of the Seller...........................13
ARTICLE V...................................................................14
COVENANTS OF THE BUYER......................................................14
5.01. Cooperation by the Buyer............................................14
5.02. Books and Records; Personnel........................................14
5.03. Performance Bonds, Etc..............................................15
5.04. Further Assurances..................................................16
5.05. Corporate Name......................................................16
5.06. Consents............................................................16
5.07. TGP Consents; NPI Conversion........................................17
ARTICLE VI..................................................................17
TAX MATTERS.................................................................17
6.01. Tax Indemnification by the Seller...................................17
6.02. Apportionment of Taxes..............................................17
6.03. Filing Responsibility...............................................18
6.04. Refunds and Carrybacks..............................................19
6.05. Cooperation.........................................................19
6.06. Tax Sharing.........................................................19
6.07. Audits..............................................................20
6.08. Certain Other Definitions...........................................20
6.09. Certain Taxes.......................................................21
6.10. Section 338(h)(10)..................................................21
6.11. Tax Indemnification in Connection with NPI Conversion...............22
6.12. Tax Treatment of Indemnity Payments.................................23
6.13. Tax Elections.......................................................23
6.14. Employee Matters....................................................23
ARTICLE VII.................................................................23
CONDITIONS TO THE BUYER'S OBLIGATIONS.......................................23
7.01. Representations, Warranties and Covenants of the Seller.............23
7.02. No Prohibition......................................................24
7.03. Governmental Consents...............................................24
7.04. Financing...........................................................24
7.05. Transitional Services Agreement.....................................24
7.06. Buyer's Frustration of Closing Conditions...........................24
ARTICLE VIII................................................................24
CONDITIONS TO THE SELLER'S OBLIGATIONS......................................24
8.01. Representations, Warranties and Covenants of the Buyer..............24
8.02. No Prohibition......................................................25
8.03. Performance Bonds...................................................25
8.04. Governmental Consents...............................................25
8.05. Seller's Frustration of Closing Conditions..........................25
ARTICLE IX..................................................................25
EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS...............................25
9.01. Definitions.........................................................25
9.02. Indemnity...........................................................26
9.03. Benefit Plans.......................................................27
9.04. Severance and Retention Bonuses.....................................27
9.05. Transfer of Employees...............................................27
ARTICLE X...................................................................27
TERMINATION PRIOR TO CLOSING................................................27
10.01. Termination.....................................................27
10.02. Effect on Obligations...........................................27
ARTICLE XI..................................................................28
MISCELLANEOUS...............................................................28
11.01. Survival........................................................28
11.02. Interpretive Provisions.........................................28
11.03. Entire Agreement................................................28
11.04. Successors and Assigns..........................................28
11.05. Headings........................................................29
11.06. Modification and Waiver.........................................29
11.07. Indemnification by the Seller with Respect to Other Matters.....29
11.08. Broker's Fees...................................................29
11.09. Expenses........................................................29
11.10. Notices.........................................................30
11.11. Governing Law...................................................31
11.12. Severability....................................................31
11.13. Public Announcements............................................31
11.14. Counterparts....................................................32
EXHIBITS
Exhibit A - Transitional Services Agreement
<PAGE>
Execution Copy
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, made and entered into this 24th day
of December, 1996 (this "Agreement"), by and between EL PASO NATURAL GAS
COMPANY, a Delaware corporation (the "Seller") and TELEO VENTURES, INC., a
Delaware corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, Tennessee Gas Pipeline Company ("TGPL"), an indirect wholly
owned subsidiary of El Paso Tennessee Pipeline Co. ("Tenneco"), is the owner of
100% of the issued and outstanding capital stock (the "Stock") of each of
Tenneco Ventures Corporation, a Delaware corporation ("Ventures") and Tenneco
Gas Production Corporation, a Delaware corporation ("TGP"; each of Ventures and
TGP a "Company" and, collectively, the "Companies");
WHEREAS, pursuant to that certain Amended and Restated Agreement and
Plan of Merger, dated as of June 19, 1996 (the "Merger Agreement"), among
Tenneco, the Seller, and El Paso Merger Company, the parties thereto agreed to
the terms and conditions upon which El Paso Merger Company would merge with and
into Tenneco (the "Merger");
WHEREAS, upon the consummation of the Merger, the Seller indirectly
owns 100% of the common stock of the Companies;
WHEREAS, the Merger was consummated on December 12, 1996;
WHEREAS, the Seller desires to cause TGPL to sell to the Buyer, and
the Buyer desires to buy from TGPL, all of the Stock;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions, hereinafter set forth, the parties do hereby agree as follows:
<PAGE>
ARTICLE I
TERMS OF PURCHASE AND SALE
1.01. SALE OF THE STOCK. (a) On the Closing Date (as defined in
Section 1.02), the Seller shall cause TGPL to sell to the Buyer, and the Buyer
shall purchase from TGPL, the Stock.
(b) At the Closing (as defined in Section 1.02), the Seller shall
cause TGPL to deliver to the Buyer certificates representing the Stock, duly
endorsed in blank for transfer or accompanied by duly executed stock powers
assigning the Stock in blank.
1.02. THE CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the New York offices of Fried, Frank,
Harris, Shriver & Jacobson, commencing at 9:00 a.m. on the second business day
following the satisfaction or waiver of the conditions to Closing specified in
Articles VII and VIII hereof, or at such other time and/or place and/or on such
other date as the parties may mutually agree (the "Closing Date").
1.03. PURCHASE PRICE AND PAYMENT. (a) The aggregate purchase price
to be paid by the Buyer for the Stock shall be $105,200,000 less any reductions
thereto required by Section 1.05 or Section 9.04 (the "Purchase Price"), subject
to adjustment as set forth in Section 1.04(d).
(b) At the Closing, the Buyer shall deliver to TGPL, by wire
transfer of immediately available funds to a bank account designated in writing
by the Seller, an amount equal to (i) the Purchase Price, minus, (ii) an
estimate of the adjustment to the Purchase Price pursuant to Section 1.04 (d)
which the parties hereby agree would be $8,700,000 (the Purchase Price plus or
minus such estimate being hereinafter called the "Closing Date Amount").
1.04. STATEMENT; ADJUSTED PURCHASE PRICE. (a) The Seller shall
prepare and deliver to the Buyer, within 30 days following the Closing Date, a
statement (the "Statement") setting forth the Shareholder Advance Balance (as
defined in Section 1.04(b)) as of the close of business on the Closing Date (the
"Closing Shareholder Advance Balance"). There shall be attached to the Statement
an annex setting forth in reasonable detail the computation of the Closing
Shareholder Advance Balance and the Adjusted Purchase Price (as defined in
Section 1.04(d)).
(b) As used herein, the term "Shareholder Advance Balance" means
the excess or deficiency, as the case may be, of (i) all advances made by
Tenneco and its affiliates (other than the Companies), including, after the
Merger, by the Seller and
2
<PAGE>
its affiliates, from, but not including, June 30, 1996, to the Companies, over
(ii) all payments made by the Companies after June 30, 1996 relating to advances
made by Tenneco and its affiliates (other than the Companies), including, after
the Merger, the Seller and its affiliates; provided, however, that advances by
Tenneco and its affiliates (other than the Companies), including, after the
Merger, by the Seller and its affiliates, from, but not including, June 30,
1996, to the Companies shall be excluded to the extent such advances represent
(x) non-cash charges for general and administrative, corporate overhead and
similar services and/or payment of expenses incurred by the Companies in
connection with the transactions contemplated hereby or other efforts to sell
the Stock, except such expenses incurred by the Companies to assist the Buyer in
connection herewith or (y) amounts or actual charges related to, and/or
provisions for, federal or state income taxes. The Shareholder Advance Balance
set forth in the Statement shall be determined using the same accounting
methods, policies, practices and procedures, with consistent classification,
judgments and estimation methodology as used in determining such amounts for the
purpose of the unaudited consolidated balance sheet of Ventures and its
subsidiaries as of June 30, 1996 and the unaudited consolidated balance sheet of
TGP and its subsidiaries as of June 30, 1996 (collectively, the "Balance
Sheets"), and shall not take into account any changes in circumstances or events
occurring after the close of business on the Closing Date.
(c) The Statement delivered by the Seller to the Buyer and the
computation of the Closing Shareholder Advance Balance and the Adjusted Purchase
Price annexed thereto shall be conclusive and binding upon the parties unless
the Buyer, within 15 days after receipt by the Buyer of the Statement, notifies
the Seller in writing that the Buyer disputes any of the amounts set forth
therein, specifying the nature of the dispute and the basis therefor. The
parties shall in good faith attempt to resolve any dispute, in which event the
Statement and the computation of the Closing Shareholder Advance Balance and the
Adjusted Purchase Price, as amended to the extent necessary to reflect the
resolution of the dispute, shall be conclusive and binding upon the parties. If
the parties do not reach agreement resolving the dispute within 10 days after
notice is given by the Buyer to the Seller pursuant to the second preceding
sentence, the parties shall submit the dispute to a nationally recognized
independent accounting firm mutually agreeable to the parties, which firm shall
not have had a material relationship with either the Buyer or the Seller or
their respective affiliates within the two years preceding the appointment (the
"Arbiter"), for resolution. If the parties cannot agree on the selection of the
independent accounting firm to act as Arbiter, the parties shall request the
American Arbitration Association to appoint such a firm, and such appointment
shall be conclusive and binding upon the parties. Promptly, but no later than 20
days after its acceptance of its appointment as Arbiter, the Arbiter shall
determine, based solely on presentations by the Buyer and the Seller, and not by
independent review, only those issues in dispute and shall render a report as to
the dispute and the resulting computation of the Statement, the
3
<PAGE>
Closing Shareholder Advance Balance and the Adjusted Purchase Price, which shall
be conclusive and binding upon the parties. In resolving any disputed item, the
Arbiter shall be bound by the provisions of this Agreement governing the
calculation of such amounts. The fees, costs and expenses of the Arbiter (i)
shall be borne by the Buyer in the proportion that the aggregate dollar amount
of such disputed items so submitted that are unsuccessfully disputed by the
Buyer (as finally determined by the Arbiter) bears to the aggregate dollar
amount of such items so submitted and (ii) shall be borne by the Seller in the
proportion that the aggregate dollar amount of such disputed items so submitted
that are successfully disputed by the Buyer (as finally determined by the
Arbiter) bears to the aggregate dollar amount of such items so submitted.
Whether any dispute is resolved by agreement among the parties or by the
Arbiter, changes to the Statement shall be made hereunder only for items as to
which the Buyer has taken exception as provided herein. The Buyer and the Seller
each shall make available to the other (upon the request of the other ) their
respective work papers generated in connection with the preparation or review of
the Statement.
(d) The Purchase Price shall be increased by the amount of the
Shareholder Advance Balance, if such balance is a positive number, or the
Purchase Price shall be decreased by the amount of the Shareholder Advance
Balance, if such balance is a negative number (the Purchase Price as so
increased or decreased shall be referred to herein as the "Adjusted Purchase
Price"). If the Closing Date Amount is less than the Adjusted Purchase Price,
the Buyer shall pay to TGPL the amount by which the Adjusted Purchase Price
exceeds the Closing Date Amount and, if the Closing Date Amount is more than the
Adjusted Purchase Price, the Seller shall cause TGPL to pay to the Buyer the
amount by which the Closing Date Amount exceeds the Adjusted Purchase Price (the
amount due pursuant to this sentence shall be referred to herein as the
"Purchase Price Adjustment Payment"). Notwithstanding the foregoing, the Closing
Date Amount shall only be adjusted pursuant to this Paragraph (d) to the extent
any such adjustment to the Closing Date Amount would result in an adjustment to
the Closing Date Amount of $500,000 or more.
(e) The amount of any Purchase Price Adjustment Payment shall
bear interest at an annual rate equal to the reference rate from time to time of
The Chase Bank plus 1% (the "Rate") from and including the Closing Date to, but
not including, the date of payment. Any amount payable as a Purchase Price
Adjustment Payment (plus interest determined pursuant to the immediately
preceding sentence) shall be paid by wire transfer of immediately available
funds to an account designated in writing by the Buyer or the Seller, as the
case may be. Such payment shall be made on the third business day following (i)
the last day on which the Buyer may, pursuant to the first sentence of Section
1.04(c), notify the Seller that it disputes any of the amounts set forth in the
Statement, if there shall have been no dispute between the parties with respect
thereto, or such earlier date as the Buyer shall advise the Seller of the
absence of any dispute, (ii) the
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date mutual agreement is reached as to the amount of the Adjusted Purchase
Price, if any, in the event of a dispute that is settled by the parties without
resort to the Arbiter or (iii) the receipt of the report of the Arbiter in the
event of a dispute which is settled by the Arbiter, as applicable.
1.05. TGP CONSENTS. If the unconditional consents of each of the
General Electric Pension Trust, the GTE Service Corporation Plan for Employees'
Pensions and the Delta Master Trust (collectively, the "TGP Investors") to sell
the issued and outstanding common stock of TGP (the "TGP Stock") pursuant hereto
(the "TGP Consents") are not obtained prior to the Closing Date, the TGP Stock
will not be sold on such date and an amount of $12,700,000 (such sum, the "TGP
Allocated Value") will be withheld from the Closing Date Amount. In such event,
the Seller may notify the Buyer that the Seller desires to continue seeking to
obtain such consents, and the Buyer will use all reasonable efforts to cooperate
with the Seller in connection therewith for a period not to exceed six months
from the Closing Date (the "Interim Period"). If the Seller determines not to
continue to seek such consents, the Seller may terminate this Agreement with
regard to the TGP Stock, and, if so terminated, neither party will have any
further liability or obligation to the other with respect thereto except, to the
extent applicable, pursuant to Section 4.03 and Section 11.09 hereof. During the
Interim Period, the provisions of Articles IV and V hereof will continue to
apply with respect to TGP and its subsidiaries. If at the termination of the
Interim Period, or any date prior thereto, the TGP Consents have been obtained
(the "TGP Closing Date"), on such date the Seller will cause TGPL to sell to the
Buyer, and the Buyer will purchase from TGPL, the TGP Stock, for the TGP
Allocated Value. If at the termination of the Interim Period the TGP Consents
have not been obtained, either the Seller or the Buyer may terminate this
Agreement with regard to the TGP Stock, and, if so terminated, neither party
will have any further liability or obligation to the other with respect thereto
except, to the extent applicable, pursuant to Section 4.03 and Section 11.09
hereof.
1.06. NPI CONVERSION. If the NPI Conversion for any of the TGP
Investors (as defined in Section 6.11(b)) has not occurred prior to the Closing
Date, at the sole option of the Seller, the TGP Stock will not be sold on such
date and an amount equal to the TGP Allocated Value will be withheld from the
Closing Date Amount. In such event, the Seller may notify the Buyer that the
Seller desires to continue to seek the occurrence of all of the NPI Conversions,
and the Buyer will use all reasonable efforts to cooperate with the Seller in
connection therewith for the Interim Period. If the Seller determines not to
continue to seek the occurrence of all of the NPI Conversions, the Seller may
terminate this Agreement with regard to the TGP Stock, and, if so terminated,
neither party will have any further liability or obligation to the other with
respect thereto except, to the extent applicable, pursuant to Section 4.03 and
Section 11.09 hereof. During the Interim Period, the provisions of Articles IV
and V hereof will continue to apply with respect to TGP and its subsidiaries. If
at the termination of the Interim Period,
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or any date prior thereto, all of the NPI Conversions shall have occurred, on
such date the Seller will cause TGPL to sell to the Buyer, and the Buyer will
purchase from TGPL, the TGP Stock, for the TGP Allocated Value. If at the
termination of the Interim Period all of the NPI Conversions shall not have
occurred, either the Seller or the Buyer may terminate this Agreement with
regard to the TGP Stock, and, if so terminated, neither party will have any
further liability or obligation to the other with respect thereto except, to the
extent applicable, pursuant to Section 4.03 and Section 11.09 hereof.
1.07. TGP STOCK CLOSING ADJUSTMENTS. Notwithstanding anything to the
contrary in this Agreement, if the closing of the acquisition of the TGP Stock
does not occur at the Closing, appropriate adjustments will be made to the
Closing Date Amount, the Statement, the Closing Shareholder Advance Balance, the
Shareholder Advance Balance, the Shareholder Advance Amount and the Adjusted
Purchase Price to reflect the fact that the Buyer is not acquiring the TGP
Stock. At the subsequent closing relating to the acquisition of the TGP Stock
(if any), provisions comparable to the provisions of Sections 1.03 and 1.04 will
be implemented with respect to the acquisition and payment for the TGP Stock.
1.08. ESCROW CLOSING. Notwithstanding the provisions of Sections
1.05 and 1.06, in the event the TGP Consents are not obtained, or if the NPI
Conversion does not occur, in each case, on or prior to the Closing, the parties
hereto agree to close the acquisition of the TGP Stock in escrow at the Closing
pursuant to an Escrow Agreement, in form, scope and substance reasonably
satisfactory to the Buyer and the Seller.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer, as of the date
hereof, as follows:
2.01. CAPITALIZATION. The authorized capital stock of (i) Ventures
consists of 200 shares of common stock, par value $5.00 per share, of which 200
shares are issued and outstanding and (ii) TGP consists of 200 shares of common
stock, par value $5.00 per share of which 200 shares are issued and outstanding;
all of such issued and outstanding shares of the Companies are owned of record
and beneficially by TGPL. All of the shares comprising the Stock are validly
issued, fully paid and non-assessable. There are outstanding no securities
convertible into, exchangeable for, or carrying the right to acquire, equity
securities of the Companies, or subscriptions, warrants, options, rights or
other arrangements or commitments obligating the Companies to issue or dispose
of any of their respective equity securities and/or partnership interests or any
ownership interest
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therein. The sale and delivery of the Stock to the Buyer pursuant to Article I
hereof will vest in the Buyer legal and valid title to the Stock, free and clear
of all liens, security interests or other encumbrances ("Encumbrances") (other
than Encumbrances created by the Buyer).
2.02. LITIGATION. There is no action or proceeding in any court or
before any governmental authority ("Litigation") pending or, to the Seller's
knowledge, threatened against the Seller or Tenneco, or any of their respective
affiliates, any Company or any of the subsidiaries of any of the Companies,
(collectively, the "Subsidiaries") with respect to which there is a reasonable
likelihood of a determination which would have a material adverse affect on the
ability of the Seller to perform its obligations under this Agreement. Neither
the Seller, nor Tenneco, nor any of their respective affiliates, is subject to
any outstanding orders, rulings, judgments or decrees which would have a
material adverse effect on the ability of the Seller to perform its obligations
under this Agreement.
2.03. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT. Each of
the Seller, TGPL, and each Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and has all requisite corporate power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by the Seller of this Agreement and the
consummation by the Seller of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Seller.
This Agreement has been duly and validly executed and delivered by the Seller
and constitutes the valid and binding obligation of the Seller, enforceable
against the Seller, in accordance with its terms, except to the extent that such
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally and
(ii) is subject to general principles of equity. The execution, delivery and
performance by the Seller of this Agreement and the consummation by the Seller
of the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, (x) violate any provision of law, rule or
regulation to which the Seller, TGPL, any Company or any of the Subsidiaries is
subject, (y) violate any order, judgment or decree applicable to the Seller,
TGPL, any Company or any of the Subsidiaries or (z) violate any provision of the
Certificate of Incorporation or the By-laws or other constituent documents of
the Seller, TGPL, any Company or any of the Subsidiaries; except, in each case,
for violations which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby.
2.04. CONSENTS. No consent, approval or authorization of, or
exemption by, or filing with, any governmental authority is required to be
obtained or made by the Seller in connection with the execution, delivery and
performance by the Seller of this
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Agreement or the taking by the Seller of any other action contemplated hereby,
except where the failure to obtain such consent, approval, authorization or
exemption or the failure to so file, as applicable, does not have a material
adverse effect on the business or financial condition of the Companies and the
Subsidiaries taken as a whole (a "Material Adverse Effect").
2.05. INTERCOMPANY AGREEMENTS. At the Closing, except as set forth
in Schedule 2.05, to the extent the agreements specified in Schedule 2.05 are
based on market terms, and except with respect to the Transitional Services
Agreement (as defined in Section 7.05), all intercompany agreements between the
Seller and its affiliates, other than the Companies, on the one hand, and the
Companies, on the other hand, shall be canceled and be of no force and effect.
2.06. DISCLAIMER. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER
PROVISION OF THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT
THE SELLER IS MAKING NO REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR
IMPLIED, BEYOND THOSE EXPRESSLY GIVEN IN THIS AGREEMENT, AND IT IS UNDERSTOOD
THAT, EXCEPT FOR THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY GIVEN IN THIS
AGREEMENT, THE BUYER TAKES THE STOCK AND THE BUSINESS AND ASSETS OF THE
COMPANIES AND/OR THE SUBSIDIARIES AS IS AND WHERE IS. WITHOUT LIMITING THE
GENERALITY OF THE IMMEDIATELY FOREGOING, EXCEPT FOR THOSE REPRESENTATIONS AND
WARRANTIES EXPRESSLY GIVEN IN THIS AGREEMENT, THE SELLER HEREBY (A) EXPRESSLY
DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AT
COMMON LAW, BY STATUTE OR OTHERWISE, RELATING TO (i) THE CONDITION OF THE ASSETS
OF THE COMPANIES AND/OR THE SUBSIDIARIES (INCLUDING WITHOUT LIMITATION ANY
IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE), OR (ii) ANY INFRINGEMENT BY ANY COMPANY OR ANY SUBSIDIARY OR ANY OF
THEIR RESPECTIVE AFFILIATES OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD
PARTY; AND (B) NEGATE ANY RIGHTS OF THE BUYER UNDER STATUTES TO CLAIM DIMINUTION
OF CONSIDERATION AND ANY CLAIMS BY THE BUYER FOR DAMAGES BECAUSE OF REDHIBITORY
VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF THE SELLER
AND THE BUYER THAT THE BUSINESS AND ASSETS OF THE COMPANIES AND/OR THE
SUBSIDIARIES ARE TO BE ACCEPTED BY THE BUYER IN THEIR PRESENT CONDITION AND
STATE OF REPAIR.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as of the
date hereof as follows:
3.01. ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and has all requisite corporate power and authority to carry on
its business as it is now being conducted, and to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby.
3.02. CORPORATE POWER AND AUTHORITY; EFFECT OF AGREEMENT. The
execution, delivery and performance by the Buyer of this Agreement and the
consummation by the Buyer of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement has been duly and validly executed and delivered by the Buyer and
constitutes the valid and binding obligation of the Buyer, enforceable against
the Buyer in accordance with its terms, except to the extent that such
enforceability (i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally, and
(ii) is subject to general principles of equity. The execution, delivery and
performance by the Buyer of this Agreement and the consummation by the Buyer of
the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, (i) violate any provision of law, rule or
regulation to which the Buyer is subject, (ii) violate any order, judgment or
decree applicable to the Buyer or (iii) violate any provision of the Certificate
of Incorporation or the By-laws of the Buyer; except, in each case, for
violations which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby.
3.03. CONSENTS. Except with respect to compliance with, and filings
under, the HSR Act, no consent, approval or authorization of, or exemption by,
or filing with, any governmental authority is required to be obtained or made by
the Buyer in connection with the execution, delivery and performance by the
Buyer of this Agreement, or the taking by the Buyer of any other action
contemplated hereby.
3.04. AVAILABILITY OF FUNDS. The Buyer has delivered to the Seller
true and complete copies of letters (the "Commitment Letters") addressed to the
Seller and the Buyer from (i) First Reserve Corporation ("FRC"), relating to a
commitment of certain investment funds managed by FRC (the "FRC Funds") to
provide equity financing to consummate the transactions contemplated hereby and
(ii) Chase Manhattan Bank ("Lender"), relating to a commitment to provide debt
financing to consummate the
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transactions contemplated hereby (the FRC Funds and Lender, collectively, the
"Financing Sources"). The Buyer has accepted the Commitment Letters and the
Commitment Letters are in full force and effect.
3.05. LITIGATION. There is no Litigation pending or, to the Buyer's
knowledge, threatened against the Buyer or any of its affiliates with respect to
which there is a reasonable likelihood of a determination which would have a
material adverse effect on the ability of the Buyer to perform its obligations
under this Agreement. Neither the Buyer nor any of its affiliates is subject to
any outstanding orders, rulings, judgments or decrees which would have a
material adverse effect on the ability of the Buyer to perform its obligations
under this Agreement.
3.06. PURCHASE FOR INVESTMENT. The Buyer is purchasing the Stock for
investment and not with a view to any public resale or other distribution
thereof, except in compliance with applicable securities laws. The Buyer
acknowledges that it has received, or has had access to, all information which
it considers necessary or advisable to enable it to make a decision concerning
its purchase of the Stock.
ARTICLE IV
COVENANTS OF THE SELLER
The Seller hereby covenants and agrees with the Buyer as follows:
4.01. COOPERATION BY THE SELLER. From the date hereof and prior to
the Closing, the Seller will use its reasonable efforts, and will cooperate with
the Buyer, to secure all necessary consents, approvals, authorizations,
exemptions and waivers from third parties (excluding consents, approvals,
authorizations, exemptions and waivers required from third parties pursuant to
the terms of any agreement, contract or commitment (whether or not in writing)
to which any Company or any Subsidiary is a party or by which their respective
properties are bound (collectively, "Commitments"), as shall be required in
order to enable the Seller and TGPL to effect the transactions contemplated
hereby, and will otherwise use its reasonable efforts to cause the consummation
of such transactions in accordance with the terms and conditions hereof.
4.02. CONDUCT OF BUSINESS. Except as may be otherwise contemplated
by this Agreement, or except as the Buyer may otherwise consent to in writing
(which consent shall not be unreasonably withheld), from the date hereof through
the Closing, the Seller will not take any action to cause the Companies to
operate their respective businesses or purchase, or sell or otherwise dispose
of, material assets outside the ordinary course of business. Notwithstanding
anything to the contrary in this Agreement, until the close of business on the
business day immediately preceding the Closing Date,
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the Seller shall be entitled to withdraw any and all cash from the Companies and
the Subsidiaries; provided, any such withdrawals must be effected by means of
reductions of the Shareholder Advance Balance. In addition, the Seller shall be
entitled to cause the Companies and the Subsidiaries to transfer the Marks (as
defined in Section 5.05(b)) to the Seller or one of its affiliates (other than
the Companies and the Subsidiaries).
4.03. ACCESS. (a) From the date hereof and prior to the Closing, the
Seller shall provide the Buyer and the Financing Sources with such information
as the Buyer or the Financing Sources may from time to time reasonably request
with respect to any Company, the Subsidiaries and the transactions contemplated
by this Agreement, and shall provide the Buyer and the Financing Sources and
their respective representatives reasonable access during regular business hours
and upon reasonable notice to the properties, books and records of each Company
and each of the Subsidiaries as the Buyer or the Financing Sources may from time
to time reasonably request; PROVIDED, HOWEVER, that the Seller shall not be
obligated to provide the Buyer or the Financing Sources with any information
relating to trade secrets or which would violate any law, rule or regulation or
term of any Commitment, or if the provision thereof would adversely affect the
ability of the Seller or any of its affiliates (including any Company and the
Subsidiaries) to assert attorney-client, attorney work product or other similar
privilege. Any disclosure whatsoever during such investigation by the Buyer or
the Financing Sources shall not constitute an enlargement of or additional
representations or warranties of the Seller beyond those specifically set forth
in this Agreement.
(b) (i) The Buyer shall, and shall cause its representatives and
the Financing Sources and their representatives, to keep confidential all
information and records, whether prepared by the Seller, its advisors or
otherwise, and whether written or oral, which were obtained, directly or
indirectly, by the Buyer, the Financing Sources or their respective
representatives concerning the business of the Companies and/or the Subsidiaries
("Confidential Information"). The Buyer shall, and shall cause its
representatives, the Financing Sources and their respective representatives to,
use Confidential Information solely in connection with its analysis and review
of the transactions contemplated by this Agreement or in connection with
operating the business of the Companies and the Subsidiaries.
(ii) The Buyer may disclose Confidential Information to
(x) the Financing Sources and (y) any of its and the Financing Sources'
respective directors, officers, employees, agents and advisors (each a
"Representative" and, collectively, the "Representatives") who need to know such
Confidential Information for the purpose of assisting the Buyer and the
Financing Sources in connection with the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that prior to making such disclosure, the Buyer
shall advise the Financing Sources and each such Representative of the Buyer's
obligations under this Section 4.03(b) and the Buyer shall
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be responsible for any breach of this Agreement by the Financing Sources or any
such Representative. The Buyer may disclose Confidential Information if required
by legal process or by operation of applicable law; PROVIDED, HOWEVER, that the
Buyer shall first promptly advise and consult with the Seller and its counsel
concerning the information the Buyer proposes to disclose. The Seller shall have
the right to seek an appropriate protective order or other remedy concerning the
Confidential Information the Buyer proposes to disclose and the Buyer will
cooperate with the Seller to obtain such protective order. In the event that
such protective order or other remedy is not obtained by the Seller, the Buyer
will disclose only that portion of the Confidential Information which, in the
written opinion of the Buyer's counsel, the Buyer is legally required to
disclose, and the Buyer will use its best efforts to obtain assurances that
confidential treatment will be accorded to such information.
(iii) The Buyer's obligations under clauses (i) and (ii)
of this Section 4.03(b) do not apply to information which (A) at the time of
disclosure is generally available to and known by the public other that as a
result of disclosure in violation of clause (i) or (ii) of this Section 4.03(b)
or (B) was or becomes available to the Buyer on a non-confidential basis from a
source other than the Seller or its agents or advisors; PROVIDED, HOWEVER, that
such source is not bound by a confidentiality agreement or obligation of secrecy
to the Seller in respect thereof.
(iv) In the event that the transaction contemplated
hereby is not consummated, all Confidential Information whether or not then in
the Buyer's possession, and any copies thereof, or notes or extracts therefrom
shall be returned to the Seller, without retaining any copies thereof, and the
Buyer shall destroy, as soon as practicable, all copies of any analyses,
studies, compilations or other documents prepared by the Buyer or any of its
Representatives to the extent that they contain, reflect or are generated from
any Confidential Information.
(v) The Buyer acknowledges and agrees that any breach by
it of the provisions of this Section 4.03(b) will cause the Seller irreparable
injury and damage, for which the Seller cannot be adequately compensated in
damages. The Buyer, therefore, expressly agrees that the Seller shall be
entitled to seek injunctive relief and/or other equitable relief to prevent any
anticipatory breach or continuing breach of the provisions of this Section
4.03(b), or any part thereof, and to secure their enforcement. Nothing herein
shall be construed as a waiver by the Seller of any right it may now have or
hereafter acquire to monetary damages by reason of any injury to its property,
business or reputation or otherwise arising out of any wrongful act or omission
of the Buyer under the provisions of this Section 4.03(b).
4.04. FURTHER ASSURANCES. At any time or from time to time after the
Closing, the Seller shall, at the request of the Buyer and at the Buyer's
expense, execute
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and deliver any further instruments or documents and take all such further
action as the Buyer may reasonably request in order to evidence the consummation
of the transactions contemplated hereby.
4.05. CONTRIBUTION OF PROPERTY. At or prior to the Closing, the
Seller shall, or shall cause Tenneco and/or TGPL to, contribute to the
Companies, "AS IS, WHERE IS" and without warranties, express or implied, all
rights, title and interest in and to the furniture, fixtures and equipment
located in the Companies' office space at 1100 Louisiana, Houston, Texas 77002
and used in connection with the business of the Companies as of the date hereof;
provided that the Seller shall not be required to, or shall not cause Tenneco or
TGPL to, contribute assets to the Companies pursuant to this Section 4.05 with a
book value in excess of $461,178.
4.06. DELIVERY OF PROPRIETARY INFORMATION. At or prior to the
Closing, the Seller shall deliver, or shall cause Tenneco and/or TGPL to
deliver, to the Buyer such items of proprietary information as the Seller and
the Buyer shall reasonably agree upon.
4.07. EXCLUSIVITY. From the date hereof and prior to the Closing,
the Seller will not and will ensure that its affiliates and investment bankers
and other representatives do not, directly or indirectly, solicit, entertain or
encourage inquiries or proposals or enter into any agreement or negotiate with
any other party to sell, or enter into any merger or consolidation with respect
to, all or any material part of the business and/or assets of the Companies or
any of the Subsidiaries or any shares of any class of capital stock thereof.
4.08. ACCESS TO BOOKS AND RECORDS OF THE SELLER. For a period of
seven years from the Closing Date, the Seller shall, and shall use reasonable
efforts to cause Tenneco and TGPL to, make available to the Buyer upon written
request (i) copies of any books and records of the Seller, Tenneco and TGPL
related to periods prior to the Closing ("Seller's Books and Records"), (ii) the
Seller's, Tenneco's and TGPL's personnel to assist the Buyer in locating and
obtaining any Seller's Books and Records, and (iii) any of the Seller's,
Tenneco's and TGPL's personnel whose assistance or participation is reasonably
required by the Buyer or any of its affiliates in anticipation of, or
preparation for, existing or future litigation, Returns (as defined in Section
6.08) or other matters in which the Buyer or any of its affiliates is involved
relating to the business of the Companies. The Buyer shall reimburse the Seller,
Tenneco or TGPL, as applicable, for the reasonable out-of-pocket expenses
incurred by any of them in performing the covenants contained in this Section
4.08.
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ARTICLE V
COVENANTS OF THE BUYER
The Buyer hereby covenants and agrees with the Seller as follows:
5.01. COOPERATION BY THE BUYER. From the date hereof and prior to
the Closing, the Buyer will use its reasonable efforts, and will cooperate with
the Seller, to secure all necessary consents, approvals, authorizations,
exemptions and waivers from third parties as shall be required in order to
enable the Buyer to effect the transactions contemplated hereby, and will
otherwise use its reasonable efforts to cause the consummation of such
transactions in accordance with the terms and conditions hereof. In addition,
the Buyer shall use its best efforts to negotiate, prepare and enter into
definitive financing agreements with the Financing Sources (the "Definitive
Financing Agreements") embodying the terms specified in the Commitment Letters.
The Buyer shall use its best efforts to satisfy on or before the Closing Date,
all requirements of the Definitive Financing Agreements that are conditions to
closing the transactions contemplated by the Definitive Financing Agreements.
The Buyer shall promptly notify the Seller of any material change to, or
revocation of, any Commitment Letter.
5.02. BOOKS AND RECORDS; PERSONNEL. For a period of seven years from
the Closing Date:
(a) The Buyer shall not, and shall cause the Companies and the
Subsidiaries not to, dispose of or destroy any of the books and records of the
Companies and the Subsidiaries relating to periods prior to the Closing ("Books
and Records") without first offering to turn over possession thereof to the
Seller by written notice to the Seller at least 30 days prior to the proposed
date of such disposition or destruction.
(b) The Buyer shall, and shall cause each Company and the
Subsidiaries to, allow the Seller and its agents reasonable access to all Books
and Records during normal working hours at the Buyer's principal place of
business or at any location where any Books and Records are stored, and the
Seller shall have the right, at its own expense, to make copies of any Books and
Records; PROVIDED, HOWEVER, that any such access or copying shall be had or done
in such a manner so as not to interfere with the normal conduct of the Buyer's,
the Subsidiaries', or the Companies' businesses, as applicable.
(c) The Buyer shall, and shall cause each Company and the
Subsidiaries to, make available to the Seller upon written request (i) copies of
any Books and Records, (ii) the Buyer's, the Subsidiaries' and the Companies'
personnel to assist the Seller in locating and obtaining any Books and Records,
and (iii) any of the Buyer's, the Subsidiaries' and the Companies' personnel
whose assistance or participation is
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reasonably required by the Seller or any of its affiliates in anticipation of,
or preparation for, existing or future litigation, Returns or other matters in
which the Seller or any of its affiliates is involved. The Seller shall
reimburse the Buyer, the applicable Subsidiary or the applicable Company for the
reasonable out-of-pocket expenses incurred by any of them in performing the
covenants contained in this Section 5.02(c).
(d) The foregoing provisions of this Section 5.02 shall be in
addition to the obligations of the Buyer under Article VI.
5.03. PERFORMANCE BONDS, ETC. (a) Except with respect to that
certain performance guarantee of TGPL in favor of Pennzoil Exploration and
Production Company and Pennzoil Petroleum Company (collectively, "Pennzoil")
pursuant to Section 12 of that certain Purchase and Sale Agreement dated
November 23, 1994 among Pennzoil and Ventures (the "Pennzoil Guarantee"), at the
Closing, the Buyer shall, or shall cause the Companies to, deliver to the Seller
replacement (or, if the beneficiary thereof will not permit replacement,
back-up) performance bonds, payment bonds, bid bonds, letters of credit,
guaranties (including, without limitation, financial guaranties relating to the
leases of real property and/or equipment) and similar instruments, in an
aggregate principal amount and with terms and from banks or other financial
institutions or surety companies in each case reasonably satisfactory to the
Seller, to replace (or, to the extent required as described above, to
collateralize) any performance bonds, payment bonds, bid bonds, letters of
credit, guaranties and similar instruments of the Seller or of any affiliate
thereof with respect to any Company or any Subsidiary (in each case, or portions
thereof) remaining outstanding on the Closing Date with respect to which the
Seller or any affiliate of the Seller (other than any Company or any Subsidiary)
will have any liability after the Closing, including, that certain Guaranty,
dated as of May 2, 1996 by TGPL in favor of Bank of America Illinois.
(b) The Buyer hereby agrees to indemnify and hold harmless the
Seller and its affiliates from and against any and all Losses (as such term is
hereinafter defined) incurred by the Seller and its affiliates resulting from,
or relating to, the Pennzoil Guarantee.
(c) The Buyer hereby agrees that if the Buyer or any of the
Companies desire to sell any of the properties covered by the Pennzoil
Guarantee, prior to, and as a condition of, any such sale, the Buyer will use
all reasonable efforts to obtain, or cause the applicable Company to obtain,
from the prospective buyer for the benefit of the Seller and its affiliates, a
written agreement in favor of the Seller and its affiliates, in form and
substance reasonably satisfactory to the Seller, agreeing to indemnify and hold
harmless the Seller and its affiliates from and against any and all Losses which
may be incurred by the Seller or any of its affiliates, under the Pennzoil
Guarantee relating to the properties being acquired by the prospective buyer.
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5.04. FURTHER ASSURANCES. At any time or from time to time after the
Closing, the Buyer shall, at the request of the Seller and at the Seller's
expense, execute and deliver any further instruments or documents and take all
such further action as the Seller may reasonably request in order to evidence
the consummation of the transactions contemplated hereby.
5.05. CORPORATE NAME. (a) Upon or immediately following the Closing,
the Buyer shall cease to use the name "Tenneco" or any confusingly similar name,
and will file all documents necessary to change the name of the Companies and
any of the applicable Subsidiaries.
(b) The Buyer understands and agrees that nothing in this
Agreement otherwise confers upon the Buyer any rights to or under any
trademarks, service marks, logos or trade names of the Seller, the Companies or
any of their respective affiliates ("Marks). The Buyer agrees that, upon the
Closing, the Buyer will cease all use of the Marks, including, without
limitation, any name including the words "Tenneco," and all marks, names and
trade styles confusingly similar to such words and symbols. The Buyer further
agrees that it will, as soon as practicable following the Closing (subject to
receiving any necessary regulatory approval), remove all references to and
representations of any of the Marks from the assets of the Companies and the
Subsidiaries and from materials utilized in the conduct of the business of the
Companies and the Subsidiaries.
5.06. CONSENTS. The Buyer acknowledges that certain consents and
waivers with respect to the transactions contemplated by this Agreement may be
required from parties to the Commitments and that certain of such consents and
waivers have not been obtained and may not be obtained prior to the Closing. The
Buyer agrees that, except as specified in Section 1.05, the Seller shall not
have any liability whatsoever to the Buyer arising out of or relating to the
failure to obtain any consents or waivers that may be required in connection
with the transactions contemplated by this Agreement or because of the
termination of any Commitments as a result thereof. The Buyer further agrees
that, except as specified in Section 1.05, no representation, warranty or
covenant of the Seller contained herein shall be breached or deemed breached,
and no condition shall be deemed not satisfied, as a result of (i) the failure
to obtain any such consent or waiver, (ii) any such termination or (iii) any
lawsuit, action, proceeding or investigation commenced or threatened by or on
behalf of any person arising out of or relating to the failure to obtain any
such consent or any such termination. Prior to the Closing, the Seller shall,
and shall cause TGPL and the Companies to, cooperate with the Buyer, upon the
request of the Buyer, in any reasonable manner in connection with the Buyer
obtaining any such consents and waivers; PROVIDED, HOWEVER, that such
cooperation shall not include any requirement of the Seller or any of its
affiliates (including the Companies) to expend
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money, commence or participate in any litigation or offer or grant any
accommodation (financial or otherwise) to any third party.
5.07. TGP CONSENTS; NPI CONVERSION. (a) The Buyer will use all
reasonable efforts to obtain the TGP Consents prior to the Closing.
(b) The Buyer will use all reasonable efforts to cause the NPI
Conversions to occur prior to the Closing.
ARTICLE VI
TAX MATTERS
6.01. TAX INDEMNIFICATION BY THE SELLER. (a) The Seller shall be
liable for, and shall indemnify the Buyer and its affiliates and hold them
harmless from and against, any (i) Income Taxes arising out of or attributable
to any consolidated, combined or unitary Income Tax Return filed or required to
be filed by the Seller, Tenneco or any Related Party which includes the
Companies and/or the Subsidiaries (without giving effect to any reserves with
respect thereto), including, without limitation, any liability of the Companies
and/or the Subsidiaries for Income Taxes under Section 1.1502-6 of the Treasury
Regulations (or any analogous provision of state, local or foreign law), (ii)
Income Taxes (other than those described in clause (i) above) of the Companies
and/or the Subsidiaries for taxable periods or portions of taxable periods
ending on or before the Closing Date to the extent such Income Taxes exceed any
reserves for such Income Taxes included in the Statement (other than reserves
for deferred Income Taxes), and (iii) subject to Section 6.07, any loss, damage,
liability or expense, including, but not limited to, reasonable fees for
attorneys and other outside consultants, incurred in connection with Income
Taxes described in (i) and (ii) in this Section 6.01(a).
(b) Payments required under this Section 6.01 shall be made
within 30 days of the Buyer furnishing the Seller with written evidence that the
Buyer has paid such amounts or such amounts are due and payable to a Taxing
Authority.
6.02. APPORTIONMENT OF TAXES. In order to apportion appropriately
any Income Taxes relating to any Straddle Period, the parties hereto shall, to
the extent permitted under applicable law, elect with the relevant Tax Authority
to treat for all purposes, the Closing Date as the last day of the taxable year
or period of the Companies and/or the Subsidiaries, and such period shall be
treated as a short taxable year and a PreClosing Period for purposes of this
Article VI. In any case where applicable law does not permit a Company or a
Subsidiary to treat the Closing Date as the last day of the taxable year or
period of such Company or Subsidiary with respect to Income Taxes that are
payable with respect to a Straddle Period, the portion of any such Income Taxes
that are
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allocable to the portion of the taxable year ending on the Closing Date shall be
deemed to be equal to the amount which would be payable if the taxable year or
period ended on the Closing Date (except that, solely for purposes of
determining the marginal tax rate applicable to income or receipts during such
period in a jurisdiction in which such tax rate depends upon the level of income
or receipts, annualized income or receipts may be taken into account, if
appropriate, for an equitable sharing of such Income Taxes).
6.03. FILING RESPONSIBILITY. (a) With respect to jurisdictions in
which the Companies are required to file a consolidated, combined or unitary
Income Tax Return with the Seller, Tenneco or any Related Party, or (i) are
eligible to file a consolidated, combined or unitary Income Tax Return with the
Seller, Tenneco or any Related Party and (ii) have filed a consolidated,
combined or unitary Income Tax Return with the Seller, Tenneco or any Related
Party in the most recent taxable period for which a Return was due, the Seller
shall include, or cause to be included, the Companies and the Subsidiaries in
such Returns for all taxable periods ending on or prior to the Closing Date
("PreClosing Tax Periods") and all taxable periods beginning prior to and ending
after the Closing Date ("Straddle Periods"); provided, that in the case of a
Straddle Period, the Companies and the Subsidiaries shall not be included in
such Returns for periods after the Closing Date. The Seller shall timely prepare
and file, or cause to be timely prepared and filed, all such Returns. With
respect to all other Income Tax Returns for Pre-Closing Tax Periods, the Seller
shall timely prepare, or cause to be timely prepared, and deliver to the Buyer,
and the Buyer shall cause to be timely filed, all such Income Tax Returns. The
Seller shall timely prepare and file, or cause to be timely prepared and filed,
all NonIncome Tax Returns the due date for filing of which is on or before the
Closing Date. All Returns prepared pursuant to this Section 6.03(a) shall be
prepared or completed in a manner consistent with prior practice of the Seller
and/or the Related Party concerning the income, properties or operations of the
Companies and the Subsidiaries (including elections and accounting methods and
conventions), except as otherwise required by law, and in the case of Returns
prepared in accordance with the second preceding sentence, shall be subject to
the Buyer's review and approval (which approval shall not be unreasonably
withheld). The Seller shall timely pay, or cause to be timely paid, when due,
all Taxes relating to the Returns which it is required to prepare and file
pursuant to this Section 6.03(a). The Seller shall pay, or cause to be paid, to
the Buyer, all Income Taxes relating to Returns which it is required to prepare
and deliver to the Buyer for filing pursuant to this Section 6.03(a) within 10
days prior to the date on which the related Tax liability is due.
(b) The Buyer shall prepare and file, subject to the Seller's
review and approval (which approval shall not be unreasonably withheld), all
Income Tax Returns of the Companies and the Subsidiaries for any Straddle Period
with respect to which the Seller does not have filing responsibility pursuant to
Section 6.03(a). Except as otherwise required by law, such Returns shall be
prepared or completed in a manner consistent with
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prior practice of the Seller concerning the income, properties or operations of
the Companies and the Subsidiaries (including elections and accounting methods
and conventions). Any Income Taxes of the Companies and the Subsidiaries payable
pursuant to such Returns shall be apportioned between the Seller, on the one
hand, and the Buyer, on the other hand, in accordance with the principles of
Treasury Regulation Section 1.1502-76(b) applied to the portion of such period
ending on the Closing Date and the portion of such period beginning on the day
following the Closing Date, respectively. Any amounts apportioned to the Seller
pursuant to the preceding sentence shall be paid by the Seller to the Buyer not
later than 5 days prior to the date on which the related Tax liability is due.
The Buyer shall prepare and file all non-Income Tax Returns the due date for
filing of which is after the Closing Date. The Buyer shall timely pay when due
all Taxes relating to the Returns which it is required to file pursuant to this
Section 6.03(b).
6.04. REFUNDS AND CARRYBACKS. (a) The Seller shall be entitled to
any refunds of Income Taxes attributable to the Companies and/or the
Subsidiaries (including refunds paid by means of credit against other or future
income) for a Pre-Closing Period or the portion of a Straddle Period ending on
or before the Closing Date other than refunds arising from a carryback of a loss
or credit from any period other than a PreClosing Tax Period.
(b) The Buyer shall forward to the Seller any refunds to which
the Seller is entitled (pursuant to the terms of this Section 6.04) within 5
days after receipt thereof. In the case of a refund received in the form of a
credit against other or future Tax liabilities, reimbursement in respect of such
refund shall be due on the due date for payment of the Taxes against which such
refund has been credited.
(c) Nothing in this Agreement shall require the Seller to file a
carryback claim or amended Tax Return on behalf of the Buyer. In the case of all
Tax Returns (other than Tax Returns filed by the Company on a separate basis),
the Buyer agrees to elect to relinquish its entire carryback period with respect
to any loss occurring for a period ending after the Closing Date.
6.05. COOPERATION. After the Closing Date, each of the Buyer and the
Seller shall make available to the other, as reasonably requested, and to any
Taxing Authority, all information, records and documents relating to Tax
liabilities or potential Tax liabilities relating to the Companies and/or the
Subsidiaries and shall preserve all such information, records and documents
until the expiration of any applicable statute of limitations or extension
thereof.
6.06. TAX SHARING. Any and all existing Tax sharing, allocation,
compensation or like agreements or arrangements that include any Company or any
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Subsidiary shall be terminated with respect to the applicable Company or
Subsidiary as of the Closing Date without liability to the applicable Company or
Subsidiary and shall have no further effect for any taxable year.
6.07 AUDITS. The Buyer shall promptly notify the Seller in writing
upon receipt of notice of any pending or threatened Income Tax audits or
assessments which may affect the Tax liabilities of any Company or any
Subsidiary relating to a period with respect to which the Seller would be liable
pursuant to Section 6.01; PROVIDED, HOWEVER, that a failure to give such notice
will not affect the Buyer's or the Companies' and/or the Subsidiaries' rights to
indemnification hereunder, except to the extent, if any, that, but for such
failure, the Seller could have avoided the Tax liability in question. The Seller
shall represent its own interests and the interests of the Companies and the
Subsidiaries in any Tax matter, including any audit, examination, assessment,
notice of deficiency or other adjustment or proposed adjustment, or
administrative or judicial proceeding, the settlement of any of the foregoing,
or the filing of any amended return (a "Tax Matter"), involving an Income Tax
liability relating to a period with respect to which the Seller would be liable
pursuant to Section 6.01 and to employ counsel of its choice at its expense;
PROVIDED, HOWEVER, that the Buyer shall have the right to participate at its own
expense, and its consent shall be required prior to settlement, which consent
shall not be unreasonably withheld, in any such Tax Matter that could have a
material adverse effect on the amount or timing of any Tax of the Buyer or any
of its affiliates. Notwithstanding the foregoing, the Buyer shall represent its
own interest and the interests of the Companies and the Subsidiaries in any Tax
Matters involving an Income Tax liability relating to a period with respect to
which the Buyer has filing responsibility pursuant to Section 6.03(b); PROVIDED,
HOWEVER, that the Seller shall have the right to participate at its own expense,
and its consent shall be required prior to settlement, which consent shall not
be unreasonably withheld, in any such Tax Matter that could have a material
adverse effect on the amount or timing of any Tax of the Seller. The Buyer and
the Seller and their respective affiliates shall cooperate fully with each other
and their respective counsel in the defense or compromise of any Tax Matter
including, without limitation, the provision of any necessary powers of
attorney. Notwithstanding anything herein to the contrary, the Seller shall have
the exclusive right to control, settle and resolve any Tax Matter relating to
the NPI Conversion.
6.08. CERTAIN OTHER DEFINITIONS. For purposes of this Agreement (i)
"Income Taxes" means federal, state, local or foreign income or franchise taxes
or other taxes measured in whole or in part by income, including any
single-business tax or any tax based on capital, together with any interest,
penalties or additions to tax imposed with respect thereto; (ii) "IRS" means the
Internal Revenue Service; (iii) "Related Party" means any member of the
consolidated federal income tax group of which the Seller or Tenneco, as the
case may be, is the common parent; (iv) "Return" means all returns, reports,
declarations, estimates, information returns, statements and forms of any nature
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regarding Taxes, including remittance advices, required to be filed with any
Taxing Authority or depository; (v) "Tax" means any federal, state, local or
foreign tax, including, without limitation, income (net or gross), gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, customs, duties, real property,
personal property, capital stock, social security, unemployment, disability,
payroll, license, employee or other withholding, or other tax, of any kind
whatsoever, and including any interest, penalties or additions to tax imposed
with respect thereto; (vi) "Taxing Authority" means any governmental authority,
domestic or foreign, having jurisdiction over the assessment, determination,
collection, or other imposition of Tax; and (vii) "Code" means the Internal
Revenue Code of 1986, as amended.
6.09. CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement ("Transfer Taxes") shall be
paid by the Seller when due, and the Seller shall file all necessary Returns and
other documentation with respect to all such Transfer Taxes, and, if required by
applicable law, the Buyer will, and will cause the Companies to, join in the
execution of any such Returns and other documentation. The Buyer shall reimburse
the Seller for one-half of all Transfer Taxes and one-half of the cost of filing
Returns relating to Transfer Taxes.
6.10. SECTION 338(H)(10) ELECTION. (a) The Seller and the Buyer
shall file an election under Section 338(g) and Section 338(h)(10) of the Code
and under any comparable provisions of state, local or foreign law with respect
to the purchase of the outstanding shares of stock of the Companies
(collectively, the "Election"). The Seller and the Buyer shall report, in
connection with the determination of Taxes, the transactions contemplated by
this Agreement in a manner consistent with the Election. The Seller and the
Buyer shall comply with all of the requirements of Section 338(h)(10) of the
Code and the Treasury Regulations thereunder. The Seller and the Buyer shall
take no action which is inconsistent with the Election or its validity under the
Code and the applicable Treasury Regulations.
(b) As soon as practicable after the Closing Date, the Buyer
shall deliver to the Seller a written notice setting forth the Buyer's good
faith calculation of (i) the Modified Aggregate Deemed Sales Price (as defined
below) and (ii) the allocation thereof among the assets of the Companies in
accordance with the principles of Treasury Regulation ss.
1.338(h)(10)-1(f)(1)(ii) (the "Deemed Sales Price Allocation"). The term
"Modified Aggregate Deemed Sales Price" shall mean an amount resulting from the
Election, determined pursuant to Treasury Regulation ss. 1.338(h)(10)-1(f)
without regard to items described in Treasury Regulation ss.
1.338(h)(10)-1(f)(4) (provided that the Seller may take such items into account
in filing Tax Returns). The Seller shall review such
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calculations and, within 30 days of receipt thereof, shall notify the Buyer of
any disagreement with respect to such calculations. The Buyer and the Seller
shall mutually resolve any such disagreements and shall file all Tax Returns in
a manner consistent herewith and shall take no position inconsistent therewith
in any Tax Matter; provided, however, that notwithstanding anything herein to
the contrary, the Buyer and the Seller agree that the "adjusted grossed-up
basis" of the assets deemed purchased pursuant to the Election shall not include
any amount attributable to the NPI Indebtedness in excess of the fair market
value (determined as of the Closing Date) of the assets securing the NPI
Indebtedness. If the Buyer takes any action inconsistent with the preceding
sentence, the Seller shall have no indemnification obligation under Section
6.10.
(c) The Buyer and the Seller shall be jointly responsible for the
preparation and filing of all forms and documents required in connection with
the Election. The Seller and the Buyer shall cooperate fully with each other and
make available to each other such Tax data and other information as may be
reasonably required by the Seller or the Buyer in order to timely file the
Election and any other required statements or schedules.
6.11. TAX INDEMNIFICATION IN CONNECTION WITH NPI CONVERSION. (a)
Subject to Section 6.10, the Seller shall be liable for, and shall indemnify the
Buyer and its affiliates (including the Companies and the Subsidiaries)
regardless of when such conversion occurs and hold them harmless from and
against, any liability, regardless of when such liability arises, for Income
Taxes attributable to any NPI Conversion (as defined below) by any TGP Investor.
(b) As used herein, "NPI Conversion" means, with respect to any
TGP Investor, the conversion of the indebtedness owed by TGP to such TGP
Investor to a net profits overriding royalty interest in and from the collateral
theretofore securing such indebtedness pursuant to and in accordance with the
terms of the applicable Credit Agreement ("NPI Indebtedness"). As used herein,
"Credit Agreement" means each of the (i) Credit Agreement, dated June 16, 1992,
by and between TGP and The Trustees of General Electric Pension Trust; (ii)
Credit Agreement, dated June 16, 1992, by and between TGP and Bankers Trust
Company, as Trustee for the GTE Service Corporation Plan for Employees'
Pensions; (iii) Credit Agreement, dated June 30, 1993, by and between TGP and
The Delta Master Trust by Harris Trust and Savings Bank, as Directed Trustee;
(iv) Credit Agreement, dated December 31, 1994, by and between TGP and Trustees
of General Electric Pension Trust; (v) Credit Agreement, dated December 31,
1994, by and between TGP and Bankers Trust Company, as Trustee for the GTE
Service Corporation Plan for Employees' Pensions; and the (vi) Credit Agreement,
dated December 31, 1994, by and between TGP and The Delta Master Trust by Harris
Trust and Savings Bank, as Directed Trustee.
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(c) In no event shall the Seller's liability under this Section
6.11 exceed $7,000,000 in the aggregate. Payments required under this Section
6.11 shall be made within 30 days of the Buyer's request therefor.
6.12 TAX TREATMENT OF INDEMNITY PAYMENTS. The Tax treatment of all
payments made by either party to or for the benefit of the other party under
this Article VI shall be treated by the parties hereto as an adjustment to the
Purchase Price.
6.13 TAX ELECTIONS. From and after the date hereof, the Seller shall
not, without the prior written consent of the Buyer (which may not unreasonably
withhold such consent), make or revoke, or cause or permit to be made or revoked
any Tax election, or adopt or change any method of accounting, that would
adversely affect a Company or a Subsidiary, except to the extent such election
or change is consistent with past practice of the Seller.
6.14 EMPLOYEE MATTERS. The Buyer and the Seller agree to utilize the
alternative procedure set forth in Revenue Procedure 84-77, 1984-2 C.B., 753,
with respect to any necessary wage reporting matters. The Seller shall cooperate
with the Buyer and furnish the Buyer with all information needed to prepare and
file any wage reporting form.
ARTICLE VII
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to purchase the Stock shall be subject
to the satisfaction (or waiver) on or prior to the Closing Date of all of the
following conditions:
7.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER. The
(i) Seller shall have complied in all material respects with its agreements and
covenants contained herein to be performed on or prior to the Closing Date, and
(ii) the representations and warranties of the Seller contained herein shall be
true and correct in all material respects as of the date made and on and as of
the Closing Date with the same effect as though made on and as of the Closing
Date, except, (A) to the extent that any such representations and warranties
were made as of a specified date and as to such representations and warranties
the same shall continue on the Closing Date to have been true in all material
respects as of the specified date or (B) to the extent that any failure of such
representations and warranties to be true and correct does not have a Material
Adverse Effect. The Buyer shall have received a certificate of the Seller, dated
as of the Closing Date and signed by an officer of the Seller, certifying as to
the fulfillment of the condition set forth in this Section 7.01 (the "Seller's
Certificate").
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7.02. NO PROHIBITION. No statute, rule or regulation or order of any
court or administrative agency shall be in effect which prohibits the Buyer from
consummating the transactions contemplated hereby.
7.03. GOVERNMENTAL CONSENTS. All consents, approvals,
authorizations, exemptions and waivers from governmental agencies, in each case,
the absence of which would have a material adverse effect on the ability of the
Buyer to purchase the Stock, shall have been obtained (except for such consents,
approvals, authorizations, exemptions and waivers, the absence of which would
not prohibit such purchase or render such purchase illegal).
7.04. FINANCING. The Definitive Financing Agreements shall be in
full force and effect and the conditions of the receipt of the financing
contemplated thereby shall have been satisfied or waived or the Buyer shall
otherwise have funds available to pay the Purchase Price.
7.05. TRANSITIONAL SERVICES AGREEMENT. The Seller shall have
executed and delivered to the Buyer a Transitional Services Agreement (the
"Transitional Services Agreement") in substantially the form attached hereto as
Exhibit A.
7.06. BUYER'S FRUSTRATION OF CLOSING CONDITIONS. The Buyer may not
rely on the failure of any condition set forth in this Article VII to be
satisfied if such failure was caused by the Buyer's failure to act in good faith
or to comply with the provisions of Section 5.01.
ARTICLE VIII
CONDITIONS TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to sell the Stock shall be subject to
the satisfaction (or waiver) on or prior to the Closing Date of all of the
following conditions:
8.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER. The
(i) Buyer shall have complied in all material respects with its agreements and
covenants contained herein to be performed on or prior to the Closing Date, and
(ii) the representations and warranties of the Buyer contained herein shall be
true and correct in all material respects as of the date made and on and as of
the Closing Date, in each case, with the same effect as though made on and as of
the Closing Date, except, to the extent that any such representations and
warranties were made as of a specified date, as to such representations and
warranties the same shall continue on the Closing Date to have been true in all
material respects as of the specified date. The Seller shall have received a
certificate of the Buyer, dated as of the Closing Date and signed by an officer
of the
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Buyer, certifying as to the fulfillment of the condition set forth in this
Section 8.0l (the "Buyer's Certificate").
8.02. NO PROHIBITION. No statute, rule or regulation or order of any
court or administrative agency shall be in effect which prohibits the Seller
from consummating the transactions contemplated hereby.
8.03. PERFORMANCE BONDS. The Buyer shall have delivered to the
Seller the performance bonds, letters of credit and/or other instruments
referred to in Section 5.03.
8.04. GOVERNMENTAL CONSENTS. All consents, approvals,
authorizations, exemptions and waivers from governmental agencies that shall be
required in order to enable the Seller to sell the Stock to the Buyer shall have
been obtained (except for such consents, approvals, authorizations, exemptions
and waivers, the absence of which would not prohibit such sale or render such
sale illegal).
8.05. SELLER'S FRUSTRATION OF CLOSING CONDITIONS. The Seller may not
rely on the failure of any condition set forth in this Article VIII to be
satisfied if such failure was caused by the Seller's failure to act in good
faith or to comply with the provisions of Section 4.01.
ARTICLE IX
EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS
9.01. DEFINITIONS. (a) As used herein, the term "Employees" means
all current employees (including those on layoff, disability or leave of
absence, whether paid or unpaid), former employees and retired employees
employed by the Companies or any Subsidiary or in connection with the business
of the Companies or any Subsidiary, and the term "Employee" shall mean any of
the Employees.
(b) As used herein, the term "Company Benefit Plans" means each
and all "employee benefit plans" as defined in Section 3(3) of ERISA, maintained
or contributed to by any Company, any Subsidiary, the Seller, any of their
respective affiliates or any of their respective predecessors or in which any
Company, any Subsidiary, the Seller, any of their respective affiliates or any
of their respective predecessors participates or participated and which provides
benefits to Employees or their spouses or covered dependents, including (i) any
such plans that are "employee welfare benefit plans" as defined in Section 3(1)
of ERISA and (ii) any such plans that are "employee pension benefit plans" as
defined in Section 3(2) of ERISA.
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(c) As used herein, the term "Benefit Arrangements" means each
and all pension, supplemental pension, accidental death and dismemberment, life
and health insurance and benefits (including medical, dental, vision and
hospitalization), savings, bonus, deferred compensation, incentive compensation,
holiday, vacation, severance pay, salary continuation, sick pay, sick leave,
short and long term disability, tuition refund, service award, company car,
scholarship, relocation, patent award, fringe benefit and other employee benefit
arrangements, plans, contracts (other than individual employment, consulting or
severance contracts), policies or practices of any Company, any Subsidiary, the
Seller, any of their respective affiliates or any of their respective
predecessors providing employee or executive compensation or benefits to
Employees, other than the Company Benefit Plans.
9.02. INDEMNITY. (a) The Buyer, the Companies and the Subsidiaries
shall jointly and severally indemnify the Seller and its affiliates and hold
each of them harmless from and against any liability, loss, damage, claim
(including third party claims, whether or not meritorious), cost or expense
(including without limitation, reasonable attorneys' fees and disbursements)
(collectively, "Losses") which may be incurred or suffered by any of them (i)
under the Worker Adjustment and Retraining Notification Act ("WARN") arising out
of, or relating to, any actions taken by the Buyer, the Companies or any
Subsidiary on or after the Closing Date solely with respect to employees
terminated on or after the Closing Date; (ii) in connection with any claim made
by any current Employee by reason of the Company's or any Subsidiary's failure
to continue to employ such Employee on or after the Closing Date at
substantially the same salary or wages (including bonus, commission and sales
incentive programs) and/or on substantially the same terms and conditions as in
effect immediately prior to the Closing Date (including any claim made by reason
of the Employee's not receiving benefits under any Company Benefit Plan or
Benefit Arrangement or receiving any particular benefit or level of benefit);
(iii) in connection with any claim made by any Employee for any severance pay or
other compensation or benefit entitlements by reason of any Employee's
termination or deemed termination of employment on or after the Closing,
including pursuant to the Tenneco Energy Executive Incentive Compensation
Program and the Tenneco Energy Executive Retention Program; or (iv) in
connection with, or as a result of, the transfer of Employees contemplated by
Section 9.05.
(b) The Seller and its affiliates (other than the Companies and
the Subsidiaries) shall jointly and severally indemnify the Buyer, the Companies
and the Subsidiaries and hold each of them harmless from any Losses which may be
incurred or suffered by any of them (i) under WARN arising out of, or relating
to, any actions taken by the Seller, the Companies or any Subsidiary with
respect to Employees terminated prior to or on the Closing Date, (ii) in
connection with any claim made by any Employee whose employment terminated prior
to the Closing Date and (iii) under any "employee
26
<PAGE>
benefit plan", including any Company Benefit Plan, which the Seller or any of
its affiliates maintained, sponsored, or contributed to or was obligated to
contribute.
9.03. BENEFIT PLANS. Except as provided in Section 9.04, neither the
Buyer nor any of its affiliates (including, after the Closing, the Companies and
the Subsidiaries) shall assume any obligations of Tenneco, the Seller or TGPL
under or with respect to the Company Benefit Plans. Following the Closing Date,
the Buyer or one of its affiliates shall provide or cause to be provided to the
Employees actively at work for Buyer or one of its affiliates such employee
benefit plans, programs, agreements or arrangements as it in its sole discretion
deems appropriate. Nothing in this Agreement shall create any obligation on the
part of the Buyer or any of its affiliates to continue the employment, nor
create any right, of any Employee or in his or her beneficiaries following the
Closing.
9.04. SEVERANCE AND RETENTION BONUSES. Immediately prior to the
Closing, the Buyer shall assume, or shall cause Ventures to assume, TGPL's
liability under the Tenneco Energy Executive Incentive Compensation Program and
the Tenneco Energy Executive Retention Program to pay the amounts set forth on
Schedule 9.04 to each of the Employees listed on Schedule 9.04 who are employed
by the Companies or the Subsidiaries as of the Closing Date, and the Buyer or
Ventures shall be responsible for all such liability; PROVIDED, HOWEVER, that
the Purchase Price shall be reduced in an aggregate amount not to exceed
$1,300,000 by the amount of such liability so assumed.
9.05. TRANSFER OF EMPLOYEES. On or prior to the Closing, the Seller
shall cause all Employees who are employed by subsidiaries of the Seller (other
than the Companies) to be transferred to Buyer or Ventures.
ARTICLE X
TERMINATION PRIOR TO CLOSING
10.01. TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) By the mutual written consent of the Buyer and the Seller; or
(b) By either the Seller or the Buyer in writing, if the Closing
shall not have occurred on or before January 31, 1997.
10.02. EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant
to this Article X shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 4.03(b), 11.07, 11.08, 11.10 and
11.12; PROVIDED, HOWEVER, that termination pursuant to clause (b) of Section
10.01 by reason of breaches of
27
<PAGE>
covenants or agreements or by reason of a breach by the Buyer of its
representations and warranties contained in Section 3.04 shall not relieve the
defaulting or breaching party (whether or not it is the terminating party) from
any liability to the other party hereto.
ARTICLE XI
MISCELLANEOUS
11.01. SURVIVAL. Except as otherwise set forth in this Section
11.01, the representations and warranties made in this Agreement or in any
agreement, certificate (including the Seller's Certificate and the Buyer's
Certificate) or other document executed at or prior to the Closing in connection
herewith (an "Ancillary Document") shall expire at the Closing. The
representations and warranties (i) made by the Seller in Sections 2.01 and 2.04
and the second and third sentences of Section 2.03 and (ii) made by the Buyer in
the first and second sentences of Section 3.02 and Section 3.03 shall expire on
the first anniversary of the Closing.
11.02. INTERPRETIVE PROVISIONS. (a) Whenever used in this Agreement,
"to the Seller's knowledge" or "to the knowledge of the Seller" shall mean the
actual knowledge of the executive officers of the Seller and shall only include
their actual knowledge obtained in their respective capacities as such, and "to
the Buyer's knowledge" or "to the knowledge of the Buyer" shall mean the actual
knowledge of the executive officers of the Buyer.
(b) The words "hereof," "herein," "hereby" and "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision thereof.
(c) For purposes of this Agreement, the Companies and the
Subsidiaries shall be deemed to be affiliates of the Seller prior to the Closing
and affiliates of the Buyer after the Closing.
11.03. ENTIRE AGREEMENT. This Agreement (including the Schedules
hereto) and the Transitional Services Agreement constitutes the sole
understanding of the parties with respect to the subject matter hereof. Matters
disclosed by the Seller to the Buyer pursuant to any Section of this Agreement
shall be deemed to be disclosed with respect to all Sections of this Agreement.
11.04. SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; PROVIDED, HOWEVER, that this
Agreement may not be assigned by the Buyer without the prior written consent of
the Seller, except that the Buyer may, at
28
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its election, assign this Agreement to any direct or indirect wholly owned
subsidiary or any affiliate of FRC so long as (a) the representations and
warranties of the Buyer made herein are equally true of such assignee, (b) such
assignment does not have any adverse consequences to the Seller or any of its
affiliates (including, without limitation, any adverse tax consequences or any
adverse effect on the ability of the Buyer to consummate (or timely consummate)
the transactions contemplated hereby) and (c) such assignee shall execute a
counterpart of this Agreement agreeing to be bound by the provisions hereof as
the "Buyer," and agreeing to be jointly and severally liable with the assignor
and any other assignee for all of the obligations of the assignor hereunder, but
no such assignment of this Agreement or any of the rights or obligations
hereunder shall relieve the Buyer of its obligations under this Agreement.
11.05. HEADINGS. The headings of the Articles, Sections and
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed to constitute part of this Agreement or to affect the construction
hereof.
11.06. MODIFICATION AND WAIVER. No amendment, modification or
alteration of the terms or provisions of this Agreement shall be binding unless
the same shall be in writing and duly executed by the parties hereto, except
that any of the terms or provisions of this Agreement may be waived in writing
at any time by the party which is entitled to the benefits of such waived terms
or provisions. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof.
11.07. INDEMNIFICATION BY SELLER WITH RESPECT TO OTHER MATTERS. The
Seller shall be liable for, and shall indemnify the Buyer and its affiliates
(including the Companies and the Subsidiaries) and hold them harmless from and
against, any and all losses, claims, damages or liabilities incurred by the
Buyer or any of its affiliates or to which any of them become subject to the
extent that such losses, claims, damages or liabilities result from the
Companies' or the Subsidiaries' former status as affiliates of the Seller or
Tenneco. Payments required under this Section shall be made within 30 days of
the Buyer's request therefor.
11.08. BROKER'S FEES. Each of the parties hereto (i) represents and
warrants that it has not taken and will not take any action that would cause the
other party hereto to have any obligation or liability to any person for a
finder's or broker's fee and (ii) agrees to indemnify the other party hereto for
breach of the foregoing representation and warranty, whether or not the Closing
occurs.
11.09. EXPENSES. The Buyer shall pay its own costs and expenses
incurred in connection with the transactions contemplated hereby, including, the
fees and expenses
29
<PAGE>
payable to PaineWebber and/or FRC, fees to be paid to its financing sources and
all fees and expenses of its financial consultants, accountants and counsel. The
Seller shall pay its own costs and expenses incurred in connection with the
transactions contemplated hereby and the costs and expenses (and, as between the
Seller and the Buyer, assuming consummation of the Merger, the Seller shall pay
for the costs and expenses of Tenneco and TGPL) incurred by the Companies in
connection with the transactions contemplated hereby and other marketing efforts
with respect to the sale of the Companies, including, any investment banking
fees of Donaldson, Lufkin & Jenrette Securities Corporation and any other
investment banker hired by the Seller, Tenneco or TGPL in connection with the
sale of the Companies and related fees of petroleum engineers and other
professionals, except fees of any such engineers or professionals retained by
the Companies to assist the Buyer in connection with the transactions
contemplated hereby (which shall be paid for by the Buyer).
11.10. NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party hereto to any other party shall be in writing
and shall be given (and will be deemed to have been duly given upon receipt) by
delivery in person, by electronic facsimile transmission, cable, telegram, telex
or other standard forms of written telecommunications, by overnight courier or
by registered or certified mail, postage prepaid,
if to the Seller to:
El Paso Natural Gas Company
1001 Louisiana Street
Houston, Texas 77002
Attention: H. Brent Austin
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Gary P. Cooperstein, Esq.
if to the Buyer to:
Teleo Ventures, Inc.
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Mr. Michael V. Ronca
President & CEO
30
<PAGE>
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III, Esq.
or at such other address for a party as shall be specified by like
notice.
11.11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH JURISDICTION. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED
STATES OF AMERICA, IN EACH CASE LOCATED IN COUNTY OF NEW YORK, FOR ANY
LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO
EXCEPT IN SUCH COURTS), AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS,
NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH
IN SECTION 11.10 SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION
BROUGHT AGAINST IT IN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF
ANY LITIGATION ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES OF AMERICA,
IN EACH CASE LOCATED IN COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
11.12. SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (ii) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
11.13. PUBLIC ANNOUNCEMENTS. Neither the Seller nor the Buyer shall
make any public statements, including, without limitation, any press releases,
with respect to
31
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this Agreement and the transactions contemplated hereby without the prior
written consent of the other party (which consent shall not be unreasonably
withheld) except as may be required by law. If a public statement is required to
be made by law, the parties shall consult with each other in advance as to the
contents and timing thereof.
11.14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
EL PASO NATURAL GAS COMPANY
By: /s/ H. BRENT AUSTIN
Name: H. Brent Austin
Title: President and Chief
Financial Officer
TELEO VENTURES, INC.
By: /s/ MICHAEL V. RONCA
Name: Michael V. Ronca
Title: President & CEO
32
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated as of
December 31, 1996, between Teleo Ventures, Inc. ("Assignor"), and Domain Energy
Corporation ("Assignee").
W I T N E S S E T H
WHEREAS, El Paso Tennessee Pipeline Co. (formerly named Tenneco
Inc.) ("Tenneco"), El Paso Natural Gas Company ("El Paso"), and El Paso Merger
Company, an indirect, wholly-owned subsidiary of El Paso ("Merger Company"),
entered into that certain Amended and Restated Agreement and Plan of Merger
dated as of June 19, 1996 (as amended, supplemented or modified, if amended,
supplemented or modified, the "Merger Agreement"), providing for the merger (the
"Merger") of Merger Company with and into Tenneco, as a result of which Tenneco
would become an indirect, wholly-owned subsidiary of El Paso;
WHEREAS, Michael V. Ronca ("Mr. Ronca"), President and Chief
Executive Officer of Tenneco Ventures Corporation, an indirect, wholly-owned
subsidiary of Tenneco ("Tenneco Ventures"), formed Assignor;
WHEREAS, the Merger was consummated on December 12, 1996;
WHEREAS, Assignor has entered into a Stock Purchase Agreement, dated
as of December 24, 1996 (as amended, if amended, the "Stock Purchase Agreement")
with El Paso pursuant to which Assignor will purchase from Tennessee Gas
Pipeline Company, an indirect wholly owned subsidiary of El Paso, all of the
outstanding capital stock of Tenneco Ventures and Tenneco Gas Production
Corporation;
WHEREAS, the Stock Purchase Agreement permits Assignor to assign the
Stock Purchase Agreement to any direct or indirect wholly-owned subsidiary, or
any affiliate of First Reserve Corporation ("FRC"), if (1) the representations
and warranties of the Assignor made therein are equally true of the assignee,
(2) such assignment does not have any adverse consequences to El Paso or any of
its affiliates (including, without limitation, any adverse tax consequences
<PAGE>
or any adverse effect on the ability of the Assignor to consummate (or timely
consummate) the transactions contemplated thereby) and (3) such assignee
executes a counterpart of the Stock Purchase Agreement agreeing to be bound by
the provisions thereof as the "Buyer" thereunder and agreeing to be jointly and
severally liable with the Assignor and any other assignee for all of the
obligations of the Assignor thereunder; PROVIDED THAT no such assignment of the
Stock Purchase Agreement or any of the rights or obligations thereunder shall
relieve the Assignor of its obligations thereunder;
WHEREAS, Assignee has been formed at the direction of Mr. Ronca and
FRC;
WHEREAS, Assignor desires to assign and transfer to Assignee,
effective as of the date of this Agreement, all of Assignor's right, title and
interest in and to the Stock Purchase Agreement, together with all of Assignor's
duties, obligations and liabilities thereunder, and Assignee desires to accept
such assignment and transfer and to assume such duties, obligations and
liabilities;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I.
ASSIGNMENT AND ASSUMPTION;
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 1.1. ASSIGNMENT. Assignor hereby assigns and transfers to
Assignee, effective as of the date of this Agreement, all of Assignor's rights,
title and interest in, to and under the Stock Purchase Agreement, and all of its
duties, obligations and liabilities thereunder.
Section 1.2. ASSUMPTION. Assignee hereby (1) accepts the assignment
and transfer from Assignor to Assignee set forth in Section 1.1 hereof, (2)
assumes, accepts and agrees to be bound by all of the terms and conditions of
the Stock Purchase Agreement and (3) assumes, accepts and agrees to perform all
of the duties, obligations and liabilities of Assignor under the Stock Purchase
Agreement.
2
<PAGE>
Section 1.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ASSIGNEE.
Assignee hereby represents, warrants and covenants that:
(1) AFFILIATE OF FRC. Upon consummation of the transactions
contemplated by the Subscription Agreement dated December 31, 1996 between
Assignee and First Reserve Fund VII, Limited Partnership, Assignee will be an
affiliate of
FRC.
(2) STOCK PURCHASE AGREEMENT REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Assignor set forth in the Stock Purchase
Agreement are equally true of Assignee.
(3) EXECUTION OF STOCK PURCHASE AGREEMENT COUNTERPART. Assignee will
execute a counterpart of the Stock Purchase Agreement, in substantially the form
attached hereto as Exhibit A, agreeing to be bound by the provisions thereof as
the "Buyer" thereunder and agreeing to be liable for all of the obligations of
Assignor thereunder.
ARTICLE II.
MISCELLANEOUS
Section 2.1. NOTICES. All notices and other communications required
or permitted under this Agreement shall be in writing (including telecopy,
facsimile communication). Any such notice shall be deemed given upon its receipt
at the following address:
(1) if to Assignor, at:
Teleo Ventures, Inc.
Attn: Mr. Michael V. Ronca
President and Chief Executive Officer
P.O. Box 2511
Houston, Texas 77252-2511
Telephone: (713) 757-8880
Telecopy: (713) 757-8253
and
(2) if to Assignee, at:
Domain Energy Corporation
3
<PAGE>
Attn: Mr. Michael V. Ronca
President and Chief Executive Officer
P.O. Box 2511
Houston, Texas 77252-2511
Telephone: (713) 757-8880
Telecopy: (713) 757-8253
with a copy in each case to:
James L. Rice III, Esq.
Weil, Gotshal & Manges LLP
700 Louisiana
Suite 1600
Houston, Texas 77002
Telephone: (713) 546-5000
Telecopy: (713) 224-9511
Any party may, by notice given in accordance with this Section 2.1 to the other
party, designate another address or person for receipt of notices hereunder.
Section 2.2. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, cancelled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by all of the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of a party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any such right, power or privilege, or
any single or partial exercise of any such right, power or privilege, preclude
any further exercise thereof. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity.
Section 2.3. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFIT.
This Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. Unless otherwise expressly
provided herein, no rights or obligations under this Agreement are assignable.
Nothing in this Agreement, whether express or implied, is intended to confer any
rights or remedies under or by reason of this Agreement on any person or entity
other than the parties to this Agreement and their respective successors and
permitted assigns.
4
<PAGE>
Section 2.4. SEVERABILITY OF PROVISIONS. If any provision, or any
portion of any provision, of this Agreement shall be invalid or unenforceable,
or if the application of any provision or any portion thereof to any person or
entity or circumstances shall be held invalid or unenforceable, the remaining
portion of such provision, or such provision as it applies to other persons ot
entities or circumstances, and the remaining provisions, shall not be affected
thereby.
Section 2.5. 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
subdivision and shall be disregarded in construing the language contained in
such subdivision. The words "this Agreement," "herein," "hereby," "hereunder,"
and words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. Words in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.
Section 2.6. SURVIVAL. All representations, warranties and covenants
of the parties hereto made herein or in any other document delivered pursuant
hereto shall survive the execution and delivery of this Agreement, except as
otherwise provided herein or therein.
Section 2.7. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, with respect to the
subject matter hereof.
5
<PAGE>
[SIGNATURE PAGE TO ASSIGNMENT AND ASSUMPTION AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers hereunto duly authorized as of the date
first above written.
TELEO VENTURES, INC.
By:/S/MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive
Officer
DOMAIN ENERGY CORPORATION
By:/S/MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive
Officer
6
<PAGE>
EXHIBIT A
[COUNTERPART SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
Domain Energy Corporation, a Delaware corporation ("Domain"), hereby
agrees to be bound as the "Buyer" hereunder by all of the provisions of the
Stock Purchase Agreement dated as of December 24, 1996 between Teleo Ventures,
Inc. ("Teleo"), and El Paso Natural Gas Company and hereby agrees to be for all
of the obligations of Teleo hereunder. Domain represents and warrants that (i)
it is an affiliate of First Reserve Corporation and (ii) the representations and
warranties of Teleo set forth in the Stock Purchase Agreement are equally true
of Domain.
DOMAIN ENERGY CORPORATION
By:/S/MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive
Officer
The foregoing is accepted this 31st day of December, 1996, and Teleo
is hereby released from all obligations under the Stock Purchase Agreement.
EL PASO NATURAL GAS COMPANY
By:/S/WAYNE B. ALLRED
H. Brent Austin
Executive Vice President and CFO
Wayne B. Allred
Vice President and Treasurer
7
EXHIBIT 10.3
- ------------------------------------------------------------------------------
CREDIT AGREEMENT
BETWEEN
TENNECO VENTURES FINANCE CORPORATION
AND
COMPASS BANK-HOUSTON
June 7, 1996
REVOLVING LINE OF CREDIT OF UP TO $20,000,000
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above......................................... 1
1.2 Additional Defined Terms.................................... 1
1.3 Undefined Financial Accounting Terms........................ 15
1.4 References.................................................. 15
1.5 Articles and Sections....................................... 16
1.6 Number and Gender........................................... 16
1.7 Incorporation of Exhibits................................... 16
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit.................................... 16
2.2 Use of Loan Proceeds. ...................................... 17
2.3 Interest.................................................... 17
2.4 Repayment of Loans and Interest............................. 17
2.5 Outstanding Amounts......................................... 18
2.6 Time, Place, and Method of Payments......................... 18
2.7 Borrowing Base Determinations............................... 18
2.8 Mandatory Prepayments....................................... 19
2.9 Voluntary Prepayments and Conversions of Loans.............. 19
2.10 Commitment Fee.............................................. 20
2.11 Engineering Fee............................................. 20
2.12 Facility Fee................................................ 20
2.13 Loans to Satisfy Obligations of Borrower.................... 20
2.14 Security Interest in Accounts; Right of Offset.............. 20
2.15 General Provisions Relating to Interest..................... 21
2.16 Yield Protection............................................ 22
2.17 Limitation on Types of Loans................................ 24
2.18 Illegality.................................................. 24
2.19 Regulatory Change........................................... 25
2.20 Limitations on Interest Periods............................. 25
2.21 Letters in Lieu of Transfer Orders.......................... 25
2.22 Power of Attorney........................................... 26
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items................... 26
3.2 Each Loan................................................... 29
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization........................................... 30
4.2 Corporate Existence......................................... 31
4.3 Valid and Binding Obligations............................... 31
4.4 Security Instruments........................................ 31
4.5 Title to Assets............................................. 31
4.6 Scope and Accuracy of Proforma Balance Sheet................ 31
4.7 No Material Misstatements................................... 31
4.8 Liabilities, Litigation, and Restrictions................... 32
-i-
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4.9 Authorizations; Consents.................................... 32
4.10 Compliance with Laws........................................ 32
4.11 ERISA....................................................... 32
4.12 Environmental Laws.......................................... 33
4.13 Compliance with Federal Reserve Regulations................. 33
4.14 Investment Company Act Compliance........................... 34
4.15 Public Utility Holding Company Act Compliance............... 34
4.16 Proper Filing of Tax Returns; Payment of Taxes
Due......................................................... 34
4.17 Refunds..................................................... 34
4.18 Gas Contracts............................................... 34
4.19 Intellectual Property....................................... 34
4.20 Casualties or Taking of Property............................ 35
4.21 Locations of Borrower....................................... 35
4.22 Subsidiaries................................................ 35
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records........................... 35
5.2 Quarterly Financial Statements; Compliance
Certificates................................................ 35
5.3 Annual Financial Statements................................. 36
5.4 Oil and Gas Reserve Reports................................. 36
5.6 Title Opinions; Title Defects............................... 37
5.7 Notices of Certain Events................................... 37
5.8 Letters in Lieu of Transfer Orders; Division
Orders...................................................... 38
5.9 Additional Information...................................... 38
5.10 Compliance with Laws........................................ 39
5.11 Payment of Assessments and Charges.......................... 39
5.12 Maintenance of Corporate Existence and Good
Standing.................................................... 39
5.13 Payment of Notes; Performance of Obligations................ 39
5.14 Further Assurances.......................................... 39
5.15 Initial Fees and Expenses of Counsel to Lender.............. 40
5.16 Subsequent Fees and Expenses of Lender...................... 40
5.17 Operation of Oil and Gas Properties......................... 40
5.18 Inspection of Properties.................................... 41
5.19 INDEMNIFICATION............................................. 41
5.20 Ownership of Borrower....................................... 42
5.21 Lockbox Arrangement......................................... 42
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness................................................ 42
6.2 Contingent Obligations...................................... 42
6.3 Liens....................................................... 43
6.4 Sales of Assets............................................. 43
6.5 Leasebacks.................................................. 43
6.6 Loans or Advances........................................... 43
6.7 Dividends and Distributions................................. 43
6.8 Issuance of Stock; Changes in Corporate
Structure................................................... 43
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6.9 Transactions with Affiliates................................ 43
6.10 Lines of Business........................................... 44
6.11 ERISA Compliance............................................ 44
6.12 Tangible Net Worth.......................................... 44
6.13 Amendment of Production Payment Agreement................... 44
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default............................ 44
7.2 Remedies.................................................... 47
ARTICLE VIII MISCELLANEOUS
8.1 Transfers; Participations................................... 48
8.2 Survival of Representations, Warranties, and Covenants...... 48
8.3 Notices and Other Communications............................ 48
8.4 Parties in Interest......................................... 49
8.5 Rights of Third Parties..................................... 49
8.6 Renewals; Extensions........................................ 49
8.7 No Waiver; Rights Cumulative................................ 50
8.8 Survival Upon Unenforceability.............................. 50
8.9 Amendments; Waivers......................................... 50
8.10 Controlling Agreement....................................... 50
8.11 Disposition of Collateral................................... 50
8.12 GOVERNING LAW............................................... 50
8.13 JURISDICTION AND VENUE...................................... 51
8.14 ENTIRE AGREEMENT............................................ 51
8.15 Counterparts................................................ 51
LIST OF EXHIBITS
Exhibit I - Form of Note
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Compliance Certificate
Exhibit IV - Form of Opinion of Counsel
Exhibit V - Disclosures
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into this 7th day of June,
1996, by and between TENNECO VENTURES FINANCE CORPORATION, a Delaware
corporation (the "BORROWER"), and COMPASS BANK-HOUSTON, a Texas state chartered
banking institution (the "LENDER").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the Borrower and the Lender hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 TERMS DEFINED ABOVE. As used in this Credit Agreement, the terms
"BORROWER" and "LENDER" shall have the meaning assigned to them hereinabove.
1.2 ADDITIONAL DEFINED TERMS. As used in this Credit Agreement, each
of the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:
"ADDITIONAL COSTS" shall mean costs which the Lender determines are
attributable to its obligation to make or its making or maintaining any
Fixed Rate Loan, or any reduction in any amount receivable by the Lender
in respect of any such obligation or any Fixed Rate Loan, resulting from
any Regulatory Change which (a) changes the basis of taxation of any
amounts payable to the Lender under this Agreement or the Note in respect
of any Fixed Rate Loan (other than taxes imposed on the overall net income
of the Lender), (b) imposes or modifies any reserve, special deposit,
minimum capital, capital rates, or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, the Lender (including Fixed Rate Loans and Dollar deposits
in the London interbank market in connection with LIBO Rate Loans), or any
commitments of the Lender hereunder, (c) increases the Assessment Rate, or
(d) imposes any other condition affecting this Agreement or any of such
extensions of credit, liabilities, or commitments.
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"ADJUSTED LIBO RATE" shall mean, for any LIBO Rate Loan, an interest
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Lender to be equal to the sum of the LIBO Rate for such
Loan plus the Applicable Margin, but in no event exceeding the Highest
Lawful Rate.
"AFFILIATE" shall mean any Person directly or indirectly
controlling, or under common control with, the Borrower and includes any
Subsidiary of the Borrower and any "affiliate" of the Borrower within the
meaning of Reg. ss.240.12b-2 of the Securities Exchange Act of 1934, as
amended, with "control," as used in this definition, meaning possession,
directly or indirectly, of the power to direct or cause the direction of
management, policies or action through ownership of voting securities,
contract, voting trust, or membership in management or in the group
appointing or electing management or otherwise through formal or informal
arrangements or business relationships.
"AGREEMENT" shall mean this Credit Agreement, as it may be amended,
supplemented, or restated from time to time.
"APPLICABLE LENDING OFFICE" shall mean, for each type of Loan, the
lending office of the Lender (or an affiliate of the Lender) designated
for such type of Loan on the signature pages hereof or such other office
of the Lender (or an affiliate of the Lender) as the Lender may from time
to time specify to the Borrower as the office by which Loans of such type
are to be made and maintained.
"APPLICABLE MARGIN" shall mean as to each LIBO Rate Loan, two and
one-quarter percent (2 1/4%).
"AVAILABLE COMMITMENT" shall mean, at any time, an amount equal to
the remainder, if any, of (a) the Borrowing Base in effect at such time
MINUS (b) the Loan Balance at such time.
"BORROWING BASE" shall mean, at any time, the amount determined by
the Lender in accordance with Section and then in effect.
"BORROWING REQUEST" shall mean each written request, in
substantially the form attached hereto as Exhibit II, by the Borrower to
the Lender for a borrowing, conversion, or prepayment pursuant to Sections
2.1 or 2.9, each of which shall:
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(a) be signed by a Responsible Officer of the Borrower;
(b) specify the amount and type of Loan requested, and, as
applicable, the Loan to be converted or prepaid and the date of the
borrowing, conversion, or prepayment (which shall be a Business
Day);
(c) when requesting a Floating Rate Loan, be delivered to the
Lender no later than 10:00 a.m., Central Standard or Daylight
Savings Time, as the case may be, on the Business Day of the
requested borrowing, conversion, or prepayment;
(d) when requesting a LIBO Rate Loan, be delivered to the
Lender no later than 10:00 a.m., Central Standard or Daylight
Savings Time, as the case may be, two Business Days preceding the
requested borrowing, conversion, or prepayment and designate the
Interest Period requested with respect to such Loan.
"BUSINESS DAY" shall mean (a) for all purposes other than as covered
by clause (b) of this definition, a day other than a Saturday, Sunday,
legal holiday for commercial banks under the laws of the State of Texas,
or any other day when banking is suspended in the State of Texas, and (b)
with respect to all requests, notices, and determinations in connection
with, and payments of principal and interest on, LIBO Rate Loans, a day
which is a Business Day described in clause (a) of this definition and
which is a day for trading by and between banks for Dollar deposits in the
London interbank market.
"CODE" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time.
"CLOSING DATE" shall mean the effective date of this
Agreement.
"COLLATERAL" shall mean the Mortgaged Properties and any other
Property now or at any time used or intended as security for the payment
or performance of all or any portion of the Obligations.
"COMMITMENT" shall mean the obligation of the Lender, subject to
applicable provisions of this Agreement, to make Loans to or for the
benefit of the Borrower pursuant to Section 2.1.
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"COMMITMENT AMOUNT" shall mean the amount equal to the Borrowing
Base.
"COMMITMENT FEE" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.10.
"COMMITMENT PERIOD" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"COMMITMENT TERMINATION DATE" shall mean June 1, 1998.
"COMMONLY CONTROLLED ENTITY" shall mean any Person which is under
common control with the Borrower within the meaning of Section 4001 of
ERISA.
"COMPLIANCE CERTIFICATE" shall mean each certificate, substantially
in the form attached hereto as Exhibit , executed by a Responsible Officer
of the Borrower and furnished to the Lender from time to time in
accordance with Section 5.2.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "PRIMARY OBLIGATION") in any manner, whether
directly or indirectly, including, without limitation, any obligation of
such Person, regardless of whether such obligation is contingent, (a) to
purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any primary obligation, or (ii) to maintain working
or equity capital of any other Person in respect of any primary
obligation, or otherwise to maintain the net worth or solvency of any
other Person, (c) to purchase Property, securities or services primarily
for the purpose of assuring the owner of any primary obligation of the
ability of the Person primarily liable for such primary obligation to make
payment thereof, or (d) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof, with the
amount of any Contingent Obligation being deemed to be equal to the stated
or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
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"DEFAULT" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"DEFAULT RATE" shall mean a per annum interest rate equal to the
Index Rate plus five percent (5%), but in no event exceeding the Highest
Lawful Rate.
"DOLLARS" and "$" shall mean dollars in lawful currency of the
United States of America.
"ENGINEERING FEE" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.11.
"ENVIRONMENTAL COMPLAINT" shall mean any written complaint, order,
directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority or any other
Person with respect to (a) air emissions, (b) spills, releases, or
discharges to soils, any improvements located thereon, surface water,
groundwater, or the sewer, septic, waste treatment, storage, or disposal
systems servicing any Property of the Borrower, (c) solid or liquid waste
disposal, (d) the use, generation, storage, transportation, or disposal of
any Hazardous Substance, or (e) other environmental, health, or safety
matters affecting any Property of the Borrower or the business conducted
thereon.
"ENVIRONMENTAL LAWS" shall mean (a) the following federal laws as
they may be cited, referenced, and amended from time to time: the Clean
Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Endangered Species Act, the Resource Conservation and Recovery Act, the
Occupational Safety and Health Act, the Hazardous Materials Transportation
Act, the Superfund Amendments and Reauthorization Act, and the Toxic
Substances Control Act; (b) any and all equivalent environmental statutes
of any state in which Property of the Borrower is situated, as they may be
cited, referenced and amended from time to time; (c) any rules or
regulations promulgated under or adopted pursuant to the above federal and
state laws; and (d) any other equivalent federal, state, or local statute
or any requirement, rule, regulation, code, ordinance, or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal,
handling, or release of Hazardous Substances.
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<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"EVENT OF DEFAULT" shall mean any of the events specified in Section
7.1.
"FACILITY FEE" shall mean the fee payable to the Lender by the
Borrower pursuant to Section 2.12.
"FINAL MATURITY" shall mean June 1, 1998.
"FINANCIAL STATEMENTS" shall mean statements of the financial
condition of the Borrower as at the point in time and for the period
indicated and consisting of at least a balance sheet and related
statements of operations, common stock and other stockholders' equity, and
cash flows for the Borrower (except that, in the case of the statements to
be delivered by the Borrower to the Lender pursuant to Section 5.2,
"FINANCIAL STATEMENTS" shall mean only the balance sheet and income
statement for the Borrower) and, when required by applicable provisions of
this Agreement to be audited, accompanied by the unqualified certification
of a nationally-recognized firm of independent certified public
accountants or other independent certified public accountants acceptable
to the Lender and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP consistently applied and in comparative
form with respect to the corresponding period of the preceding fiscal
period.
"FIXED RATE LOAN" shall mean a LIBO Rate Loan.
"FLOATING RATE" shall mean an interest rate per annum equal to the
Index Rate from time to time in effect, but in no event exceeding the
Highest Lawful Rate.
"FLOATING RATE LOAN" shall mean any Loan and any portion of the Loan
Balance which the Borrower has requested, in the initial Borrowing Request
for such Loan or a subsequent Borrowing Request for such portion of the
Loan Balance, bear interest at the Floating Rate, or which pursuant to the
terms hereof is otherwise required to bear interest at the Floating Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified
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Public Accountants and in effect in the United States from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation, country,
commonwealth, territory, government, state, county, parish, municipality,
or other political subdivision and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"HAZARDOUS SUBSTANCES" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos, or any material
containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or
related materials, petroleum, petroleum products, associated oil or
natural gas exploration, production, and development wastes, or any
substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," or "toxic substances" under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Toxic Substances Control Act, as amended, or
any other law or regulation now or hereafter enacted or promulgated by any
Governmental Authority.
"HIGHEST LAWFUL RATE" shall mean the maximum nonusurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at any time or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of Texas
or the United States of America, whichever authorizes the greater rate, as
such laws are presently in effect or, to the extent allowed by applicable
law, as such laws may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than such laws now allow.
"INDEBTEDNESS" shall mean, as to any Person, without duplication,
(a) all liabilities (excluding reserves for deferred income taxes,
deferred compensation liabilities, and other deferred liabilities and
credits) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet, (b)
all obligations of such Person evidenced by bonds, debentures, promissory
notes, or similar evidences of indebtedness, (c) all other indebtedness of
such Person for borrowed money, and (d) all obligations of others, to the
extent any such obligation is secured by a Lien on the assets of such
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Person (whether or not such Person has assumed or become liable for the
obligation secured by such Lien).
"INDEX RATE" shall mean the prime rate established in THE WALL
STREET JOURNAL'S "MONEY RATES" or similar table. If multiple prime rates
are quoted in the table, then the highest prime rate will be the Index
Rate. In the event that the prime rate is no longer published by THE WALL
STREET JOURNAL in the "MONEY RATES" or similar table, then Lender may
select an alternative published index based upon comparable information as
a substitute Index Rate. Upon the selection of a substitute Index Rate,
the applicable interest rate shall thereafter vary in relation to the
substitute index. Such substitute index shall be the same index that is
generally used as a substitute by Lender on all Index Rate loans.
"INSOLVENCY PROCEEDING" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the
United States, the State of Texas, or any other jurisdiction.
"INSOLVENT" or "INSOLVENCY" shall mean, with respect to any
Multiemployer Plan, that such Plan is insolvent within the meaning of such
term as used in Section 4245 of ERISA.
"INTELLECTUAL PROPERTY" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"INTEREST PERIOD" shall mean, subject to the limitations set forth
in Section 2.20 , with respect to any LIBO Rate Loan, a period commencing
on the date such Loan is made or converted from a Loan of another type
pursuant to this Agreement or the last day of the next preceding Interest
Period with respect to such Loan and ending on the numerically
corresponding day in the calendar month that is one, two, three, or,
subject to availability, six months thereafter, as the Borrower may
request in the Borrowing Request for such Loan.
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"INVESTMENT" in any Person shall mean any stock, bond, note, or
other evidence of Indebtedness, or any other security (other than current
trade and customer accounts) of, investment or partnership interest in or
loan to, such Person.
"LIBO RATE" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) equal to the average of the offered
quotations appearing on Telerate Page 3750 (or if such Telerate Page shall
not be available, any successor or similar service selected by the Lender
and the Borrower) as of approximately 11:00 a.m., Central Standard or
Daylight Savings Time, as the case may be, on the day two Business Days
prior to the first day of such Interest Period for Dollar deposits in an
amount comparable to the principal amount of such LIBO Rate Loan and
having a term comparable to the Interest Period for such LIBO Rate Loan,
or (b) the Highest Lawful Rate. If neither such Telerate Page 3750 nor any
successor or similar service is available, the term "LIBO Rate" shall
mean, with respect to any Interest Period for any LIBO Rate Loan, the
lesser of (a) the rate per annum (rounded upwards if necessary, to the
nearest 1/16 of 1%) quoted by the Lender at approximately 11:00 a.m.,
London time (or as soon thereafter as practicable) two Business Days prior
to the first day of the Interest Period for such LIBO Rate Loan for the
offering by the Lender to leading banks in the London interbank market of
Dollar deposits in an amount comparable to the principal amount of such
LIBO Rate Loan and having a term comparable to the Interest Period for
such LIBO Rate Loan, or (b) the Highest Lawful Rate.
"LIBO RATE LOAN" shall mean any Loan and any portion of the Loan
Balance which the Borrower has requested, in the initial Borrowing Request
for such Loan or a subsequent Borrowing Request for such portion of the
Loan Balance, bear interest at the Adjusted LIBO Rate and which is
permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.
"LIEN" shall mean any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of such Property,
whether such interest is based on common law, statute, or contract, and
including, but not limited to, the lien or security interest arising from
a mortgage, ship mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt, or a lease, consignment, or bailment
for security purposes
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(other than true leases or true consignments), liens of mechanics,
materialmen, and artisans, maritime liens and reservations, exceptions,
encroachments, easements, rights of way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances
affecting Property which secure an obligation owed to, or a claim by, a
Person other than the owner of such Property (for the purpose of this
Agreement, the Borrower shall be deemed to be the owner of any Property
which it has acquired or holds subject to a conditional sale agreement,
financing lease, or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes), and the filing or recording of any financing statement or other
security instrument in any public office.
"LIMITATION PERIOD" shall mean any period while any amount remains
owing on the Note and interest on such amount, calculated at the
applicable interest rate, plus any fees or other sums payable under any
Loan Document and deemed to be interest under applicable law, would exceed
the amount of interest which would accrue at the Highest Lawful Rate.
"LOAN" shall mean any loan made by the Lender to or for the benefit
of the Borrower pursuant to this Agreement.
"LOAN BALANCE" shall mean, at any time, the outstanding principal
balance of the Note at such time.
"LOAN DOCUMENTS" shall mean this Agreement, the Note, the Security
Instruments, the Lockbox Agreement and all other documents and instruments
now or hereafter delivered pursuant to the terms of or in connection with
this Agreement, the Note, or the Security Instruments, the Lockbox
Agreement and all renewals and extensions of, amendments and supplements
to, and restatements of, any or all of the foregoing from time to time in
effect.
"LOCKBOX" shall mean P.O. Box 4585, Houston, Texas 77210,
established by the Borrower with the Lender, to which each purchaser of
production and disburser of the proceeds of production from or
attributable to the Mortgaged Properties shall be directed to make
remittance.
"LOCKBOX ACCOUNT" shall mean Account No. 2171232158 of the Borrower
established with the Lender, in association with the Lockbox and to which
the Borrower and the Lender shall have access by way of draft, check,
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wire transfer of funds, or otherwise to the extent specified in Section .
"LOCKBOX AGREEMENT" shall mean the lockbox agreement between the
Borrower and the Lender, relating to the Lockbox and being in form and
substance satisfactory to the Lender, as the same may be amended,
restated, or supplemented from time to time.
"MATERIAL ADVERSE EFFECT" shall mean (a) any material adverse effect
on the business, operations, properties, condition (financial or
otherwise), or prospects of the Borrower, (b) any adverse effect upon the
business operations, properties, condition (financial or otherwise), or
prospects of the Borrower which materially increases the risk that any of
the Obligations will not be repaid as and when due, or (c) any material
adverse effect upon the Collateral.
"MORTGAGED PROPERTIES" shall mean all Oil and Gas Properties of the
Borrower subject to a perfected first-priority Lien in favor of the
Lender, subject only to Permitted Liens, as security for the Obligations.
"MULTIEMPLOYER PLAN" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"NET INCOME" shall mean, for any period, the net income of the
Borrower for such period, determined in accordance with GAAP.
"NOTE" shall mean the promissory note of the Borrower, in the form
attached hereto as Exhibit , together with all renewals, extensions for
any period, increases, and rearrangements thereof.
"OBLIGATIONS" shall mean, without duplication, (a) all Indebtedness
evidenced by the Note, (b) the obligation of the Borrower for the payment
of Commitment Fees, Facility Fees, and Engineering Fees, and (c) all other
obligations and liabilities of the Borrower to the Lender, now existing or
hereafter incurred, under, arising out of or in connection with any Loan
Document, and to the extent that any of the foregoing includes or refers
to the payment of amounts deemed or constituting interest, only so much
thereof as shall have accrued, been earned and which remains unpaid at
each relevant time of determination.
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"OIL AND GAS PROPERTIES" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States, including,
without limitation, overriding royalty and royalty interests, leasehold
estate interests, net profits interests, production payment interests, and
mineral fee interests, together with contracts executed in connection
therewith and all tenements, hereditaments, appurtenances and Properties
appertaining, belonging, affixed, or incidental thereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens in connection with workers' compensation, unemployment insurance
or other social security (other than Liens created by Section 4068 of
ERISA), old-age pension, or public liability obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(c) Liens in favor of vendors, carriers, warehousemen, repairmen,
mechanics, workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of
obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (d) Liens in favor of operators and
non-operators under joint operating agreements or similar contractual
arrangements arising in the ordinary course of the business of the
Borrower to secure amounts owing, which amounts are not yet due or are
being contested in good faith by appropriate proceedings, if such reserve
as may be required by GAAP shall have been made therefor, (e) Liens under
production sales agreements, division orders, operating agreements, and
other agreements customary in the oil and gas business for processing,
producing, and selling hydrocarbons securing obligations not constituting
Indebtedness and provided that such Liens do not secure obligations to
deliver hydrocarbons
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at some future date without receiving full payment therefor within 90 days
of delivery, (f) easements, rights of way, restrictions, and other similar
encumbrances, and minor defects in the chain of title which are
customarily accepted in the oil and gas financing industry, none of which
interfere with the ordinary conduct of the business of the Borrower or
materially detract from the value or use of the Property to which they
apply, and (g) Liens in favor of the Lender and other Liens expressly
permitted under the Security Instruments.
"PERSON" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"PLAN" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower, or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PRINCIPAL OFFICE" shall mean the principal office of the Lender in
Houston, Texas, presently located at 24 Greenway Plaza, Suite 1401,
Houston, Texas 77046.
"PROHIBITED TRANSACTION" shall have the meaning assigned to such
term in Section 4975 of the Code.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented
from time to time.
"REGULATORY CHANGE" shall mean the passage, adoption, institution,
or amendment of any federal, state, local, or foreign Requirement of Law
(including, without limitation, Regulation D), or any interpretation,
directive, or request (whether or not having the force of law) of any
Governmental Authority or monetary authority charged with the enforcement,
interpretation, or administration thereof, occurring after the Closing
Date and applying to a class of banks including the Lender or its
Applicable Lending Office.
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"RELEASE OF HAZARDOUS SUBSTANCES" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with a valid permit,
license, certificate, or approval of the relevant Governmental Authority,
of any Hazardous Substance into or upon (a) the air, (b) soils or any
improvements located thereon, (c) surface water or groundwater, or (d) the
sewer or septic system, or the waste treatment, storage, or disposal
system servicing any Property of the Borrower, and that would result in a
violation, or the requirement for remedial action, under any Environmental
Law.
"REORGANIZATION" shall mean, with respect to any Multiemployer Plan,
that such Plan is in reorganization within the meaning of such term in
Section 4241 of ERISA.
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty-day
notice period is waived under subsections .13, .14, .16, .18, .19 or .20
of PBGC Reg. ss.2615.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate
or articles of incorporation and by-laws or other organizational or
governing documents of such Person, and any applicable law, treaty,
ordinance, order, judgment, rule, decree, regulation, or determination of
an arbitrator, court, or other Governmental Authority, including, without
limitation, rules, regulations, orders, and requirements for permits,
licenses, registrations, approvals, or authorizations, in each case as
such now exist or may be hereafter amended and are applicable to or
binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"RESERVE REPORT" shall mean each report delivered to the Lender
pursuant to Section 5.4.
"RESPONSIBLE OFFICER" shall mean, as to any Person, its President,
Chief Executive Officer or any Vice President.
"SECURITY INSTRUMENTS" shall mean the security instruments executed
and delivered in satisfaction of the condition set forth in Section
3.1(g), and all other documents and instruments at any time executed as
security for all or any portion of the Obligations, as such instruments
may be amended, restated, or supplemented from time to time.
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"SINGLE EMPLOYER PLAN" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"SUBSIDIARY" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation
are at the time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person.
"SUPERFUND SITE" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"TANGIBLE NET WORTH" shall mean (a) total assets, as would be
reflected on a balance sheet of the Borrower prepared in accordance with
GAAP, exclusive of Intellectual Property, experimental or organization
expenses, franchises, licenses, permits, and other intangible assets,
treasury stock, unamortized underwriters' debt discount and expenses, and
goodwill minus (b) total liabilities, as would be reflected on a balance
sheet of the Borrower prepared in accordance with GAAP.
"TRANSFEREE" shall mean any Person to which the Lender has sold,
assigned, transferred, or granted a participation in any of the
Obligations, as authorized pursuant to Section , and any Person acquiring,
by purchase, assignment, transfer, or participation, from any such
purchaser, assignee, transferee, or participant, any part of such
Obligations.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
1.3 UNDEFINED FINANCIAL ACCOUNTING TERMS. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
1.4 REFERENCES. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder"
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and words of similar import shall be to this Agreement in its entirety and not
only to the particular Exhibit, Article, or Section in which such reference
appears.
1.5 ARTICLES AND SECTIONS. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 INCORPORATION OF EXHIBITS. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
TERMS OF FACILITY
2.1 REVOLVING LINE OF CREDIT. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lender agrees,
during the Commitment Period, to make Loans, in immediately available funds at
the Applicable Lending Office or the Principal Office, to or for the benefit of
the Borrower, from time to time on any Business Day designated by the Borrower
following receipt by the Lender of a Borrowing Request; provided, however, no
Loan shall exceed the then existing Available Commitment.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow and convert Loans of one
type or with one Interest Period into Loans of another type or with a different
Interest Period. Except for prepayments made pursuant to Section , each
borrowing, conversion, and prepayment of principal of Loans shall be in an
amount at least equal to $100,000. Each borrowing, prepayment, or conversion of
or into a Loan of a different type or, in the case of
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a Fixed Rate Loan, having a different Interest Period, shall be deemed a
separate borrowing, conversion, and prepayment for purposes of the foregoing,
one for each type of Loan or Interest Period. Anything in this Agreement to the
contrary notwithstanding, the aggregate principal amount of LIBO Rate Loans
having the same Interest Period shall be at least equal to $100,000; and if any
LIBO Rate Loan would otherwise be in a lesser principal amount for any period,
such Loan shall be a Floating Rate Loan during such period.
(c) The Loans shall be made and maintained at the Applicable Lending
Office or the Principal Office and shall be evidenced by the Note.
2.2 USE OF LOAN PROCEEDS. Proceeds of all Loans shall
be used solely to fund the purchase of production payments on Oil
and Gas Properties subsequent to the Closing Date.
2.3 INTEREST. Subject to the terms of this Agreement (including,
without limitation, Section ), interest on the Loans shall accrue and be payable
at a rate per annum equal to the Floating Rate for each Floating Rate Loan and
the Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all Floating Rate
Loans shall be computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed (including the first day but excluding the last
day) during the period for which payable. Interest on all LIBO Rate Loans shall
be computed on the basis of a year of 360 days, and actual days elapsed
(including the first day but excluding the last day) during the period for which
payable. Notwithstanding the foregoing, interest on past-due principal and, to
the extent permitted by applicable law, past-due interest, shall accrue at the
Default Rate, computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed (including the first day but excluding the last
day) during the period for which payable, and shall be payable upon demand by
the Lender at any time as to all or any portion of such interest. In the event
that the Borrower fails to select the duration of any Interest Period for any
Fixed Rate Loan within the time period and otherwise as provided herein, such
Loan (if outstanding as a Fixed Rate Loan) will be automatically converted into
a Floating Rate Loan on the last day of the then current Interest Period for
such Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not
then outstanding) will be made as, a Floating Rate Loan. Interest provided for
herein shall be calculated on unpaid sums actually advanced and outstanding
pursuant to the terms of this Agreement and only for the period from the date or
dates of such advances until repayment.
2.4 REPAYMENT OF LOANS AND INTEREST. Accrued and unpaid interest on
each outstanding Floating Rate Loan shall be due and payable monthly commencing
on the first day of July, 1996, and
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continuing on the first day of each calendar month thereafter while any Floating
Rate Loan remains outstanding, the payment in each instance to be the amount of
interest which has accrued and remains unpaid in respect of the relevant Loan.
Accrued and unpaid interest on each outstanding Fixed Rate Loan shall be due and
payable on the last day of the Interest Period for such Fixed Rate Loan and, in
the case of any Interest Period in excess of three months, on the day of the
third calendar month following the commencement of such Interest Period
corresponding to the day of the calendar month on which such Interest Period
commenced, the payment in each instance to be the amount of interest which has
accrued and remains unpaid in respect of the relevant Loan. The Loan Balance,
together with all accrued and unpaid interest thereon, shall be due and payable
at Final Maturity. At the time of making each payment hereunder or under the
Note, the Borrower shall specify to the Lender the Loans or other amounts
payable by the Borrower hereunder to which such payment is to be applied. In the
event the Borrower fails to so specify, or if an Event of Default has occurred
and is continuing, the Lender may apply such payment as it may elect in its sole
discretion.
2.5 OUTSTANDING AMOUNTS. The outstanding principal balance of the
Note reflected by the notations by the Lender on its records shall be deemed
rebuttably presumptive evidence of the principal amount owing on the Note. The
liability for payment of principal and interest evidenced by the Note shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Agreement and interest on such amounts calculated in accordance with this
Agreement.
2.6 TIME, PLACE, AND METHOD OF PAYMENTS. All payments required
pursuant to this Agreement or the Note shall be made in lawful money of the
United States of America and in immediately available funds, shall be deemed
received by the Lender on the next Business Day following receipt if such
receipt is after 2:00 p.m., Central Standard or Daylight Savings Time, as the
case may be, on any Business Day, and shall be made at the Principal Office.
Except as provided to the contrary herein, if the due date of any payment
hereunder or under the Note would otherwise fall on a day which is not a
Business Day, such date shall be extended to the next succeeding Business Day,
and interest shall be payable for any principal so extended for the period of
such extension.
2.7 BORROWING BASE DETERMINATIONS. (a) The Borrowing Base as of the
Closing Date is acknowledged by the Borrower and the Lender to be $9,000,000.
(b) The Borrowing Base shall be redetermined semi-annually beginning
November 1, 1996, on the basis of information supplied by the Borrower in
compliance with the provisions of this Agreement, including, without limitation,
Reserve Reports, and all
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other information available to the Lender. Notwithstanding the foregoing, the
Lender may at its discretion redetermine the Borrowing Base at any time and from
time to time.
(c) Upon each determination of the Borrowing Base by the Lender, the
Lender shall notify the Borrower orally (confirming such notice promptly in
writing) of such determination, and the Borrowing Base so communicated to the
Borrower shall become effective upon such written notification and shall remain
in effect until the next subsequent determination of the Borrowing Base.
(d) The Borrowing Base shall represent the determination by the
Lender, in accordance with the applicable definitions and provisions herein
contained and its customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, subject, in the case of
any increase in the Borrowing Base, to the credit approval process of the
Lender. Furthermore, the Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by the Borrower to be essential for the adequate
protection of the Lender. The Borrowing Base shall be determined by using the
Lender's then current engineering and credit standards.
2.8 MANDATORY PREPAYMENTS. If at any time the Loan Balance exceeds
the Borrowing Base then in effect, the Borrower shall, within 45 days of notice
from the Lender of such occurrence, (a) prepay, or make arrangements acceptable
to the Lender for the prepayment of, the amount of such excess for application
on the Loan Balance, (b) provide additional collateral, of character and value
satisfactory to the Lender in its sole discretion, to secure the Obligations by
the execution and delivery to the Lender of security instruments in form and
substance satisfactory to the Lender, or (c) effect any combination of the
alternatives described in clauses (a) and (b) of this Section and acceptable to
the Lender in its sole discretion. In the event any prepayments are made on any
production payment, the Borrower will, within 5 business days of such
prepayment, reduce the amount outstanding hereunder by the principal amount so
prepaid. Such prepayments will not reduce the amount of the Borrowing Base.
2.9 VOLUNTARY PREPAYMENTS AND CONVERSIONS OF LOANS. Subject to
applicable provisions of this Agreement, the Borrower shall have the right at
any time or from time to time to prepay Loans and to convert Loans of one type
or with one Interest Period into Loans of another type or with a different
Interest Period; provided, however, that (a) the Borrower shall give the Lender
notice of each such prepayment or conversion of all or any portion of a Fixed
Rate Loan no less than two Business Days prior to prepayment or conversion, (b)
any Fixed Rate Loan may be prepaid or converted only on the last day of an
Interest Period for such Loan,
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(c) the Borrower shall pay all accrued and unpaid interest on the amounts
prepaid or converted, and (d) no such prepayment or conversion shall serve to
postpone the repayment when due of any Obligation.
2.10 COMMITMENT FEE. In addition to interest on the Note as provided
herein and the Engineering Fees and Facility Fees payable hereunder and to
compensate the Lender for maintaining funds available, the Borrower shall pay to
the Lender, in immediately available funds, on the first day of July, 1996, and
on the first day of each third calendar month thereafter during the Commitment
Period, a fee in the amount of one-half percent (1/2%) per annum, calculated on
the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day), on the average
daily amount of the Available Commitment during the preceding quarterly period.
2.11 ENGINEERING FEE. In addition to interest on the Note as
provided herein and the Commitment Fees and Facility Fees payable hereunder and
to compensate the Lender for the costs of evaluating the Mortgaged Properties
and reviewing the Reserve Reports, the Borrower shall pay to the Lender, in
immediately available funds, on the date of each redetermination of the
Borrowing Base each November and June during the term hereof, an engineering fee
in the amount of $10,000 and on each additional redetermination of the Borrowing
Base the actual cost to Lender of such redetermination.
2.12 FACILITY FEE. In addition to interest on the Note as provided
herein and Commitment Fees and Engineering Fees payable hereunder and to
compensate the Lender for the costs of the extension of credit hereunder, the
Borrower shall pay to the Lender on the Closing Date, in immediately available
funds, a facility fee in the amount of $22,500. One-half of such fee was paid
upon the acceptance of the preliminary term sheet and the remaining one-half
shall be paid on the Closing Date.
2.13 LOANS TO SATISFY OBLIGATIONS OF BORROWER. The Lender may, but
shall not be obligated to, make Loans for the benefit of the Borrower and apply
proceeds thereof to the satisfaction of any condition, warranty, representation,
or covenant of the Borrower contained in this Agreement or any other Loan
Document. Any such Loan shall be evidenced by the Note and shall be made as a
Floating Rate Loan.
2.14 SECURITY INTEREST IN ACCOUNTS; RIGHT OF OFFSET. As security for
the payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender and grants to the Lender a security interest
in all funds of the Borrower now or hereafter or from time to time on deposit
with the Lender, with such interest of the Lender to be retransferred,
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reassigned, and/or released by the Lender, as the case may be, at the expense of
the Borrower upon payment in full and complete performance by the Borrower of
all Obligations. All remedies as secured party or assignee of such funds shall
be exercisable by the Lender upon the occurrence of any Event of Default,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof. Furthermore,
the Borrower hereby grants to the Lender the right, exercisable at such time as
any Obligation shall mature, whether by acceleration of maturity or otherwise,
of offset or banker's lien against all funds of the Borrower now or hereafter or
from time to time on deposit with the Lender, regardless of whether the exercise
of any such remedy would result in any penalty or loss of interest or profit
with respect to any withdrawal of funds deposited in a time deposit account
prior to the maturity thereof.
2.15 GENERAL PROVISIONS RELATING TO INTEREST. (a) It is the
intention of the parties hereto to comply strictly with the usury laws of the
State of Texas and the United States of America. In this connection, there shall
never be collected, charged, or received on the sums advanced hereunder interest
in excess of that which would accrue at the Highest Lawful Rate. For purposes of
Article 5069-1.04, Vernon's TEXAS CIVIL STATUTES, as amended, the Borrower
agrees that the Highest Lawful Rate shall be the "indicated (weekly) rate
ceiling" as defined in such Article, provided that the Lender may also rely, to
the extent permitted by applicable laws of the State of Texas or the United
States of America, on alternative maximum rates of interest under other laws of
the State of Texas or the United States of America applicable to the Lender, if
greater.
(b) Notwithstanding anything herein or in the Note to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Note shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
laws of the State of Texas or the United States of America, the interest rate to
be charged hereunder shall remain at the Highest Lawful Rate until such time as
there has been paid to the Lender (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that the Lender would have received during
the Limitation Period had the interest rate remained at the otherwise applicable
rate, and (ii) all interest and fees otherwise payable to the Lender but for the
effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Note or under this Agreement or any other Loan Document include amounts which by
law are deemed interest and which would
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exceed the amount permitted if the Highest Lawful Rate were in effect, the
Borrower stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable laws of the State of
Texas or the United States of America, the result of mathematical error on the
part of the Borrower and the Lender; and the Lender shall promptly refund the
amount of such excess (to the extent only of such interest payments in excess of
that which would have accrued and been payable on the basis of the Highest
Lawful Rate) upon discovery of such error by the Lender or notice thereof from
the Borrower. In the event that the maturity of any Obligation is accelerated,
by reason of an election by the Lender or otherwise, or in the event of any
required or permitted prepayment, then the consideration constituting interest
under applicable laws may never exceed the Highest Lawful Rate; and excess
amounts paid which by law are deemed interest, if any, shall be credited by the
Lender on the principal amount of the Obligations, or if the principal amount of
the Obligations shall have been paid in full, refunded to the Borrower.
(d) All sums paid, or agreed to be paid, to the Lender for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that the actual
rate of interest is uniform but does not exceed the Highest Lawful Rate
throughout the full term hereof.
2.16 YIELD PROTECTION. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower shall pay to
the Lender from time to time such amounts as the Lender may determine are
necessary to compensate it for any Additional Costs incurred by the Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender such
amounts as shall be sufficient in the reasonable opinion of the Lender to
compensate it for any loss, cost, or expense incurred by and as a result of:
(i) any payment, prepayment, or conversion by the Borrower of
a Fixed Rate Loan on a date other than the last day of an Interest
Period for such Loan; or
(ii) any failure by the Borrower to borrow a Fixed Rate Loan
from the Lender on the date for such borrowing specified in the
relevant Borrowing Request;
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such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any, of (A) the amount of interest which
would have accrued on the principal amount so paid, prepaid, converted, or not
borrowed for the period from the date of such payment, prepayment, conversion,
or failure to borrow to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, the Interest Period for such
Loan which would have commenced on the date of such failure to borrow) at the
applicable rate of interest for such Loan provided for herein over (B) the
interest component (as reasonably determined by the Lender) of the amount (as
reasonably determined by the Lender) the Lender would have bid in the London
interbank market for Dollar deposits of amounts comparable to such principal
amount and maturities comparable to such period.
(c) Determinations by the Lender for purposes of this Section of its
costs or rate of return, maintaining Loans, its obligation to make Loans, or on
amounts receivable by it in respect of Loans, or such obligations, and the
additional amounts required to compensate the Lender under this Section shall be
conclusive, absent manifest error, provided that such determinations are made on
a reasonable basis. The Lender shall furnish the Borrower with a certificate
setting forth in reasonable detail the basis and amount of increased costs
incurred or reduced amounts receivable as a result of any such event, and the
statements set forth therein shall be conclusive, absent manifest error. The
Lender shall (i) notify the Borrower, as promptly as practicable after the
Lender obtains knowledge of any Additional Costs or other sums payable pursuant
to this Section and determines to request compensation therefor, of any event
occurring after the Closing Date which will entitle the Lender to compensation
pursuant to this Section; provided that the Borrower shall not be obligated for
the payment of any Additional Costs or other sums payable pursuant to this
Section to the extent such Additional Costs or other sums accrued more than 90
days prior to the date upon which the Borrower was given such notice; and (ii)
designate a different Applicable Lending Office for the Loans of the Lender
affected by such event if such designation will avoid the need for or reduce the
amount of such compensation and will not, in the sole opinion of the Lender, be
disadvantageous to the Lender. If the Lender requests compensation from the
Borrower under this Section, the Borrower may, by notice to the Lender, require
that the Loans by the Lender of the type with respect to which such compensation
is requested be converted into Floating Rate Loans in accordance with Section .
Any compensation requested by the Lender pursuant to this Section shall be due
and payable to the Lender within five days of delivery of any such notice by the
Lender to the Borrower.
(d) The Lender agrees that it shall not request, and the Borrower
shall not be obligated to pay, any Additional Costs or other sums payable
pursuant to this Section unless similar
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additional costs and other sums payable are also generally assessed by the
Lender against other customers of the Lender similarly situated where such
customers are subject to documents providing for such assessment.
2.17 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, no more than six separate Loans shall be outstanding at any one
time, with, for purposes of this Section, all Floating Rate Loans constituting
one Loan, and all LIBO Rate Loans for the same Interest Period constituting one
Loan. Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any interest rate for any LIBO Rate Loan for any Interest
Period therefor:
(a) the Lender determines (which determination shall be conclusive)
that quotations of interest rates for the deposits referred to in the
definition of "LIBO Rate" in Section are not being provided in the
relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for such Loan as provided in this
Agreement; or
(b) the Lender determines (which determination shall be conclusive)
that the rates of interest referred to in the definition of "LIBO Rate" in
Section upon the basis of which the rate of interest for such Loan for
such Interest Period is to be determined do not accurately reflect the
cost to the Lender of making or maintaining such Loan for such Interest
Period,
then the Lender shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lender shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans,
and the Borrower shall, on the last day of the then current Interest Period for
each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert
such Loan into another type of Loan in accordance with Section . Before giving
such notice pursuant to this Section, the Lender will designate a different
available Applicable Lending Office for LIBO Rate Loans or take such other
action as the Borrower may request if such designation or action will avoid the
need to suspend the obligation of the Lender to make LIBO Rate Loans hereunder
and will not, in the opinion of the Lender, be disadvantageous to the Lender.
2.18 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender or its
Applicable Lending Office to (a) honor its obligation to make any type of Fixed
Rate Loans hereunder, or (b) maintain any type of Fixed Rate Loans hereunder,
then the Lender shall promptly notify the Borrower thereof; and the obligation
of the Lender
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hereunder to make such type of Fixed Rate Loans and to convert other types of
Loans into Fixed Rate Loans of such type shall be suspended until such time as
the Lender may again make and maintain Fixed Rate Loans of such type, and the
outstanding Fixed Rate Loans of such type shall be converted into Floating Rate
Loans in accordance with Section 2.9. Before giving such notice pursuant to this
Section, the Lender will designate a different available Applicable Lending
Office for Fixed Rate Loans or take such other action as the Borrower may
request if such designation or action will avoid the need to suspend the
obligation of the Lender to make Fixed Rate Loans and will not, in the opinion
of the Lender, be disadvantageous to the Lender.
2.19 REGULATORY CHANGE. In the event that by reason of any
Regulatory Change, the Lender (a) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of the Lender which includes deposits by reference to which
the interest rate on any Fixed Rate Loan is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Lender
which includes any Fixed Rate Loan, or (b) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold, then,
at the election of the Lender with notice to the Borrower, the obligation of the
Lender to make such Fixed Rate Loans and to convert Floating Rate Loans into
such Fixed Rate Loans shall be suspended until such time as such Regulatory
Change ceases to be in effect, and all such outstanding Fixed Rate Loans shall
be converted into Floating Rate Loans in accordance with Section 2.9.
2.20 LIMITATIONS ON INTEREST PERIODS. Each Interest Period selected
by the Borrower (a) which commences on the last Business Day of a calendar month
(or, with respect to any LIBO Rate Loan, any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month,
(b) which would otherwise end on a day which is not a Business Day shall end on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day), (c)
which would otherwise commence before and end after Final Maturity shall end on
Final Maturity, and (d) shall have a duration of not less than one month, as to
any LIBO Rate Loan, and, if any Interest Period would otherwise be a shorter
period, the relevant Loan shall be a Floating Rate Loan during such period.
2.21 LETTERS IN LIEU OF TRANSFER ORDERS. The Lender agrees that none
of the letters in lieu of transfer or division orders provided by the Borrower
pursuant to Section 3.1(g)(iii) or Section 5.8 will be sent to the addressees
thereof prior to the occurrence of an Event of Default, at which time the Lender
may, at
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its option and in addition to the exercise of any of its other rights and
remedies, send any or all of such letters.
2.22 POWER OF ATTORNEY. The Borrower hereby designates the Lender as
its agent and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and, upon the occurrence of an Event of Default,
delivering any and all of the letters in lieu of transfer orders delivered by
the Borrower to the Lender pursuant to Section 3.1(g)(iii) or Section 5.8,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Lender shall lawfully do or cause to
be done by virtue of this power of attorney and the rights granted with respect
to such power of attorney. This power of attorney is coupled with the interests
of the Lender in the Collateral, shall commence and be in full force and effect
as of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Lender by this appointment are
solely to protect the interests of the Lender under the Loan Documents and shall
not impose any duty upon the Lender to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.
ARTICLE III
CONDITIONS
The obligations of the Lender to enter into this Agreement and to
make Loans are subject to the satisfaction of the following conditions
precedent:
3.1 RECEIPT OF LOAN DOCUMENTS AND OTHER ITEMS. The Lender shall have
no obligation under this Agreement unless and until all matters incident to the
consummation of the transactions contemplated herein, including, without
limitation, the review by the Lender or its counsel of the title of the Borrower
to its Oil and Gas Properties, shall be satisfactory to the Lender, and the
Lender shall have received, reviewed, and approved the following documents and
other items, appropriately executed when necessary and, where applicable,
acknowledged by one or more authorized officers of the Borrower, all in form and
substance satisfactory to the Lender and dated, where applicable, of even date
herewith or a date prior thereto and acceptable to the Lender:
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(a) multiple counterparts of this Agreement as
requested by the Lender;
(b) the Note;
(c) the Lockbox Agreement;
(d) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of the Borrower, accompanied by a certificate issued by the
secretary or an assistant secretary of the Borrower, to the effect that
each such copy is correct and complete;
(e) certificates of incumbency and signatures of all officers of the
Borrower who are authorized to execute Loan Documents on behalf of the
Borrower, each such certificate being executed by the secretary or an
assistant secretary of the Borrower;
(f) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the board of directors of the Borrower, accompanied by certificates of
the secretary or an assistant secretary of the Borrower, to the effect
that such copies are true and correct copies of resolutions duly adopted
at a meeting or by unanimous consent of the board of directors of the
Borrower, and that such resolutions constitute all the resolutions adopted
with respect to such transactions, have not been amended, modified, or
revoked in any respect, and are in full force and effect as of the date of
such certificate;
(g) multiple counterparts, as requested by the Lender, of the
following Security Instruments creating, evidencing, perfecting, and
otherwise establishing Liens in favor of the Lender in and to the
Collateral:
(i) Mortgage, Deed of Trust, Indenture, Security Agreement,
Assignment of Production, and Financing Statement from the Borrower
covering all Oil and Gas Properties of the Borrower and all
improvements, personal property, and fixtures related thereto;
(ii) Financing Statements from the Borrower, as debtor,
constituent to the instrument described in clause (i) above;
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(iii) undated letters, in form and substance satisfactory to
the Lender, from the Borrower to each purchaser of production and
disburser of the proceeds of production from or attributable to the
Mortgaged Properties, together with additional letters with the
addressees left blank, authorizing and directing the addressees to
make future payments attributable to production from the Mortgaged
Properties directly to the Lender;
(iv) notification letters, in form and substance satisfactory
to the Lender, from the Borrower to each purchaser of production and
disburser of proceeds of production from or attributable to the
Mortgaged Properties, together with additional undated letters with
the addressees left blank, authorizing and directing the addressees
to make future payments attributable to production from the
Mortgaged Properties directly to the Lockbox or the Lender, as
requested by the Lender;
(h) proforma balance sheet of the Borrower as of
April 30, 1996;
(i) certificates dated as of a recent date from the Secretary of
State or other appropriate Governmental Authority evidencing the existence
or qualification and good standing of the Borrower in its jurisdiction of
incorporation and in any other jurisdictions where it does business;
(j) results of searches of the UCC Records of the Secretary of State
of the States of Louisiana, Oklahoma and Texas from a source acceptable to
the Lender and reflecting no Liens against any of the Collateral as to
which perfection of a Lien is accomplished by the filing of a financing
statement other than in favor of the Lender;
(k) confirmation, acceptable to the Lender, of the title of the
Borrower to the Mortgaged Properties, free and clear of Liens other than
Permitted Liens;
(l) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Mortgaged Properties requested by the
Lender;
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(m) engineering reports covering the Mortgaged Properties;
(n) the opinion of Michael W. Meyer, Vice President and deputy
general counsel of Tenneco, Inc., in the form attached hereto as Exhibit ,
with such changes thereto as may be approved by the Lender; and
(o) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may reasonably
request.
3.2 EACH LOAN. In addition to the conditions precedent stated
elsewhere herein, the Lender shall not be obligated to make any Loan unless:
(a) the Borrower shall have delivered to the Lender a Borrowing
Request at least the requisite time prior to the requested date for the
relevant Loan and each statement or certification made in such Borrowing
Request shall be true and correct in all material respects on the
requested date for such Loan;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan;
(c) if requested by the Lender, the Borrower shall have delivered
evidence satisfactory to the Lender substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower to
qualify for such Loan;
(d) the Lender shall have received, reviewed, and approved such
additional documents and items as described in Section 3.1 as may be
requested by the Lender with respect to such Loan;
(e) no event shall have occurred which, in the reasonable opinion of
the Lender, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this
Agreement shall be true and correct and shall be deemed to be repeated by
the Borrower as if made on the requested date for such Loan;
(g) all of the Security Instruments shall be in full force and
effect and provide to the Lender the security intended thereby;
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(h) neither the consummation of the transactions contemplated hereby
nor the making of such Loan shall contravene, violate, or conflict with
any Requirement of Law;
(i) the Borrower shall hold full legal title to the Collateral and
be the sole beneficial owner thereof;
(j) the Lender shall have received the payment of all Engineering
Fees, Facility Fees, and other fees payable to the Lender hereunder and
reimbursement from the Borrower, or special legal counsel for the Lender
shall have received payment from the Borrower, for (i) all reasonable fees
and expenses of counsel to the Lender for which the Borrower is
responsible pursuant to applicable provisions of this Agreement and for
which invoices have been presented as of or prior to the date of the
relevant Loan, and (ii) estimated fees charged by filing officers and
other public officials incurred or to be incurred in connection with the
filing and recordation of any Security Instruments, for which invoices
have been presented as of or prior to the date of the requested Loan; and
(k) all matters incident to the consummation of the transactions
hereby contemplated shall be satisfactory to the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the
Loans, the Borrower represents and warrants to the Lender (which representations
and warranties shall survive the delivery of the Note) that:
4.1 DUE AUTHORIZATION. The execution and delivery by the Borrower of
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Note, the repayment of the Note and interest and fees provided
for in the Note and this Agreement, the execution and delivery of the Security
Instruments by the Borrower and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary corporate action by the Borrower, and do
not and will not (a) require the consent of any Governmental Authority, (b)
contravene or conflict with any Requirement of Law, (c) contravene or conflict
with any indenture, instrument, or other agreement to which the Borrower is a
party or by which any Property of the Borrower may be presently
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bound or encumbered, or (d) result in or require the creation or imposition of
any Lien in, upon or of any Property of the Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents.
4.2 CORPORATE EXISTENCE. The Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
4.3 VALID AND BINDING OBLIGATIONS. All Loan Documents when duly
executed and delivered by the Borrower, will be the legal, valid, and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms.
4.4 SECURITY INSTRUMENTS. The provisions of each Security Instrument
are effective to create in favor of the Lender, a legal, valid, and enforceable
Lien in all right, title, and interest of the Borrower in the Collateral
described therein, which Liens, assuming the accomplishment of recording and
filing in accordance with applicable laws prior to the intervention of rights of
other Persons, shall constitute fully perfected first-priority Liens on all
right, title, and interest of the Borrower in the Collateral described therein.
4.5 TITLE TO ASSETS. The Borrower has good and indefeasible title to
all of its Properties, free and clear of all Liens except Permitted Liens.
4.6 SCOPE AND ACCURACY OF PROFORMA BALANCE SHEET. The proforma
balance sheet of the Borrower as of April 30, 1996, present fairly the financial
position of the Borrower in accordance with GAAP as at the relevant point in
time or for the period indicated, as applicable. No event or circumstance has
occurred since April 30, 1996, which could reasonably be expected to have a
Material Adverse Effect.
4.7 NO MATERIAL MISSTATEMENTS. No information, exhibit, statement,
or report furnished to the Lender by or at the direction of the Borrower in
connection with this Agreement contains any material misstatement of fact or
omits to state a material fact or any fact necessary to make the statements
contained therein not misleading as of the date made or deemed made.
4.8 LIABILITIES, LITIGATION, AND RESTRICTIONS. Other than as listed
under the heading "Liabilities" on Exhibit attached hereto, the Borrower has no
liabilities, direct, or contingent, which may materially and adversely affect
its business
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or operations or its ownership of the Collateral. Except as set forth under the
heading "Litigation" on Exhibit hereto, no litigation or other action of any
nature affecting the Borrower is pending before any Governmental Authority or,
to the best knowledge of the Borrower, threatened against or affecting the
Borrower which might reasonably be expected to result in any impairment of its
ownership of any Collateral or have a Material Adverse Effect. To the best
knowledge of the Borrower, after due inquiry, no unusual or unduly burdensome
restriction, restraint or hazard exists by contract, Requirement of Law, or
otherwise relative to the business or operations of the Borrower or the
ownership and operation of the Collateral other than such as relate generally to
Persons engaged in business activities similar to those conducted by the
Borrower.
4.9 AUTHORIZATIONS; CONSENTS. Except as expressly contemplated by
this Agreement, no authorization, consent, approval, exemption, franchise,
permit, or license of, or filing with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection with the
valid execution and delivery by the Borrower of the Loan Documents or any
instrument contemplated hereby, the repayment by the Borrower of the Note and
interest and fees provided in the Note and this Agreement, or the performance by
the Borrower of the Obligations.
4.10 COMPLIANCE WITH LAWS. The Borrower and its Property, including,
without limitation, the Mortgaged Property, are in compliance with all
applicable Requirements of Law, including, without limitation, Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, except to the
extent non-compliance with any such Requirements of Law could not reasonably be
expected to have a Material Adverse Effect.
4.11 ERISA. No Reportable Event has occurred with respect to any
Single Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Borrower, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code. The present value of
all benefits vested under each Single Employer Plan maintained by the Borrower
or any Commonly Controlled Entity (based on the assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such vested benefits. Neither
the Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan for which there is any withdrawal
liability. As of the most recent valuation date applicable to any Multiemployer
Plan, neither the Borrower nor any Commonly Controlled Entity would become
subject to any liability under ERISA if the Borrower or such Commonly
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Controlled Entity were to withdraw completely from such Multiemployer Plan.
Neither the Borrower nor any Commonly Controlled Entity has received notice that
any Multiemployer Plan is Insolvent or in Reorganization. To the best knowledge
of the Borrower, no such Insolvency or Reorganization is reasonably likely to
occur. Based upon GAAP existing as of the date of this Agreement and current
factual circumstances, the Borrower has no reason to believe that the annual
cost during the term of this Agreement to the Borrower and all Commonly
Controlled Entities for post-retirement benefits to be provided to the current
and former employees of the Borrower and all Commonly Controlled Entities under
Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA)
will, in the aggregate, have a Material Adverse Effect.
4.12 ENVIRONMENTAL LAWS. To the best knowledge and belief of the
Borrower, except as would not have a Material Adverse Effect, or as described on
Exhibit V under the heading "Environmental Matters:"
(a) no Property of the Borrower is currently on or has ever been on,
or is adjacent to any Property which is on or has ever been on, any
federal or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by the Borrower at a site which was, at the time of such
generation, transportation, and/or disposal, or has since become, a
Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by the Borrower
or from, affecting, or related to any Property of the Borrower or adjacent
to any Property of the Borrower has occurred; and
(d) no Environmental Complaint has been received by the Borrower.
4.13 COMPLIANCE WITH FEDERAL RESERVE REGULATIONS. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, T, U, or X.
4.14 INVESTMENT COMPANY ACT COMPLIANCE. The Borrower is not, nor is
the Borrower directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" or
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an "affiliated person" of an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.15 PUBLIC UTILITY HOLDING COMPANY ACT COMPLIANCE. The Borrower is
not 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.
4.16 PROPER FILING OF TAX RETURNS; PAYMENT OF TAXES DUE. The
Borrower has duly and properly filed its United States income tax return and all
other tax returns which are required to be filed and has paid all taxes due
except such as are being contested in good faith and as to which adequate
provisions and disclosures have been made. The respective charges and reserves
on the books of the Borrower with respect to taxes and other governmental
charges are adequate.
4.17 REFUNDS. Except as described on Exhibit under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in the Borrower being required
to refund any material portion of the proceeds received or to be received from
the sale of hydrocarbons constituting part of the Mortgaged Property.
4.18 GAS CONTRACTS. Except as described on Exhibit under the heading
"Gas Contracts," the Borrower (a) is not obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Mortgaged Property at some future date
without receiving full payment therefor within 90 days of delivery, and (b) has
not produced gas, in any material amount, subject to, and neither the Borrower
nor any of the Mortgaged Properties is subject to, balancing rights of third
parties or subject to balancing duties under governmental requirements, except
as to such matters for which the Borrower has established monetary reserves
adequate in amount to satisfy such obligations and has segregated such reserves
from other accounts.
4.19 INTELLECTUAL PROPERTY. The Borrower owns or is licensed to use
all Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted. No claim has been asserted or is pending by any Person with
the respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the
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Borrower does not infringe on the rights of any Person, except for such claims
and infringements as do not, in the aggregate, give rise to any material
liability on the part of the Borrower.
4.20 CASUALTIES OR TAKING OF PROPERTY. Except as disclosed on
Exhibit under the heading "Casualties," since April 30, 1996, neither the
business nor any Property of the Borrower has been materially adversely affected
as a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or taking of
Property, or cancellation of contracts, permits, or concessions by any
Governmental Authority, riot, activities of armed forces, or acts of God.
4.21 LOCATIONS OF BORROWER. The principal place of business and
chief executive office of the Borrower is located at the address of the Borrower
set forth in Section or at such other location as the Borrower may have, by
proper written notice hereunder, advised the Lender, provided that such other
location is within a state in which appropriate financing statements from the
Borrower in favor of the Lender have been filed.
4.22 SUBSIDIARIES. The Borrower has no Subsidiaries except those
described on Exhibit V under the heading "Subsidiaries".
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower shall:
5.1 MAINTENANCE AND ACCESS TO RECORDS. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and promptly following the reasonable request of the Lender, make such records
available for inspection by the Lender and, at the expense of the Borrower,
allow the Lender to make and take away copies thereof.
5.2 QUARTERLY FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES. Deliver
to the Lender, (a) on or before the 45th day after the close of each of the
first three quarterly periods of each fiscal year of the Borrower, a copy of the
unaudited Financial Statements of the Borrower as at the close of such quarterly
period and from the beginning of such fiscal year to the end of such period,
such Financial Statements to be certified by a Responsible Officer of the
Borrower as having been prepared in accordance with GAAP consistently applied
and as a fair presentation of the
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condition of the Borrower, subject to changes resulting from normal year-end
audit adjustments, and (b) on or before the 45th day after the close of each
fiscal quarter, a Compliance Certificate.
5.3 ANNUAL FINANCIAL STATEMENTS. Deliver to the Lender, on or before
the 120th day after the close of each fiscal year of the Borrower, a copy of the
annual audited Financial Statements of the Borrower.
5.4 OIL AND GAS RESERVE REPORTS. (a) Deliver to the Lender no later
than April 1 of each year during the term of this Agreement, engineering reports
in form and substance satisfactory to the Lender, certified by the chief
petroleum engineer of the Borrower as fairly and accurately setting forth (i)
the proven and producing, shut-in, behind-pipe, and undeveloped oil and gas
reserves (separately classified as such) attributable to the Mortgaged
Properties as of January 1 of the year for which such reserve reports are
furnished, (ii) the aggregate present value of the future net income with
respect to such Mortgaged Properties, discounted at a stated per annum discount
rate of proven and producing reserves, (iii) projections of the annual rate of
production, gross income, and net income with respect to such proven and
producing reserves, and (iv) information with respect to the "take-or-pay,"
"prepayment," and gas-balancing liabilities of the Borrower.
(b) Deliver to the Lender no later than October 1 of each year
during the term of this Agreement, engineering reports in form and substance
satisfactory to the Lender prepared by or under the supervision of the chief
petroleum engineer of the Borrower evaluating the Mortgaged Properties as of
July 1 of the year for which such reserve reports are furnished and updating the
information provided in the reports pursuant to Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Lender together with additional data concerning pricing,
quantities of production from the Mortgaged Properties, volumes of production
sold, purchasers of production, gross revenues, expenses, and such other
information and engineering and geological data with respect thereto as the
Lender may reasonably request.
5.5 PRODUCTION PAYMENT REPORTS. Furnish to Lender, within five days
of funding any production payment, (i) copies of all production payment
assignments, (ii) related contracts and (iii) engineering information in form
and substance satisfactory to the Lender and certified by the chief petroleum
engineer of the Borrower as fairly and accurately setting forth (a) the proven
and producing, shut-in, behind-pipe, and undeveloped oil and gas reserves
(separately classified as such) attributable to the Mortgaged Properties as of
the first day of the month following the
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month in which such production payment was made, (b) the aggregate present value
of the future net income with respect to such Mortgaged Properties, discounted
at a stated per annum discount rate of proven and producing reserves, (c)
projections of the annual rate of production, gross income, and net income with
respect to such proven and producing reserves, and (d) information with respect
to the "take-or-pay," "prepayment," and gas-balancing liabilities of the
Borrower.
5.6 TITLE OPINIONS; TITLE DEFECTS. Promptly upon the request of the
Lender, furnish to the Lender any available title information regarding any of
the Mortgaged Properties which are in form and substance satisfactory to legal
counsel of the Lender.
5.7 NOTICES OF CERTAIN EVENTS. Deliver to the Lender, immediately
upon having knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by a Responsible
Officer of the Borrower and setting forth the relevant event or circumstance and
the steps being taken by the Borrower with respect to such event or
circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of the Borrower, or any litigation, investigation, or proceeding between
the Borrower and any Governmental Authority which, in either case, if not
cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving the Borrower as a
defendant or in which any Property of the Borrower is subject to a claim
and in which the amount involved is $100,000 or more and which is not
covered by insurance or in which injunctive or similar relief is sought;
(d) the receipt by the Borrower of any Environmental Complaint;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning the
environmental condition of, or relating to, any Property of the Borrower
or adjacent to any Property of the Borrower following any allegation of a
violation of any Requirement of Law;
(f) any Release of Hazardous Substances by the Borrower or from,
affecting, or related to any Property
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of the Borrower or adjacent to any Property of the Borrower except in
accordance with applicable Requirements of Law or the terms of a valid
permit, license, certificate, or approval of the relevant Governmental
Authority, or the violation of any Environmental Law, or the revocation,
suspension, or forfeiture of or failure to renew, any permit, license,
registration, approval, or authorization which could reasonably be
expected to have a Material Adverse Effect;
(g) the change in identity or address of any Person remitting to the
Borrower proceeds from the sale of hydrocarbon production from or
attributable to any Mortgaged Property;
(h) any change in position of President of the Borrower;
(i) any Reportable Event or imminently expected Reportable Event
with respect to any Plan; any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan; the institution
of proceedings or the taking of any other action by the PBGC, the Borrower
or any Commonly Controlled Entity or Multiemployer Plan with respect to
the withdrawal from, or the termination, Reorganization or Insolvency of,
any Single Employer Plan or Multiemployer Plan; or any Prohibited
Transaction in connection with any Plan or any trust created thereunder
and the action being taken by the Internal Revenue Service with respect
thereto; and
(j) any other event or condition which could reasonably be expected
to have a Material Adverse Effect.
5.8 LETTERS IN LIEU OF TRANSFER ORDERS; DIVISION ORDERS. Promptly
upon request by the Lender at any time and from time to time, and without
limitation on the rights of the Lender pursuant to Sections 2.21 and 2.22,
execute such letters in lieu of transfer orders, in addition to the letters
signed by the Borrower and delivered to the Lender in satisfaction of the
condition set forth in Section 3.1(g)(iii) and/or division and/or transfer
orders as are necessary or appropriate to transfer and deliver to the Lender
proceeds from or attributable to any Mortgaged Property.
5.9 ADDITIONAL INFORMATION. Furnish to the Lender, promptly upon the
request of the Lender, such additional financial or other information concerning
the assets, liabilities, operations, and transactions of the Borrower as the
Lender may from time to time request; and notify the Lender not less than ten
Business Days prior to the occurrence of any condition or event that may change
the proper location for the filing of any financing
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statement or other public notice or recording for the purpose of perfecting a
Lien in any Collateral, including, without limitation, any change in its name or
the location of its principal place of business or chief executive office; and
upon the request of the Lender, execute such additional Security Instruments as
may be necessary or appropriate in connection therewith.
5.10 COMPLIANCE WITH LAWS. Except to the extent the failure to
comply or cause compliance would not have a Material Adverse Effect, comply with
all applicable Requirements of Law, including, without limitation, (a) the
Natural Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws,
and (d) all permits, licenses, registrations, approvals, and authorizations (i)
related to any natural or environmental resource or media located on, above,
within, in the vicinity of, related to or affected by any Property of the
Borrower, (ii) required for the performance of the operations of the Borrower,
or (iii) applicable to the use, generation, handling, storage, treatment,
transport, or disposal of any Hazardous Substances; and cause all employees,
crew members, agents, contractors, subcontractors, and future lessees (pursuant
to appropriate lease provisions) of the Borrower, while such Persons are acting
within the scope of their relationship with the Borrower, to comply with all
such Requirements of Law as may be necessary or appropriate to enable the
Borrower to so comply.
5.11 PAYMENT OF ASSESSMENTS AND CHARGES. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrower, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect.
5.12 MAINTENANCE OF CORPORATE EXISTENCE AND GOOD STANDING. Maintain
its corporate existence or qualification and good standing in its jurisdictions
of incorporation and in all jurisdictions wherein the Property now owned or
hereafter acquired or business now or hereafter conducted necessitates same,
unless the failure to do so would not have a Material Adverse Effect.
5.13 PAYMENT OF NOTES; PERFORMANCE OF OBLIGATIONS. Pay the Note
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.
5.14 FURTHER ASSURANCES. Promptly cure any defects in the execution
and delivery of any of the Loan Documents and all agreements contemplated
thereby, and execute, acknowledge, and deliver such other assurances and
instruments as shall, in the opinion of the Lender, be necessary to fulfill the
terms of the Loan Documents.
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5.15 INITIAL FEES AND EXPENSES OF COUNSEL TO LENDER. Upon request by
the Lender, promptly reimburse the Lender for all reasonable fees and expenses
of Jackson & Walker, L.L.P., special counsel to the Lender, in connection with
the preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Agreement.
5.16 SUBSEQUENT FEES AND EXPENSES OF LENDER. Upon request by the
Lender, promptly reimburse the Lender (to the fullest extent permitted by law)
for all amounts reasonably expended, advanced, or incurred by or on behalf of
the Lender to satisfy any obligation of the Borrower under any of the Loan
Documents; to collect the Obligations; to ratify, amend, restate, or prepare
additional Loan Documents, as the case may be; for the filing and recordation of
Security Instruments; to enforce the rights of the Lender under any of the Loan
Documents; and to protect the Properties or business of the Borrower, including,
without limitation, the Collateral, which amounts shall be deemed compensatory
in nature and liquidated as to amount upon notice to the Borrower by the Lender
and which amounts shall include, but not be limited to (a) all court costs, (b)
reasonable attorneys' fees, (c) reasonable fees and expenses of auditors and
accountants incurred to protect the interests of the Lender, (d) fees and
expenses incurred in connection with the participation by the Lender as a member
of the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) fees and expenses incurred in connection with lifting the automatic stay
prescribed in ss.362 Title 11 of the United States Code, and (f) fees and
expenses incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code all reasonably incurred by the Lender in connection with
the collection of any sums due under the Loan Documents, together with interest
at the per annum interest rate equal to the Floating Rate, calculated on a basis
of a calendar year of 365 or 366 days, as the case may be,, counting the actual
number of days elapsed, on each such amount from the date of notification that
the same was expended, advanced, or incurred by the Lender until the date it is
repaid to the Lender, with the obligations under this Section surviving the
non-assumption of this Agreement in a case commenced under any Insolvency
Proceeding and being binding upon the Borrower and/or a trustee, receiver,
custodian, or liquidator of the Borrower appointed in any such case.
5.17 OPERATION OF OIL AND GAS PROPERTIES. Enforce the terms of any
production payment contract, including, without limitation, any provisions
thereof that require (a) that the operator develops, maintains, and operates the
Borrower's Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards, and (b) that the operator maintains
insurance with respect to the Mortgaged Properties against such
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liabilities, casualties, risks and contingencies as is customary in the oil and
gas industry.
5.18 INSPECTION OF PROPERTIES. Permit any authorized representative
of the Lender to visit and inspect, at the expense of the Borrower, any tangible
Property of the Borrower.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND
AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY
INSTRUMENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES,
LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS
AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND ENFORCEMENT ACTIONS OF
ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH
(INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND EXPENSES), ARISING DIRECTLY
OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS
SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR
DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY
PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND
WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE, EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER PERSON AT ANY TIME
OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE HANDLING,
TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION, OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER
SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE
BORROWER, (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING IN
CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER, IRRESPECTIVE OF
WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH
APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND ENFORCEMENT OF ANY
LOAN DOCUMENT, OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
LIMITATION, ANY OF THE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE, OTHER
THAN GROSS NEGLIGENCE OR WILFUL MISCONDUCT, WHETHER SOLE OR CONCURRENT, ON THE
PART OF THE LENDER OR ANY OF ITS SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT, OR AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE
LENDER UNDER ANY SECURITY INSTRUMENT; WITH THE FOREGOING INDEMNITY SURVIVING
SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
5.20 OWNERSHIP OF BORROWER. Tenneco Ventures Corporation or its
successor shall maintain beneficial ownership of not less than 50% of Borrower.
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5.21 LOCKBOX ARRANGEMENT. Execute, maintain in full force and
effect, and comply in all respects with the provisions of such documentation as
may be reasonably required by the Lender to establish the Lockbox and the
Lockbox Account (including, without limitation, the Lockbox Agreement); direct
all purchasers of production from the Mortgaged Properties to make remittance to
the Lockbox; and deposit directly into the Lockbox Account all funds received by
the Borrower, if any, from purchasers of production from the Mortgaged
Properties. Funds received in the Lockbox shall be transferred daily by the
Lender to the Lockbox Account. Prior to the occurrence of an Event of Default,
the Borrower shall have full access to the Lockbox Account and the funds therein
by way of draft, check, wire transfer of funds, or otherwise. Upon the
occurrence of an Event of Default, access by the Borrower to the Lockbox Account
and the funds therein shall terminate, and the Lender may, at its option, apply
any or all of such funds to the Obligations, whether matured or unmatured.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower will not:
6.1 INDEBTEDNESS. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 60 days beyond invoice date or are being contested in good
faith and as to which such reserve as is required by GAAP has been made, (c)
crude oil, natural gas, or other hydrocarbon floor, collar, cap, price
protection, or swap agreements, in form and substance and with a Person
acceptable to the Lender, provided that (i) if accomplished prior to the
inclusion of the related production payment in the Borrowing Base, (ii) such
agreements shall not be entered into with respect to Mortgaged Properties
constituting more than 75% of the monthly production of proven producing
reserves as forecast in Lender's most recent engineering evaluation, (iii) that
the strike prices in connection with option and swap agreements are not less
than the prices used by the Lender in its most recent Borrowing Base
determination, and (iv) the counter party is Tenneco Energy Resources
Corporation, Enron Capital & Trade Resources, Enron Oil Trading and
Transportation, NationsBank Energy Risk Management Division, or another party
acceptable to the Lender.
6.2 CONTINGENT OBLIGATIONS. Create, incur, assume, or suffer to
exist any Contingent Obligation; provided, however, the foregoing restriction
shall not apply to (a) performance guarantees
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and performance surety or other bonds provided in the ordinary course of
business, or (b) trade credit incurred or operating leases entered into in the
ordinary course of business.
6.3 LIENS. Create, incur, assume, or suffer to exist any Lien on any
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens.
6.4 SALES OF ASSETS. Without the prior written consent of the
Lender, sell, transfer, or otherwise dispose of assets, whether now owned or
hereafter acquired, enter into any agreement to do so, if such assets are
material to the operations of Borrower when taken as a whole.
6.5 LEASEBACKS. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
6.6 LOANS OR ADVANCES. Make or agree to make or allow to remain
outstanding any loans or advances to any Person in excess of $100,000; provided,
however, the foregoing restrictions shall not apply to (a) advances or
extensions of credit in the form of accounts receivable incurred in the ordinary
course of business and upon terms common in the industry for such accounts
receivable, or (b) advances to employees of the Borrower for the payment of
expenses in the ordinary course of business. For the purposes of this covenant,
production payments will not be considered loans or advances.
6.7 DIVIDENDS AND DISTRIBUTIONS. Declare, pay, or make, whether in
cash or Property of the Borrower, any dividend or distribution on, or purchase,
redeem, or otherwise acquire for value, any share of any class of its capital
stock at any time that a Default or Event of Default exists or such payment
would cause an Event of Default, including, but not limited to violation of,
Section 6.12, provided, however, the foregoing restriction shall not apply to
dividends paid in capital stock of the Borrower.
6.8 ISSUANCE OF STOCK; CHANGES IN CORPORATE STRUCTURE. Issue or
agree to issue additional shares of capital stock, in one or any series of
transactions; enter into any transaction of consolidation, merger, or
amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution).
6.9 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into
any transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of its Affiliates, other than upon fair and
reasonable terms no less
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favorable than could be obtained in an arm's length transaction with a Person
which was not an Affiliate.
6.10 LINES OF BUSINESS. Expand, on its own or through any
Subsidiary, into any line of business other than those in which the Borrower is
engaged as of the date hereof.
6.11 ERISA COMPLIANCE. Permit any Plan maintained by it or any
Commonly Controlled Entity to (a) engage in any Prohibited Transaction, (b)
incur any "accumulated funding deficiency," as such term is defined in Section
302 of ERISA, or (c) terminate in a manner which could result in the imposition
of a Lien on any Property of the Borrower pursuant to Section 4068 of ERISA; or
assume an obligation to contribute to any Multiemployer Plan; or acquire any
Person or the assets of any Person which has now or has had at any time an
obligation to contribute to any Multiemployer Plan.
6.12 TANGIBLE NET WORTH. Permit Tangible Net Worth as of the close
of any fiscal quarter to be less than $7,000,000, plus 100% of equity raised for
all fiscal periods ending subsequent to April 30, 1996.
6.13 AMENDMENT OF PRODUCTION PAYMENT AGREEMENT. Permit any
production payment contract to be materially amended after such property has
been included in the Borrowing Base without the Lender's prior written consent.
A material change shall be any change that affects the present worth of the cash
flow of the production payment as originally presented to the Lender.
ARTICLE VII
EVENTS OF DEFAULT
7.1 ENUMERATION OF EVENTS OF DEFAULT. Any of the following events
shall constitute an Event of Default:
(a) default shall be made in the payment when due of any installment
of principal or interest under this Agreement or the Note or in the
payment when due of any fee or other sum payable under any Loan Document
and such default as to interest or fees only shall have continued for five
days;
(b) default shall be made by the Borrower in the due observance or
performance of any of its obligations under the Loan Documents, and such
default shall continue for 30 days after the earlier of notice thereof to
the Borrower by the Lender or the actual knowledge thereof by the
Borrower;
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(c) any representation or warranty made by the Borrower in any of
the Loan Documents proves to have been untrue in any material respect or
any representation, statement (including Financial Statements),
certificate, or data furnished or made to the Lender in connection
herewith proves to have been untrue in any material respect as of the date
the facts therein set forth were stated or certified;
(d) default shall be made by the Borrower (as principal or guarantor
or other surety) in the payment or performance of any bond, debenture,
note, or other Indebtedness or under any credit agreement, loan agreement,
indenture, promissory note, or similar agreement or instrument executed in
connection with any of the foregoing, and such default shall remain
unremedied for in excess of the period of grace, if any, with respect
thereto;
(e) the Borrower shall be unable to satisfy any condition or cure
any circumstance specified in Article , the satisfaction or curing of
which is precedent to the right of the Borrower to obtain a Loan and such
inability shall continue for a period in excess of 30 days;
(f) the Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, or liquidator of it or all or a substantial part
of its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of creditors,
(iv) be unable, or admit in writing its inability, to pay its debts
generally as they become due, or (v) file an answer admitting the material
allegations of a petition filed against it in any Insolvency Proceeding;
(g) an order, judgment, or decree shall be entered against the
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in any Insolvency Proceeding or approving a petition seeking
reorganization or an arrangement of its debts or appointing a receiver,
trustee, conservator, custodian, or liquidator of it or all or any
substantial part of its assets, and such order, judgment, or decree shall
not be dismissed or stayed within 30 days;
(h) the levy against any significant portion of the Property of the
Borrower, or any execution, garnishment, attachment, sequestration, or
other writ or similar
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proceeding which is not permanently dismissed or discharged within 30 days
after the levy;
(i) a final and non-appealable order, judgment, or decree shall be
entered against the Borrower for money damages and/or Indebtedness due in
an amount in excess of $250,000, and such order, judgment, or decree shall
not be dismissed or stayed within 30 days;
(j) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against the Borrower under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C.
ss.1961 ET SEQ.), the result of which could be the forfeiture or transfer
of any material Property of the Borrower, subject to a Lien in favor of
the Lender without (i) satisfaction or provision for satisfaction of such
Lien, or (ii) such forfeiture or transfer of such Property being expressly
made subject to such Lien;
(k) the Borrower shall have (i) concealed, removed, or diverted, or
permitted to be concealed, removed, or diverted, any part of its Property,
with intent to hinder, delay, or defraud its creditors or any of them,
(ii) made or suffered a transfer of any of its Property which may be
fraudulent under any bankruptcy, fraudulent conveyance, or similar law,
(iii) made any transfer of its Property to or for the benefit of a
creditor at a time when other creditors similarly situated have not been
paid, or (iv) shall have suffered or permitted, while insolvent, any
creditor to obtain a Lien upon any of its Property through legal
proceedings or distraint which is not vacated within 30 days from the date
thereof;
(l) any Security Instrument shall for any reason not create valid
and perfected first-priority Liens against the Collateral purportedly
covered thereby;
(m) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Lender; or
(n) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan; any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan for
which an excise tax is due or would be due in the absence of a waiver; a
Reportable Event shall occur with respect to, or proceedings shall
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commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in
the reasonable opinion of the Lender, likely to result in the termination
of such Plan for purposes of Title IV of ERISA; any Single Employer Plan
shall terminate for purposes of Title IV of ERISA; the Borrower or any
Commonly Controlled Entity shall incur, or in the reasonable opinion of
the Lender, be likely to incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan; or any other event or condition shall occur or exist with respect to
a Plan and the result of such events or conditions referred to in this
Section 7.1 could subject the Borrower or any Commonly Controlled Entity
to any tax (other than an excise tax under Section 4980 of the Code),
penalty or other liabilities which taken in the aggregate would have a
Material Adverse Effect and any such circumstance shall exist for in
excess of 30 days.
7.2 REMEDIES. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lender
in writing; and (iii) access by the Borrower to the Lockbox Account and all
funds therein shall terminate and the Lender is hereby authorized at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) held by the Lender,
including, without limitation, the funds of the Borrower held in the Lockbox or
Lockbox Account, and any and all other indebtedness at any time owing by the
Lender to or for the credit or account of the Borrower against any and all of
the Obligations.
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Lender may, by notice to the
Borrower, declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless
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and until reinstated by the Lender in writing; and (iii) access by the Borrower
to the Lockbox Account and all funds therein shall terminate and the Lender is
hereby authorized at any time and from time to time, without notice to the
Borrower (any such notice being expressly waived by the Borrower), to set-off
and apply any and all deposits (general or special, time or demand, provisional
or final) held by the Lender, including, without limitation, the funds of the
Borrower held in the Lockbox or Lockbox Account, and any and all other
indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations.
(c) Upon the occurrence of any Event of Default, the Lender may, in
addition to the foregoing in this Section, exercise any or all of its rights and
remedies provided by law or pursuant to the Loan Documents.
ARTICLE VIII
MISCELLANEOUS
8.1 TRANSFERS; PARTICIPATIONS. The Lender may, at any time, sell,
transfer, assign, or grant participations in the Obligations or any portion
thereof; and the Lender may forward to each Transferee and prospective
Transferee all documents and information relating to such Obligations, whether
furnished by the Borrower or otherwise obtained, as the Lender determines
necessary or desirable. The Borrower agrees that each Transferee, regardless of
the nature of any transfer to it, may exercise all rights (including, without
limitation, rights of set-off) with respect to the portion of the Obligations
held by it as fully as if such Transferee were the direct holder thereof,
subject to any agreements between such Transferee and the transferor to such
Transferee.
8.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Note and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
8.3 NOTICES AND OTHER COMMUNICATIONS. Except as to oral notices
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited in the mail, certified mail, return receipt
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requested, postage prepaid, or, in the case of telecopy notice, when receipt
thereof is acknowledged orally or by written confirmation report, addressed as
follows:
(a) if to the Lender, to:
Compass Bank-Houston
24 Greenway Plaza, Suite 1401
Houston, Texas 77046
Attention: Energy Lending Group
Telecopy: (713) 968-8222
(b) if to the Borrower, to:
Tenneco Ventures Finance Corporation
c/o Tenneco Ventures Corporation
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Catherine L. Sliva
Telecopy: (713) 757-8253
Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall thereafter
be sent.
8.4 PARTIES IN INTEREST. Subject to the restrictions on changes in
corporate structure set forth in Section and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrower or the Lender shall be binding upon and inure to the benefit of
the Borrower or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
8.5 RIGHTS OF THIRD PARTIES. All provisions herein are imposed
solely and exclusively for the benefit of the Lender and the Borrower. No other
Person shall have any right, benefit, priority, or interest hereunder or as a
result hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms, and any or all of such provisions may be freely
waived in whole or in part by the Lender at any time if in its sole discretion
it deems it advisable to do so.
8.6 RENEWALS; EXTENSIONS. All provisions of this Agreement relating
to the Note shall apply with equal force and effect to each promissory note
hereafter executed which in whole or in part represents a renewal or extension
of any part of the Indebtedness of the Borrower under this Agreement, the Note,
or any other Loan Document.
8.7 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on the part
of the Lender, its officers or employees, nor any
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failure or delay by the Lender with respect to exercising any of its rights
under any Loan Document shall operate as a waiver thereof. The rights of the
Lender under the Loan Documents shall be cumulative and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.
The making of any Loan shall not constitute a waiver of any of the covenants,
warranties, or conditions of the Borrower contained herein. In the event the
Borrower is unable to satisfy any such covenant, warranty, or condition, the
making of any Loan shall not have the effect of precluding the Lender from
thereafter declaring such inability to be an Event of Default as hereinabove
provided.
8.8 SURVIVAL UPON UNENFORCEABILITY. In the event any one or more of
the provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
8.9 AMENDMENTS; WAIVERS. Neither this Agreement nor any provision
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
8.10 CONTROLLING AGREEMENT. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
8.11 DISPOSITION OF COLLATERAL. Notwithstanding any term or
provision, express or implied, in any of the Security Instruments, the
realization, liquidation, foreclosure, or any other disposition on or of any or
all of the Collateral shall be in the order and manner and determined in the
sole discretion of the Lender; provided, however, that in no event shall the
Lender violate applicable law or exercise rights and remedies other than those
provided in such Security Instruments or otherwise existing at law or in equity.
8.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL
STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
8.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH,
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OUT OF, RELATED TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING
SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS
COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN
ACCORDANCE WITH THIS SECTION.
8.14 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT HEREOF, INCLUDING, WITHOUT LIMITATION, THE
CORRESPONDENCE DATED MAY 2, 1996, FROM THE LENDER TO THE BORROWER AND THE TERM
SHEET ENCLOSED THEREWITH. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE
OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG
THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
8.15 COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in multiple counterparts, each of which for all
purposes shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same Agreement.
IN WITNESS WHEREOF, this Agreement is deemed executed effective as
of the date first above written.
BORROWER:
TENNECO VENTURES FINANCE
CORPORATION
By: /s/ CATHERINE L. SLIVA
Catherine L. Sliva
Vice President
LENDER:
COMPASS BANK-HOUSTON
By: /s/ DOROTHY MARCHAND WILSON
Dorothy Marchand Wilson
Vice President
51
<PAGE>
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$20,000,000 Houston, Texas June 7, 1996
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("MAKER")
promises to pay to the order of COMPASS BANK-HOUSTON ("PAYEE"), at its banking
quarters in Houston, Harris County, Texas, the sum of TWENTY MILLION DOLLARS
($20,000,000), or so much thereof as may be advanced against this Note pursuant
to the Credit Agreement dated of even date herewith by and between Maker and
Payee (as amended, restated, or supplemented from time to time, the "CREDIT
AGREEMENT"), together with interest at the rates and calculated as provided in
the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is the "Note" under, and is payable
as provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.
Without being limited thereto or thereby, this Note is secured by
the Security Instruments.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE
OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF
LAW; PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069,
CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING
TRIPARTY ACCOUNTS) SHALL NOT APPLY TO THIS NOTE.
TENNECO VENTURES FINANCE
CORPORATION
By:
Printed Name:
Title:
I-i
<PAGE>
EXHIBIT II
[FORM OF BORROWING REQUEST]
Compass Bank-Houston
24 Greenway Plaza
Suite 1401
Houston, Texas 77046
Attention: Energy Lending Group
Re: Credit Agreement dated as of June 7, 1996, by and between Compass
Bank-Houston and Tenneco Ventures Finance Corporation (as amended,
restated, or supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower hereby makes the
requests indicated below:
[ ] 1. Loans
(a) Amount of new Loan: $
(b) Requested funding date: , 19
(c) $ of such Loan is to be a Floating Rate
Loan;
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____
months.
[ ] 2. Continuation or conversion of LIBO Rate Loan maturing on
:
(a) Amount to be continued as a LIBO Rate Loan is $
, with an Interest Period of months;
(b) Amount to be converted to a Floating Rate Loan is $
; and
[ ] 3. Conversion of Floating Rate Loan:
(a) Requested conversion date: , 19 .
(b) Amount to be converted to a LIBO Rate Loan is $ ,
with an Interest Period of _____ months.
II-i
<PAGE>
The undersigned certifies that [s]he is the [ ] of the Borrower, has
obtained all consents necessary, and as such [s]he is authorized to execute this
request on behalf of the Borrower. The undersigned further certifies,
represents, and warrants on behalf of the Borrower that the Borrower is entitled
to receive the requested borrowing, continuation, or conversion under the terms
and conditions of the Credit Agreement.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
TENNECO VENTURE FINANCE
CORPORATION
By:
Printed Name:
Title:
II-ii
<PAGE>
EXHIBIT III
[FORM OF COMPLIANCE CERTIFICATE]
, 19
Compass Bank-Houston
24 Greenway Plaza
Suite 1401
Houston, Texas 77046
Attention: Energy Lending Group
Re: Credit Agreement dated as of June 7, 1996, by and
between Compass Bank-Houston and Tenneco Ventures
Finance Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT
AGREEMENT")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower, hereby certifies to you
the following information as true and correct as of the date hereof or for the
period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no
Default or Event of Default exists as of the date hereof or
has occurred since the date of our previous certification to
you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have occurred
since the date of our previous certification to you, if any, and the
actions set forth below are being taken to remedy such circumstances:]
2. The compliance of the Borrower with the financial covenants of the
Credit Agreement, as of the close of business on , is evidenced by the
following:
(a) SECTION 6.14: TANGIBLE NET WORTH
Permit Tangible Net Worth as of the close of any fiscal quarter to
be less than $7,000,000, plus 100% of equity raised for all fiscal
periods ending subsequent to April 30, 1996.
ACTUAL
III-i
<PAGE>
3. No Material Adverse Effect has occurred since the date of
the Financial Statements dated as of .
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
TENNECO VENTURES FINANCE
CORPORATION
By:
Printed Name:
Title:
III-ii
<PAGE>
EXHIBIT IV
[FORM OF OPINION OF COUNSEL]
[Closing Date]
Compass Bank-Houston
24 Greenway Plaza
Suite 1401
Houston, Texas 77046
Attention: Energy Lending Group
Re: Credit Agreement dated as of June 7, 1996, by and between Compass
Bank-Houston and Tenneco Ventures Finance Corporation (as amended,
restated, or supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
We have acted as counsel to Tenneco Ventures Finance Corporation
(the "BORROWER") in connection with the transactions contemplated in the Credit
Agreement. This Opinion is delivered pursuant to Section of the Credit
Agreement, and the Lender is hereby authorized to rely upon this Opinion in
connection with the transactions contemplated in the Credit Agreement. Each
capitalized term used but not defined herein shall have the meaning assigned to
such term in the Credit Agreement.
In our representation of the Borrower, we have examined an executed
counterpart of each of the following (the "LOAN DOCUMENTS"):
(a) the Credit Agreement;
(b) the Note;
(c) Mortgage, Deed of Trust, Indenture, Security Agreement,
Assignment of Production, and Financing Statement dated of even date
herewith from the Borrower in favor of the Lender (the "MORTGAGE"); and
(d) Financing Statements from the Borrower, as debtor, constituent
to the Mortgage (the "FINANCING STATEMENT").
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrower, certificates of public
officials and officers of the Borrower
IV-i
<PAGE>
agreements, instruments, and documents as we have deemed necessary as a basis
for the opinions hereinafter expressed.
In making such examinations, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Loan Documents other
than those of the Borrower;
(b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
(c) the Lender is authorized and has the power to enter into and
perform its obligations under the Credit Agreement;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrower; and
(e) the Borrower has title to all Property covered or affected by
the Mortgage.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Borrower is a corporation duly organized, legally existing,
and in good standing under the laws of its state of incorporation and is
duly qualified as a foreign corporation and is in good standing in all
jurisdictions wherein the ownership of its Property or the operation of
its business necessitates same.
2. The execution and delivery by the Borrower of the Credit
Agreement and the borrowings thereunder, the execution and delivery by the
Borrower of the other Loan Documents to which the Borrower is a party, and
the payment and performance of all Obligations of the Borrower thereunder
are within the power of the Borrower, have been duly authorized by all
necessary corporate action, and do not (a) require the consent of any
Governmental Authority, (b) contravene or conflict with any Requirement of
Law, (c) to our knowledge after due inquiry, contravene or conflict with
any indenture, instrument, or other agreement to which the Borrower is a
party or by which any Property of the Borrower may be presently bound or
encumbered, or (d) result in or require the creation or imposition of any
Lien upon any Property of the Borrower other than as contemplated by the
Loan Documents.
IV-ii
<PAGE>
3. The Loan Documents to which the Borrower is a party constitute
legal, valid, and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms.
4. The forms of the Mortgage and the Financing Statement and the
description of the Mortgaged Property (as such term is defined in the
Mortgage and so used herein) situated in the State of Texas (the "STATE")
satisfy all applicable Requirements of Law of the State and are legally
sufficient under the laws of the State to enable the Lender to realize the
practical benefits purported to be afforded by the Mortgage.
5. The Mortgage creates a valid lien upon and security interest in
all Mortgaged Property situated in the State to secure the Indebtedness
(as such term is defined in the Mortgage and so used herein).
6. The Mortgage and the Financing Statement are in satisfactory form
for filing and recording in the offices described below.
7. The filing and/or recording, as the case may be, of (a) the
Mortgage in the office of the county clerk of each county in the State in
which any portion of the Mortgaged Property is located, and as a financing
statement and utility security instrument in the office of the Secretary
of State of the State, and (b) the Financing Statement in the Uniform
Commercial Code records in each county in the State in which any portion
of the Mortgaged Property is located are the only recordings or filings in
the State necessary to perfect the liens and security interests in the
Mortgaged Property created by the Mortgage or to permit the Lender to
enforce in the State its rights under the Mortgage. No subsequent filing,
re-filing, recording, or rerecording will be required in the State in
order to continue the perfection of the liens and security interests
created by the Mortgage except that (a) a continuation statement must be
filed with respect to the Mortgage filed as a financing statement in the
office of the Secretary of State of the State and with respect to the
Financing Statement in the Uniform Commercial Code records in each county
in the State in which any portion of the Mortgaged Property is located,
each within six months prior to the expiration of five years from the date
of the relevant initial financing statement filing, (b) a subsequent
continuation statement must be filed within six months prior to the
expiration of each subsequent five-year period from the date of each
initial
IV-iii
<PAGE>
financing statement filing, and (c) amendments or supplements to the
Mortgage filed as a financing statement and the Financing Statement and/or
additional financing statements may be required to be filed in the event
of a change in the name, identity, or structure of the Borrower or in the
event the financing statement filing otherwise becomes inaccurate or
incomplete.
8. To our knowledge after due inquiry, except as disclosed in
Exhibit to the Credit Agreement, no litigation or other action of any
nature affecting the Borrower is pending before any Governmental Authority
or threatened against the Borrower. To our knowledge after due inquiry, no
unusual or unduly burdensome restriction, restraint, or hazard exists by
contract, Requirement of Law, or otherwise relative to the business or
operations of the Borrower or the ownership and operation of any
Properties of the Borrower other than such as relate generally to Persons
engaged in business activities similar to those conducted by the Borrower.
9. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than filing of Security Instruments in
appropriate filing offices) with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection
with the valid execution and delivery by the Borrower of the Loan
Documents or any instrument contemplated thereby, or the payment
performance by the Borrower of the Obligations.
10. No transaction contemplated by the Loan Documents is in
violation of any regulations promulgated by the Board of Governors of the
Federal Reserve System, including, without limitation, Regulations G, T,
U, or X.
11. The Borrower is not, nor is the Borrower directly or indirectly
controlled by or acting on behalf of any Person which is, an "investment
company" or an "affiliated person" of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
12. The Borrower is not 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.
The opinions expressed herein are subject to the following qualifications
and limitations:
IV-iv
<PAGE>
A. We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State, applicable United States federal law, and the corporation
laws of the State of [_______________].
B. The validity, binding effect, and enforce-ability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or grantor;
provided, however, that the limitations and other effects of such statutes
or rules of law upon the validity and binding effect of the Loan Documents
should not differ materially from the limitations and other effects of
such statutes or rules of law upon the validity and binding effect of
credit agreements, promissory notes, and security instruments generally.
C. The enforceability of the respective obligations of the Borrower
under the Loan Documents is subject to general principles of equity
(whether such enforceability is considered in a suit in equity or at law).
This Opinion is furnished by us solely for the benefit of the Lender
in connection with the transactions contemplated by the Loan Documents and is
not to be quoted in whole or in part or otherwise referred to or disclosed in
any other transaction.
Very truly yours,
IV-v
<PAGE>
EXHIBIT V
DISCLOSURES
Section 4.8 LIABILITIES
LITIGATION
Section 4.12 ENVIRONMENTAL MATTERS
Section 4.17 REFUNDS
Section 4.18 GAS CONTRACTS
Section 4.20 CASUALTIES
Section 4.22 SUBSIDIARIES
V-i
SUBSCRIPTION AGREEMENT
between
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP,
AND
DOMAIN ENERGY CORPORATION
Dated as of December 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I PURCHASE AND SALE OF STOCK..................................2
1.1. General.....................................................2
1.2. Consideration From the Buyer................................2
1.3. Delivery of the Company Shares..............................3
ARTICLE II DEFINITIONS.................................................3
2.1. Defined Terms...............................................3
ARTICLE III INITIAL CLOSING............................................10
3.1. Time and Place.............................................10
ARTICLE IV OPTION TO PURCHASE ADDITIONAL COMMON STOCK.................10
4.1. Option ....................................................10
4.2. Exercise...................................................11
4.3. Notice ....................................................11
4.4. Conditions Precedent.......................................11
ARTICLE V REPRESENTATIONS AND WARRANTIES.............................11
5.1. Representations and Warranties of the Company..............11
(a) Execution and Validity of Agreement.................11
(b) Corporate Organization..............................12
(c) Investments.........................................12
(e) Capital Structure of the Company, the
Tenneco Entities and the Tenneco
Entities' Subsidiaries...........................13
(f) Financial Statements................................14
(g) Absence of Certain Changes or Events................15
(h) Title to Properties; Encumbrances...................17
(i) Absence of Liens....................................20
(j) Insurance and Bonds.................................20
(k) Contracts...........................................20
(l) Compliance with Contracts, Etc. ....................22
(m) Litigation..........................................22
(n) Compliance with Laws................................23
(o) Employment Agreement and Related Matters............23
(p) Licenses and Government Approvals...................25
(q) Broker's or Finder's Fees...........................26
(r) Transactions with Affiliates........................26
(s) Corporate Records...................................27
(t) Labor Matters.......................................27
(u) Tax Matters.........................................28
(v) Environmental Matters...............................30
(w) Oil and Gas Reserve Information.....................31
(x) Engineering Reports.................................32
(y) Not Subject to Utility Regulatory
Authorities......................................33
(z) Worker's Compensation and Occupational
Disease Reserve..................................33
(aa) Omissions...........................................33
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<PAGE>
PAGE
----
5.2. Representations and Warranties of the Buyer................33
(a) Due Organization and Power of the Buyer.............33
(b) Authorization and Validity of Agreement.............33
(c) No Conflict.........................................34
(d) Purchase for Investment.............................34
(e) Litigation..........................................35
(f) Ownership of Buyer Subordinated Note................35
(g) Omissions...........................................35
5.3. Limitations on Survival....................................35
ARTICLE VI COVENANTS..................................................36
6.1. Conduct of Business Pending the Initial Closing
Date................................................36
6.2. Access to Information Concerning Properties and
Records; Confidentiality............................39
6.3. Releases...................................................40
6.4. Further Actions............................................40
6.5. Application of Proceeds....................................40
6.6. Option Shares..............................................40
ARTICLE VII CONDITIONS PRECEDENT.......................................40
7.1. Conditions Precedent to Obligations of the
Buyer...............................................40
7.2. Conditions Precedent to Obligations of the
Company.............................................43
ARTICLE VIII INDEMNIFICATION.....................................44
8.1. Indemnification by the Company.............................44
8.2. Indemnification by the Buyer...............................44
8.3. Procedure for General Claims...............................44
(a) General Claims by the Buyer.........................44
(b) General Claims by the Company.......................45
8.4. Procedure for Third Party Claims...........................45
(a) Claims by the Buyer and the Company.................45
(b) Settlement or Decision of Third Party
Claims...........................................47
8.5. Indemnification Matters....................................47
8.6. General Provisions.........................................48
(a) Limitations on Indemnification......................48
(b) Termination of Indemnification......................48
ARTICLE IX MISCELLANEOUS..............................................49
9.1. Termination and Abandonment................................49
(a) General.............................................49
(b) Procedure Upon Termination..........................49
9.2. Fees and Expenses..........................................49
9.3. Transfer Taxes.............................................49
9.4. Notices....................................................49
9.5. Binding Effect; Benefit....................................50
9.6. Assignability..............................................50
9.7. Amendment and Modification; Waiver.........................51
9.8. Section Headings...........................................51
9.9. Arbitration................................................51
9.10. Counterparts...............................................51
9.11. GOVERNING LAW..............................................51
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<PAGE>
SCHEDULES
5.1(c) -- Investments
5.1(d)(ii) -- No Conflict
5.1(e)(i) -- Capital Stock of the Company
5.1(e)(ii)(a) -- Capital Structure of the Tenneco Entities and
the Subsidiaries -- Pre-Closing
5.1(e)(ii)(b) -- Capital Structure of the Tenneco Entities and
the Subsidiaries -- Post-Closing
5.1(e)(iii) -- Liens in Respect of the Company, the Tenneco
Entities and the Subsidiaries
5.1(e)(v) -- Capital Structure of the Company, the Tenneco
Entities and the Subsidiaries -- Outstanding
Rights
5.1(f) -- Financial Statements
5.1(g) -- Absence of Certain Changes or Events
5.1(h)(i) -- Title to Properties
5.1(h)(iv) -- Encumbrances
5.1(i) -- Absence of Liens
5.1(k) -- Contracts
5.1(m) -- Litigation
5.1(o) -- Employment Agreements and Related Matters
5.1(p) -- Licenses and Government Approvals
5.1(r) -- Transactions With Affiliates
5.1(t) -- Labor Matters
5.1(u) -- Tax Matters
5.1(v) -- Environmental Matters
5.1(w) -- Oil and Gas Reserve Information
EXHIBITS
A -- Buyer Subordinated Loan Note
B -- Employment Agreement
C -- Securityholders Agreement
D -- Legal Opinion of Weil, Gotshal & Manges LLP
-iii-
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of December 31, 1996, between
Domain Energy Corporation, a Delaware corporation (the "COMPANY") and First
Reserve Fund VII, Limited Partnership, a Delaware limited partnership (together
with its successors and assigns, the "BUYER").
WHEREAS, Teleo Ventures, a Delaware corporation ("TELEO"), has
entered into a Stock Purchase Agreement, dated as of December 24, 1996 (the
"STOCK PURCHASE AGREEMENT"), with El Paso Natural Gas Company, a Delaware
corporation ("EL PASO"); and
WHEREAS, pursuant to a Master Assignment and Assumption Agreement
of December 31, 1996 between Teleo and Company, and as permitted by the Stock
Purchase Agreement, Teleo has assigned, and Company has assumed, all of Teleo's
rights and obligations thereunder; and
WHEREAS, the Stock Purchase Agreement provides for, among other
things, the acquisition by the Company of all of the outstanding capital stock
of Tenneco Ventures Corporation, a Delaware corporation ("VENTURES"), and all of
the outstanding capital stock of Tenneco Gas Production Corporation, a Delaware
corporation ("TGP" and, collectively with Ventures, the "TENNECO ENTITIES")
(hereinafter the "STOCK PURCHASE"); and
WHEREAS, in connection with the Stock Purchase and the
transactions contemplated hereby, it is contemplated that each of
Michael V. Ronca, Herbert A. Newhouse, Catherine L. Sliva, Rick
G. Lester, Douglas H. Woodul, Steven M. Curran, Dean R. Bouillion
and Lucynda S. Herrin (the "MANAGEMENT INVESTORS"), may purchase
shares of Common Stock (as defined below);
WHEREAS, the Company has entered into a Credit Agreement, dated
as of the date hereof (as amended, supplemented or otherwise modified from time
to time, the "CREDIT AGREEMENT"), with the banks parties thereto (the "BANKS")
and The Chase Manhattan Bank, as administrative agent; and
WHEREAS, the Buyer wishes to purchase from the Company and the
Company wishes to issue and to sell to the Buyer 9,519.4717 shares (the "FIRM
COMMON SHARES" and, together with the Option Shares (as hereinafter defined),
the "COMPANY SHARES") of common stock, par value $0.01 per share (the "COMMON
STOCK"), of the Company, representing 100% of the outstanding Common Stock (such
issuance, sale and purchase referred to herein as the "FIRM SHARE PURCHASE");
WHEREAS, the Company has requested that the Buyer loan $8,000,000
to Domain Energy Guarantor Corporation, a wholly-owned subsidiary of the Company
(the "Buyer Subordinated Loan") and the Buyer has agreed to make the Buyer
Subordinated Loan upon the terms and conditions of a Subordinated Promissory
Note in the
<PAGE>
form attached hereto as Exhibit A (the "Buyer Subordinated Loan Note") and in
consideration of, among other things the grant by the Company of the Option (as
hereinafter defined);
WHEREAS, in partial consideration for the Buyer agreeing to make
the Buyer Subordinated Loan the Company has agreed to provide the Buyer with the
Option (as hereinafter defined) to purchase 2,538.5258 shares of Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I PURCHASE AND SALE OF STOCK
1.1. GENERAL.
(a) Upon the terms and subject to the conditions of this
Agreement, the Company agrees to issue and to sell to the Buyer, and the
Buyer agrees to buy from the Company, at the Initial Closing (as
hereinafter defined) described in Section 3.1 hereof, 9,519.4717 Firm
Common Shares.
(b) Upon the terms and subject to the conditions of this
Agreement, if the Buyer elects to exercise the Option (as hereinafter
defined), the Company will issue and sell to the Buyer, and the Buyer
will buy from the Company, at the Subsequent Closing (as hereinafter
defined) described in Section 3.1(b) hereof, 2,538.5258 shares of Common
Stock, subject to adjustment pursuant to Section 4.1 (the "Option
Shares").
1.2. CONSIDERATION FROM THE BUYER.
(a) Upon the terms and subject to the conditions of this
Agreement, at the Initial Closing, the Buyer will deliver by wire
transfer to the Company at a bank account to be designated in writing by
the Company (which account may be an account of El Paso; it being
acknowledged and agreed that payment to an account of El Paso for the
benefit of the Company shall constitute payment to the Company) prior to
the Initial Closing Date (as hereinafter defined) an amount equal to $30
million, in immediately available funds, in full consideration for the
issuance and sale of the Firm Common Shares.
(b) Upon the terms and subject to the conditions of this
Agreement, if the Buyer elects to exercise the Option described in
Article IV, at the Subsequent Closing, the Buyer will deliver to the
Company the Option Purchase Price (as hereinafter defined) as provided
in Section 4.1 in full consideration for the issuance and sale of the
Option Shares. To the extent the Option Purchase Price is being
satisfied in whole or in part by the delivery to the Company of the
Buyer Subordinated Note, at the Subsequent Closing
<PAGE>
the Buyer will deliver the Buyer Subordinated Note to the Company together with
a duly executed instrument of assignment transferring all of the Buyer's right,
title and interest in and to the Buyer Subordinated Note to the Company.
1.3. DELIVERY OF THE COMPANY SHARES.
(a) On the Initial Closing Date, upon the terms and subject to
the conditions of this Agreement, the Company will deliver to the Buyer
a validly issued certificate registered in the name of the Buyer
representing 9,519.4717 Firm Common Shares.
(b) If the Buyer exercises the Option, on the Subsequent Closing
Date (as hereinafter defined), upon the terms and subject to the
conditions of this Agreement, the Company will deliver to the Buyers
validly issued certificates registered in the name of the Buyer
representing the number of Option Shares to be purchased by the Buyers
on the Subsequent Closing Date in the denominations designated by the
Buyer.
ARTICLE II DEFINITIONS
2.1. DEFINED TERMS. As used in this Agreement, the
following capitalized terms have the meanings ascribed to them in
this section or in those sections of this Agreement cross-
referenced below:
"AFFILIATE" means, with respect to any Person, (i) any Person
that directly or indirectly through one or more intermediaries controls,
is controlled by or is under common control with, such Person, or (ii)
any director, officer or partner of such Person or any Person specified
in clause (i) above, or (iii) any Immediate Family Member of any Person
specified in clause (i) or (ii) above.
"AGREEMENT" means this Subscription Agreement, as the same may be
further amended, supplemented or otherwise modified from time to time.
"BALANCE SHEETS" has the meaning assigned to such term
in Section 5.1(f) hereof.
"BANKS" has the meaning assigned to such term in the
recitals hereof.
"BENEFIT PLANS" has the meaning assigned to such term
in Section 5.1(o)(i) hereof.
"BUYER" has the meaning assigned to such term in the
preamble hereof.
<PAGE>
"BUYER INDEMNIFIED PARTY" and "BUYER INDEMNIFIED PARTIES" have
the meanings assigned to such terms in Section 8.1 hereof.
"BUYER SUBORDINATED LOAN" has the meaning assigned to
such term in the recitals hereof.
"BUYER SUBORDINATED LOAN NOTE" has the meaning assigned to such
term in the recitals hereof.
"BUYER SUBORDINATED NOTE" has the meaning assigned to
such term in the recitals hereof.
"BUYER SUBORDINATED NOTE REPAYMENT DATE" means the date on which
the principal amount of the Buyer Subordinated Note, together with all
interest thereon, has been repaid in full.
"CODE" has the meaning assigned to such term in Section
5.1(o)(iii) hereof.
"COMMON STOCK" has the meaning assigned to such term in
the recitals hereof.
"COMPANY" has the meaning assigned to such term in the
preamble herein.
"COMPANY INDEMNIFIED PARTY" and "COMPANY INDEMNIFIED PARTIES"
have the respective meanings assigned to such terms in Section 8.2
hereof.
"COMPANY SHARES" has the meaning assigned to such term
in the recitals hereof.
"CONTRACT" has the meaning assigned to such term in
Section 5.1(k) hereof.
"CONTROLLED GROUP" has the meaning assigned to such
term in Section 5.1(o)(ii) hereof.
"CREDIT AGREEMENT" has the meaning assigned to such
term in the recitals hereof.
"DE GOLVER" has the meaning assigned to such term in
Section 5.1(x) hereof.
"DEMAND FOR ARBITRATION" has the meaning assigned to
such term in Section 8.9 hereof.
"EL PASO" has the meaning assigned to such term in the
recitals hereof.
<PAGE>
"EMPLOYMENT AGREEMENT" means the Employment Agreement, dated as
of December 31, 1996, between Michael V. Ronca and the Company, attached
hereto as Exhibit B.
"ENGINEERING REPORT" has the meaning assigned to such
term in Section 5.1(x) hereof.
"ENVIRONMENTAL CLAIM" means any notice by any Person alleging
potential liability (including without limitation potential liability
for investigatory costs, cleanup costs, remedial activity or removal
costs, government response costs, natural resource damages, property
damages, personal injuries, fines or penalties) arising out of, based on
or resulting from (A) the presence, or release or threatened release
into the environment, of any Material of Environmental Concern at any
location, whether or not owned by the Company or the Tenneco Entities,
or (B) circumstances forming the basis of any violation or alleged
violation of, or any liability or alleged liability under, any
Environmental Law.
"ENVIRONMENTAL LAWS" means all statutes, codes, treaties and
other laws (including without limitation common law) and regulations,
rules, ordinances, decrees, orders and other pronouncements having the
force and effect of law, by any federal, state, local, foreign or other
Governmental Authority, relating to pollution or protection of human
health or the environment (including without limitation ambient and
indoor air, surface water, groundwater, land surface, subsurface strata,
and flora and fauna).
"ERISA" has the meaning assigned to such term in
Section 5.1(o)(i) hereof.
"EVENT OF DEFAULT" means the failure to pay principal or interest
of the Indemnification Note when due or the occurrence of customary
bankruptcy or insolvency events.
"EXERCISE NOTICE" has the meaning assigned to such term
in Section 4.3 hereof.
"EXERCISE PERIOD" has the meaning assigned to such term
in Section 4.2 hereof.
"FAIR MARKET VALUE PER SHARE" has the meaning assigned to such
term in Section 8.3 hereof.
"FEE PROPERTIES" has the meaning assigned to such term
in Section 5.1(h)(i) hereof.
"FEE RESERVES" has the meaning assigned to such term in
Section 5.1(h)(i) hereof.
<PAGE>
"FIRM COMMON SHARES" has the meaning assigned to such
term in the recitals hereof.
"FIRM SHARE PURCHASE" has the meaning assigned to such
term in the recitals hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government.
"HSR ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"HYDROCARBONS" means oil, condensate, gas, casinghead gas,
helium, carbon dioxide and other liquid or gaseous hydrocarbons.
"IMMEDIATE FAMILY MEMBER" means, with respect to any Person, a
spouse, parent, child or sibling of such Person or a trust created for
any of their benefit, the benefit of any Immediate Family Member or the
estate of any Immediate Family Member.
"INDEMNIFICATION NOTE" means, with respect to any indemnification
payment made by the Company to Buyer Indemnified Parties pursuant to
Article VII of this Agreement, a subordinated promissory note containing
the following terms: the principal amount of the note shall bear
interest from the date of the note, until paid in full; the Company
agrees to repay the entire principal amount of the note, and all accrued
and unpaid interest thereon, in a single payment on the earlier of (a)
one month following the payment in full of all amounts under the Credit
Agreement whether for principal, interest, premium, if any or any other
reason (b) the four year anniversary of the issuance of the note and (c)
the occurrence of an event of default (to be defined to consist of a
failure to pay principal or interest on the Indemnification Note when
due or the occurrence of specified bankruptcy or insolvency-related
events; interest shall be calculated at the rate of the prime rate of
Chase Manhattan Bank plus 2% per annum, on the basis of a 365 day year
and the actual number of days elapsed; the Company may prepay the note
at any time without prepayment penalty or premium; and other terms
(including subordination provisions) in form and substance reasonably
satisfactory to the Company and the Buyer and satisfactory to the Banks
under the Credit Agreement.
"INDEMNIFIED PARTY" has the meaning assigned to such
term in Section 8.4(a) hereof.
<PAGE>
"INDEMNIFYING PARTY" has the meaning assigned to such
term in Section 8.4(a) hereof.
"INITIAL CLOSING" has the meaning assigned to such term
in Section 3.1(a) hereof.
"INITIAL CLOSING DATE" has the meaning assigned to such term in
Section 3.1(a) hereof.
"INVESTMENT" means each corporation, association, partnership,
joint venture or other entity in which the Company, the Tenneco Entities
or any Tenneco Entities' Subsidiary has a debt or equity investment, in
each case other than the Tenneco Entities' Subsidiaries.
"KNOWLEDGE", including the usage "to the Knowledge of the
Company" and variations thereof, means knowledge which exists to the
extent of the actual knowledge of the Management Investors in whatever
capacity such knowledge was obtained, with respect to the representation
and warranty being made.
"LEASED RESERVES" has the meaning assigned to such term
in Section 5.1(h)(ii) hereof.
"LICENSE" has the meaning assigned to such term in
Section 5.1(p) hereof.
"LIEN" has the meaning assigned to such term in Section
5.1(d) hereof.
"LOSS" and "LOSSES" have the respective meanings assigned to such
terms in Section 8.1 hereof.
"MANAGEMENT INVESTORS" has the meaning assigned to such
term in the recitals hereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations, properties, financial condition or results of
operations of (a) the Company or (b) the Tenneco Entities and the
Tenneco Entities' Subsidiaries
on a consolidated basis.
"MATERIALS OF ENVIRONMENTAL CONCERN" means any and all chemicals,
pollutants, contaminants, wastes, toxic or hazardous substances or
materials, petroleum and petroleum products and other materials that are
regulated under, or could result in the imposition of liability under,
any Environmental Laws.
"MULTIEMPLOYER PLAN" has the meaning assigned to such
term in Section 5.1(o)(ii) hereof.
<PAGE>
"1996 BUDGET" means the Company's 1996 budget, a copy of which
has been provided to the Buyer prior to the execution of this Agreement.
"NOTICE OF CLAIM" has the meaning assigned to such term
in Section 8.3 hereof.
"OIL AND GAS INTERESTS" means direct and indirect interests in
and rights with respect to oil, gas, helium, carbon dioxide, mineral,
and related properties and assets of any kind and nature, direct or
indirect, including working, royalty, and overriding royalty interests,
production payments, operating rights, net profit interests, other
nonworking interests, and nonoperating interests; all interests in and
rights with respect Hydrocarbons and other minerals or revenues
therefrom and all contracts in connection therewith and claims and
rights thereto (including all oil and gas leases, operating agreements,
unitization and pooling agreements and orders, division orders, transfer
orders, mineral deeds, royalty deeds, oil and gas sales, exchange and
processing contracts and agreements, and in each case, interests
thereunder), surface interests, fee interests, reversionary interests,
reservations, and concessions; all easements, rights of way, licenses,
permits, leases, and other interests associated with, appurtenant to, or
necessary for the operation of any of the foregoing; and all interests
in equipment and machinery (including well equipment and machinery), oil
and gas production, gathering, transmissions, treating, processing, and
storage facilities (including tanks, tank batteries, pipelines, and
gathering systems), pumps, water plants, electric plants, gasoline and
gas processing plants, refineries, and other tangible personal property
and fixtures associated with, appurtenant to, or necessary for the
operation of any of the foregoing.
"OIL AND GAS LEASES" has the meaning assigned to such term in
Section 5.1(h)(ii) hereof.
"OPTION" has the meaning assigned to such term in
Section 4.1 hereof.
"OPTION PURCHASE PRICE" has the meaning assigned to such term in
Section 4.1 hereof.
"OPTION SHARE PURCHASE" has the meaning assigned to such term in
Section 4.3 hereof.
"OPTION SHARES" has the meaning assigned to such term
in Section 1.1(b) hereof.
"PAYOUT" has the meaning assigned to such term in
Section 4.1 hereof.
<PAGE>
"PENSION PLAN" has the meaning assigned to such term in
Section 5.1(o)(iii) hereof.
"PERSON" means any individual, corporation, limited liability
company, partnership, trust, joint stock company, business trust,
unincorporated association, joint venture, Governmental Authority or
other entity of any nature whatsoever.
"PREDECESSORS" has the meaning assigned to such term in
Section 5.1(f) hereof.
"PROPERTIES" has the meaning assigned to such term in
Section 5.1(h)(ii) hereof.
"RESERVES" has the meaning assigned to such term in
Section 5.1(h)(ii) hereof.
"SECURITYHOLDERS AGREEMENT" means the Securityholders Agreement,
dated as of December 31, 1996, among the Company, the Buyer and the
Management Investors and the other stockholders of the Company, attached
hereto as Exhibit C.
"STOCK PURCHASE AGREEMENT" has the meaning assigned to
such term in the recitals hereof.
"SUBSEQUENT CLOSING" has the meaning assigned to such
term in Section 3.1(a) hereof.
"SUBSEQUENT CLOSING DATE" has the meaning assigned to such term
in Section 3.1(a) hereof.
"SUBSIDIARIES" means as to any Person a corporation, partnership,
or similar entity of which (i) a majority of the outstanding shares of
voting stock, limited liability company interests or similar securities
or interests are at the time owned, directly or indirectly through one
or more intermediaries, or both, by such Person or (ii) such Person is
the general partner (or performs a role similar to a general partner).
"SUBSIDIARY STOCK" has the meaning assigned to such term in
Section 5.1 (e)(ii) hereof.
"TAX" or "TAXES" has the meaning assigned to such term
in Section 5.1(v)(i) hereof.
"TAX RETURN" or "TAX RETURNS" has the meaning assigned to such
term in Section 5.1(v)(i) hereof.
"TELEO" has the meaning assigned to such term in the
recitals hereof.
<PAGE>
"TENNECO ENTITIES" has the meaning assigned to such
term in the recitals hereof.
"TENNECO ENTITIES' SUBSIDIARIES" has the meaning assigned to such
term in Section 5.1(c) hereof.
"TGP" has the meaning assigned to such term in the
recitals herein.
"THIRD PARTY CLAIMS" has the meaning assigned to such term in
Section 8.4(a) hereof.
"TRANSACTION DOCUMENTS" shall mean, collectively, this Agreement,
the Securityholders Agreement, the Credit Agreement, the Stock Purchase
Agreement, the Buyer Subordinated Note and the Employment Agreement.
"TRANSACTIONS" has the meaning assigned to such term in
Section 5.1(d) hereof.
"VENTURES" has the meaning assigned to such term in the
recitals hereof.
ARTICLE III INITIAL CLOSING
3.1. TIME AND PLACE.
(a) The closing of the Firm Share Purchase (the "INITIAL
CLOSING") will take place at the offices of Weil, Gotshal & Manges LLP,
700 Louisiana, Suite 1600, Houston, Texas, or at such other location as
the parties hereto mutually agree, at 10:00 a.m. Houston time on
December 31, 1996, or on such other time and date as may be mutually
agreed upon by the parties hereto (the "INITIAL CLOSING DATE").
(b) The closing of the Option Share Purchase (a "SUBSEQUENT
CLOSING") will take place at the offices of Weil, Gotshal & Manges LLP,
700 Louisiana, Suite 1600, Houston, Texas, or at such other location as
the parties hereto mutually agree, at such time and date as may be
mutually agreed upon by the parties hereto in accordance with the
provisions of Section 4.4 (a "SUBSEQUENT CLOSING DATE").
ARTICLE IV OPTION TO PURCHASE ADDITIONAL COMMON STOCK
4.1. OPTION. Subject to the terms and conditions of
this Agreement, the Company hereby grants to the Buyer an option
(the "OPTION") to purchase the Option Shares for an aggregate
purchase price (the "Option Purchase Price") of $8,000,000 plus
any cash interest payment on the Buyer Subordinated Note actually
<PAGE>
received by the Buyer; PROVIDED, that the number of the Option Shares shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, reclassifications, recapitalizations, reorganizations and the like
occurring after the date hereof. The Option Purchase Price shall be satisfied in
full (i) prior to the Buyer Subordinated Note Repayment date, the delivery to
the Company of the Buyer Subordinated Note together with the payment of an
amount in cash equal to any repayments of principal of, and all payments of
interest on, the Buyer Subordinated Note previously received by the Buyer and
(ii) after the Buyer Subordinated Note Repayment Date, by the payment of the
Option Purchase Price in cash. The Company acknowledges and agrees that the
Option Purchase Price may be satisfied by the delivery of the Buyer Subordinated
Note as provided in this Agreement irrespective of the validity, regularity or
enforceability of the Buyer Subordinated Note, the bankruptcy, insolvency or
other condition of the obligor under the Buyer Subordinated Note or any breach
by such obligor of its obligations under the Buyer Subordinated Note. The
Company acknowledges that the Buyer Subordinated Note shall be delivered to the
Company on an "as is, where is" basis without any representation, warranty or
indemnity by the Buyer except as set forth in Section 5.2.
4.2. EXERCISE. The Option may be exercised by the Buyer, in its
sole discretion, by the Buyer delivering an Exercise Notice (as hereinafter
defined) to the Company at any time during the period (the "EXERCISE PERIOD")
commencing on the Initial Closing Date and ending on the earlier of (a) the
third year anniversary of the Initial Closing Date or (b) the 30th day after the
Buyer Subordinated Note Repayment Date.
4.3. NOTICE. If the Buyer wishes to exercise the Option (the
"OPTION SHARE PURCHASE"), the Buyer shall send a written notice (an "EXERCISE
NOTICE") to the Company of its intention to exercise the Option. The Subsequent
Closing Date for the Option Share Purchase shall be not less than 5 nor more
than 60 days (or such longer period as may be required by applicable law or
regulation) from the date on which such notice is delivered to the Company.
4.4. CONDITIONS PRECEDENT. The obligation of the
Buyer to purchase Option Shares pursuant to the Buyer's exercise
of the Option shall be subject to the satisfaction of the
conditions set forth in paragraph 8.1(b) hereof.
ARTICLE V REPRESENTATIONS AND WARRANTIES
5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer as follows:
(a) EXECUTION AND VALIDITY OF AGREEMENT. The Company
has all requisite corporate power and authority to execute
<PAGE>
and deliver this Agreement and the other Transaction Documents to which
it is a party and to perform its obligations hereunder and thereunder.
This Agreement and the other Transaction Documents to which the Company
is a party have been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the other parties
to the Transaction Documents, constitute the legal, valid and binding
agreements of the Company. Assuming due authorization, execution and
delivery by the other parties hereto and thereto, each of this Agreement
and the Securityholders Agreement are enforceable against the Company in
accordance with their terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
(b) CORPORATE ORGANIZATION.
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, has the
corporate power and authority to own, use and operate its properties and
to carry on its business as the same is now being conducted and is duly
qualified or licensed to do business as a foreign corporation in each
jurisdiction in which the nature of its business or properties makes
such qualification necessary.
(ii) Each of the Tenneco Entities and the Tenneco Entities'
Subsidiaries (as hereinafter defined) is a corporation or limited
liability company, as the case may be, duly organized, validly existing
and in good standing under the laws of its State of organization, has
the corporate power and authority to own, use and operate its properties
and to carry on its business as the same is now being conducted and is
duly qualified or licensed to do business as a foreign corporation in
each jurisdiction in which the nature of its business or properties
makes such qualification necessary, except any such jurisdiction in
which the failure to so qualify or be licensed would not have a Material
Adverse Effect.
(c) INVESTMENTS. As of the date hereof, the Company does not have
any direct or indirect subsidiaries other than its wholly-owned
subsidiary, Domain Energy Guarantor Corporation, a Delaware corporation.
Other than those subsidiaries listed in SCHEDULE 5.1(C) (the "TENNECO
ENTITIES' SUBSIDIARIES"), the Tenneco Entities do not have any direct or
indirect subsidiaries. The Tenneco Entities own the percentage of the
outstanding capital stock or ownership units of the Tenneco Entities'
Subsidiaries as set forth in SCHEDULE 5.1(C). Immediately following the
Initial Closing, the Company will own all of the outstanding capital
stock of the Tenneco Entities. Except for the interests set
<PAGE>
forth on SCHEDULE 5.1(C) neither the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries have any debt or equity
investment, or other interest, direct or indirect, in any corporation,
association, partnership, joint venture or other entity.
(d) NO CONFLICT. Neither the execution and delivery by the
Company or either of the Tenneco Entities of the Transaction Documents
to which it is a party, nor the performance by the Company or the
Tenneco Entities of the transactions contemplated hereby and thereby,
including without limitation the sale of the Company Shares to the
Buyer, the initial borrowings under the Credit Agreement and the
issuance of the Buyer Subordinated Note (collectively the
"TRANSACTIONS"), will (i) violate or conflict with any of the provisions
of the certificate of incorporation or by-laws of the Company, the
Tenneco Entities or any of the Tenneco Entities' Subsidiaries, (ii)
except as set forth in SCHEDULE 5.1(D)(II), with or without the giving
of notice or the lapse of time or both, violate or constitute a default
under, or result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both)
any obligation under any mortgage, indenture, deed of trust, lease,
contract, agreement, license or other instrument or violate any
provision of any law, order, judgment, decree, restriction or ruling of
any Governmental Authority to which the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries is a party or by which any of
their respective property is bound or encumbered or (iii) except as
provided in the Transaction Documents, result in the creation of any
lien, mortgage, pledge, charge, security interest or similar encumbrance
("LIEN") upon any of the assets of the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries or the loss of any license or
other contractual right with respect thereto.
(e) CAPITAL STRUCTURE OF THE COMPANY, THE TENNECO
ENTITIES AND THE TENNECO ENTITIES' SUBSIDIARIES.
(i) The authorized capital stock of the Company as of the
date hereof consists of 20,000 shares of Common Stock, no shares of
which are issued and outstanding as of the date hereof. Immediately
following the Initial Closing and consummation of the Stock Purchases,
the authorized, issued and outstanding capital stock of the Company will
be as set forth on SCHEDULE 5.1(E)(I).
(ii) Set forth on SCHEDULE 5.1(E)(II)(A) is the authorized,
issued and outstanding capital stock of the Tenneco Entities as of the
date hereof and the authorized capital stock or partnership or limited
liability company interests, as the case may be (collectively, the
"SUBSIDIARY STOCK"), and the issued and outstanding Subsidiary Stock of
<PAGE>
each Tenneco Entities' Subsidiary as of the date hereof. Immediately
following the Initial Closing and consummation of the Stock Purchases,
the authorized, issued and outstanding capital stock of the Tenneco
Entities and Subsidiary Stock will be as set forth on SCHEDULE
5.1(E)(II)(B).
(iii) Except as set forth on SCHEDULE 5.1(E)(III), all issued
and outstanding shares or units of Authorized Common Stock and common
stock of the Tenneco Entities and the Subsidiary Stock have been duly
authorized and validly issued, are fully paid and nonassessable and free
of preemptive rights with no personal liability attaching to the
ownership thereof, and such ownership is free and clear of all Liens.
(iv) The Company Shares have been duly authorized by the
Company and, upon payment and delivery in accordance with this
Agreement, will be validly issued, fully paid and nonassessable and free
of preemptive rights with no personal liability attaching to the
ownership thereof.
(v) Except as set forth on SCHEDULE 5.1(E)(V), and except
for the Securityholders Agreement and rights contained in the Company's
Certificates of Incorporation, there are no outstanding options,
warrants, calls, rights or other securities or commitments or any other
agreements of any character relating to the sale, issuance or voting of
any shares of the capital stock or limited liability company interests,
as the case may be, of the Company, the Tenneco Entities or any Tenneco
Entities' Subsidiary, whether issued or unissued, or any securities
convertible into or evidencing the right to purchase any shares of
capital stock or limited liability company interests, as the case may
be, of the Company, the Tenneco Entities or any Tenneco Entities'
Subsidiary.
(f) FINANCIAL STATEMENTS. The Company has heretofore furnished to
the Buyer consolidated and consolidating balance sheets (the "BALANCE
SHEETS") of TGP and Ventures, as predecessors in interest of the Company
and its subsidiaries (in such capacity, the "PREDECESSORS") as at
December 31, 1995 and the related consolidated and consolidating
statements of income, retained earnings and cash flows of the
predecessors for the fiscal year ended on said date, and the
consolidated and consolidating balance sheets of the Predecessors as at
September 30, 1996 and the related consolidated and consolidating
statements of income, retained earnings and cash flows of the
Predecessors for the nine-month period ended on such date. All such
financial statements are complete and correct and fairly present the
consolidated financial condition of the Predecessors and (in the case of
said consolidating financial statements) the respective unconsolidated
financial condition of the
<PAGE>
Predecessors, as at said dates and the consolidated and unconsolidated
results of their operations for the fiscal year and nine-month period
ended on said dates (subject, in the case of such financial statements
as at September 30, 1996, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices
applied on a consistent basis. Except as disclosed on Schedule 5.1(f),
there is no material liability or obligation of any kind, whether
accrued, absolute, fixed or contingent, of the Tenneco Entities and the
Tenneco Entities' Subsidiaries which would be required to be presented
in financial statements or notes thereto prepared in accordance with
generally accepted accounting principles that is not reflected or
reserved against in the Balance Sheets (or the notes thereto), other
than liabilities or obligations incurred in the ordinary course of
business since December 31, 1995. The Company does not have any
liability or obligation of any kind, whether accrued, absolute, fixed or
contingent, other than obligations and liabilities arising under the
Transaction Documents.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1995, except as disclosed in SCHEDULE 5.1(G), and except for the
conclusion of, and preparation for, the Transactions, the Tenneco
Entities and the Tenneco Entities' Subsidiaries have operated their
respective businesses only in the ordinary course consistent with past
practice and there has not been, with respect to the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries:
(i) any change in the business or financial condition
of the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries which has had, or would reasonably be expected to
have, either in any case or in the aggregate, a Material Adverse
Effect;
(ii) the incurrence of any indebtedness for money
borrowed in excess of $500,000 (other than borrowings under the
Credit Agreement and indebtedness permitted under the Credit
Agreement) or the creation of any Lien on any properties or
assets (whether tangible or intangible) having an aggregate value
in excess of $500,000, other than Liens required or permitted
under the Credit Agreement;
(iii) other than as set forth in the 1996 Budget: (A)
any general increase, or any announcement of any general
increase, in the wages, salaries, compensation, bonuses,
commissions, incentives, pension or other benefits payable by the
Tenneco Entities or any of the Tenneco Entities' Subsidiaries to
its directors or employees, or (B) any specific increase, or any
announcement of any specific increase in any of the foregoing
payable by the Tenneco Entities or any of the
<PAGE>
Tenneco Entities' Subsidiaries to any director or any employee,
except in either case (I) as set forth in the Employment
Agreement, and (II) increases in salaries and salary bonuses not
greater than 3% in the aggregate since December 31, 1995;
(iv) any new agreement, plan, policy, program or
arrangement to pay pensions, retirement allowances or other
employee benefits to any director, employee or agent or sales
representative, whether past or present, including any severance
or consulting arrangement;
(v) any commitment or amendment to any additional
pension, profit-sharing, deferred compensation, group insurance,
severance pay, retirement or other employee benefit plan, fund or
similar arrangement in existence on the date hereof;
(vi) any termination, discontinuance, closing or
disposition of any plant, facility or business operation (other
than sales or other dispositions in the ordinary course of
business or as previously disclosed to the Buyer) of Oil and Gas
Interests, any layoffs of employees or implementation of any
early retirement, separation or window program or planning or
announcement of any such action or program for the future;
(vii) any material transfer or grant of any rights
under any concessions, property leases, licenses, agreements,
trademarks, tradenames, service marks, brandmarks, brand names,
copyrights, patents, inventions, processes, technical know-how or
other proprietary rights either within or outside the United
States;
(viii) any capital expenditure in excess of $250,000
other than as set forth in the 1996 Budget;
(ix) any damage, destruction or loss (whether or not
covered by insurance) to any asset of the Tenneco Entities or any
of the Tenneco Entities' Subsidiaries, other than damage,
destruction or losses which, individually or in the aggregate,
have not had and would not reasonably be expected to have, a
Material Adverse Effect; or
(x) except for such transactions reflected in the
Shareholder Advance Account (as such term is defined in the Stock
Purchase Agreement), any declaration, setting aside or payment of
any dividend or other distribution on or in respect of its shares
of capital stock or limited liability company interests, as the
case may be, or any direct or indirect redemption, retirement,
<PAGE>
purchase or other acquisition of any such shares or
interests, as the case may be.
(h) TITLE TO PROPERTIES; ENCUMBRANCES.
(i) The Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries have good and marketable title to the
respective real properties and oil and gas reserves that they own
and which are reflected on the Balance Sheet and other 1995
financial statements referred to in Section 5.1(f) or were
acquired since December 31, 1995, including all joint ventures
and other investments (collectively, the "FEE PROPERTIES") free
and clear of all Liens except (a) capitalized financing leases,
(b) Liens for ad valorem real property taxes not yet due or
payable, due but not yet payable or due and payable but not yet
delinquent, (c) mechanics', materialmen's, operators, tax or
similar Liens affecting the Fee Properties (but not excepting any
such Liens which secure obligations which are delinquent unless
such delinquent obligations are being contested in good faith by
appropriate legal proceedings), (d) purchase money Liens arising
in the ordinary course of business which may be delinquent
PROVIDED, such delinquent Liens are being contested in good faith
by appropriate legal proceedings, (e) those mortgages, pledges
and other Liens identified on SCHEDULE 5.1(H)(I), (f) the
mortgages, security interests and Liens granted pursuant to the
Credit Agreement or any documents executed in connection
therewith and (g) such imperfections of title, easements and
other similar encumbrances, if any, which do not in the aggregate
materially detract from the value or materially interfere with
the present use by the Company, the Tenneco Entities and the
Tenneco Entities' Subsidiaries, as the case may be, of the Fee
Properties. Fee Properties consisting of oil and gas reserves are
sometimes hereinafter referred to as "FEE RESERVES."
(ii) The Company has made available to the Buyer all
agreements (collectively, with any and all amendments,
supplements or other modifications thereto, the "OIL AND GAS
LEASES") pursuant to which the Company, the Tenneco Entities and
the Tenneco Entities' Subsidiaries lease, sublease or otherwise
possess any occupancy, usage rights or Oil and Gas Interests with
respect to any real property (such properties are hereinafter
referred to collectively as the "LEASED PROPERTIES"; the Leased
Properties together with the Fee Properties, collectively, the
"PROPERTIES") or the reserves of oil and gas described on the
1995 financial statements referred to in Section 5.1(f) (the
"LEASED RESERVES"). The Leased Reserves together with the Fee
<PAGE>
Reserves are hereinafter collectively referred to as the
"RESERVES". Except with respect to the Reserves, the Company, the
Tenneco Entities and the Tenneco Entities' Subsidiaries have no
reserves of oil and gas and the Reserves are all of the oil and
gas reserves utilized by the Company, the Tenneco Entities and
the Tenneco Entities' Subsidiaries in its business.
(iii) The Tenneco Entities or one of the Tenneco
Entities' Subsidiaries is a party to each of the Oil and Gas
Leases pursuant to which the Tenneco Entities or one of the
Tenneco Entities' Subsidiaries leases the Leased Properties and
the Leased Reserves. Each of the Oil and Gas Leases is validly
executed by the lessee, in full force and effect and represents a
binding obligation of the Tenneco Entities, the Tenneco Entities'
Subsidiary (as the case may be) and, to the Knowledge of the
Company, the lessor thereunder in accordance with the terms
thereof. Except as set forth in SCHEDULE 5.1(H)(I), there is no
default by the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries under the Oil and Gas Leases or to the Knowledge of
the Company by any of the other parties to the Oil and Gas
Leases, nor, to the Knowledge of the Company, has any event
occurred which with notice, the passage of time or both would
constitute such a default. The Company has no Knowledge of any
adverse claims to the Leased Reserves or the rights described in
the Oil and Gas Leases, nor have the Tenneco Entities received
any notice of default under the Oil and Gas Leases and the quiet
and peaceful possession of the Leased Reserves by the Tenneco
Entities or one of the Tenneco Entities' Subsidiaries has not
been disturbed. Except as disclosed on SCHEDULE 5.1(H)(I), the
Tenneco Entities have no Knowledge of any facts which, through
notice or the passage or time, would constitute grounds for a
forfeiture of any of the Leased Reserves under any of the Oil and
Gas Leases. Except as otherwise may be set forth in any of the
Oil and Gas Leases, to the Knowledge of the Company, each of the
lessors or sub-lessors under the Oil and Gas Leases has title to
the Leased Reserves leased pursuant thereto. For purposes hereof,
the term "title" shall mean that the party possessing the same
has good and marketable title to all oil and gas to which such
expression is directed, together with all rights necessary to
remove such oil and gas, the necessary rights to conduct such
removal and the right to lease or sublease same to the Tenneco
Entities and the Tenneco Entities' Subsidiaries in accordance
with the terms of the Oil and Gas Leases.
(iv) Except as set forth in SCHEDULE 5.1(H)(IV),
to the Knowledge of the Company, (i) the operations of
<PAGE>
the Tenneco Entities and the Tenneco Entities' Subsidiaries are
not dependent upon any rights to the use of real properties of
others except under the Oil and Gas Leases, the Licenses and the
Contracts and (ii) all buildings, structures, machines and
equipment used in the operations of the Tenneco Entities and the
Tenneco Entities' Subsidiaries have been maintained in all
respects in a state of adequate repair and are otherwise
generally adequate for their normal operation, except for such
failures that, individually or in the aggregate, would not have a
Material Adverse Effect. Except as set forth in SCHEDULE
5.1(H)(IV), (A) the Tenneco Entities have not received any notice
that (1) any of such buildings, structures, machines, equipment
or (2) the current use of the Properties does not conform in all
material respects with all applicable ordinances, regulations and
zoning or other laws, (B) such machinery and equipment is in all
material respects in useable condition, and (C) to the Knowledge
of the Company, there is no pending or threatened condemnation,
eminent domain or similar proceeding affecting any part of the
Properties or the Reserves.
(v) Other than in the ordinary course of business,
neither the Tenneco Entities nor any of the Tenneco Entities'
Subsidiaries have leased, subleased, optioned, assigned or
otherwise transferred or entered into any agreement to lease,
sublease, option, assign or otherwise transfer any interest in
the Reserves so as to materially reduce its interest in the
Reserves as reflected in the financial statements referred to in
Section 5.1(f). No rights of reassignment, preferential purchase
rights, option rights, back-in rights or other rights to transfer
any material interest in any of the Reserves to any third party
exist that would be triggered or violated by this Agreement.
(vi) To the Knowledge of the Company, the Tenneco
Entities and the Tenneco Entities' Subsidiaries own or control
all material ancillary rights, including surface access rights,
rights-of-way, water rights, access to utilities and the like
necessary to gain vehicular and pedestrian access to, produce,
process and market Reserves from the Properties in the same
manner and at the same rates as were in effect as of December 31,
1995.
(vii) With respect to the Fee Reserves, there are no
parties in possession or, to the Knowledge of the Company,
asserting a right of possession adverse to the possession of the
Tenneco Entities or the Tenneco Entities' Subsidiaries, and, to
the Knowledge of the
<PAGE>
Tenneco Entities, there are no parties asserting title adverse to
the title of the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries which, if successful, would materially detract from
the value or materially interfere with the present use by the
Tenneco Entities and the Tenneco Entities' Subsidiaries of the
Fee Reserves and the Fee Properties.
(i) ABSENCE OF LIENS. Except as described in SCHEDULE 5.1(I),
each of the Tenneco Entities and the Tenneco Entities' Subsidiaries has
good title, free of all Liens, to all equipment, machinery and fixtures
(to the extent they constitute personal property) owned or utilized in
its business (or a valid and binding lease therefor) and all its
receivables (the "PERSONAL PROPERTIES") except for (A) capitalized
financing leases, (B) Liens for ad valorem personal property taxes not
yet due or payable, due but not yet payable, or due and payable but not
yet delinquent, (C) landlords' or similar Liens affecting the Personal
Properties, (D) purchase money Liens arising in the ordinary course of
business, (E) the mortgages, security interests and Liens granted
pursuant to the Credit Agreement or any documents executed in connection
therewith, (F) Liens permitted under the Credit Agreement and (G) Liens
which do not, individually or in the aggregate, materially detract from
the value of the Personal Properties or materially interfere with the
present uses thereof.
(j) INSURANCE AND BONDS. All policies of insurance,
self-insurance permits (other than insurance provided to employees) and
reclamation, workers compensation and other bonds relating to the
Tenneco Entities and the Tenneco Entities' Subsidiaries and their
respective businesses, assets and employees as of the date hereof
(including carriers, policy numbers, effective and termination dates and
coverage and self-insured retention amounts) are in full force and
effect, all premiums due thereon have been paid and each of the Tenneco
Entities and the Tenneco Entities' Subsidiaries has, to the Knowledge of
the Company, complied with the material provisions of such policies,
permits and bonds. All properties of the Tenneco Entities and the
Tenneco Entities' Subsidiaries are insured in such amounts and against
such risks as are usually insured against by Persons owning or operating
similar properties in the localities where such properties are located.
(k) CONTRACTS. Except for the Transaction Documents, the Oil and
Gas Leases, the insurance policies and bonds referred to in Section
5.1(j) and plans listed on SCHEDULE 5.1(O), SCHEDULE 5.1(K) hereto
accurately lists the material contracts, leases, agreements, plans,
policies, indentures, licenses and arrangements having any other legally
binding basis to which the Company, the Tenneco Entities or any of the
Tenneco Entities' Subsidiaries is a party or by which it
<PAGE>
or any of its property is bound (other than those to which the only
parties are the Company, the Tenneco Entities and/or the Tenneco
Entities' Subsidiaries) meeting any of the following criteria (each such
contract, lease, agreement, plan, policy, indenture, license or
arrangement (other than the Oil and Gas Leases, the insurance policies
and bonds referred to in Section 5.1(j) and plans listed on SCHEDULE
5.1(O)) referred to in this Section 5.1(k) and in Section 5.1(l) below a
"CONTRACT") (for purposes of this Section 5.1(k), "material" shall mean
material to the business, operations, properties, financial condition or
results of operations of the Company, the Tenneco Entities and the
Tenneco Entities' Subsidiaries on a consolidated basis)):
(i) any such contract, lease, agreement, plan,
policy, indenture or other such arrangement involving commitments
to others to make capital expenditures or purchases or sales
involving $250,000 or more in any one case, except commitments
which may be terminated without liability or penalty by the
Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries on not more than 90 days notice;
(ii) any such contract, lease, agreement, plan,
policy, indenture or other such arrangement relating to any
direct or indirect indebtedness for borrowed money (including but
not limited to loan agreements, lease-purchase arrangements,
guarantees of payment or collection, agreements to purchase goods
or services or to supply funds or other undertakings on which
others rely in extending credit) or any conditional sales
contracts, chattel mortgages, equipment lease agreements and
other security arrangements with respect to personal property
with a value in excess of $500,000 in each instance used or owned
by the Company, the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries;
(iii) any such contract, lease, agreement, plan,
policy, indenture or other such arrangement containing covenants
limiting the freedom of the Company, the Tenneco Entities or any
of the Tenneco Entities' Subsidiaries to compete in any line of
business with any person or in any area or territory;
(iv) any such contract, lease, agreement, plan,
policy, indenture or other such arrangement containing express
terms and conditions with any sales agent, representative,
franchisee or distributor of any of the products of the Company,
the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries;
<PAGE>
(v) other than the Oil and Gas Leases, any such
contract, lease, agreement, plan, policy, indenture or other such
arrangement which requires the payment of royalties; and
(vi) any other such contract, lease, agreement, plan,
policy, indenture or other such arrangement not of the type
covered by any of the other items of this Section 5.1(k) which is
not in the ordinary course of business or which is material to
the business, operations, properties, financial condition or
results of operations of the Company, the Tenneco Entities or any
of the Tenneco Entities' Subsidiaries (as opposed to the
prospects of the economy in general) on a consolidated basis.
True, correct and complete copies of the written Contracts listed
on SCHEDULE 5.1(K) hereto have been made available to the Buyer.
(l) COMPLIANCE WITH CONTRACTS, ETC. The Company, the Tenneco
Entities and each of the Tenneco Entities' Subsidiaries is in material
compliance with all material terms and provisions of all Contracts
listed in SCHEDULE 5.1(K) and to the Knowledge of the Company, all such
Contracts are valid and binding in accordance with their terms and in
full force and effect in all material respects, and to the Knowledge of
the Company, no material breach or default by the Company, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries or event which,
with notice or lapse of time or both, could constitute a breach or
default by the Company, the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries, exists with respect thereto, and no party
thereto has given notice or asserted to the Company, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries that the Company,
the Tenneco Entities or any of the Tenneco Entities' Subsidiaries is in
default thereunder and, to the Knowledge of the Company, no other party
thereto is in material breach or default thereunder.
(m) LITIGATION. Except as disclosed in SCHEDULE 5.1(m), there are
no lawsuits, actions, arbitrations or legal or administrative or
regulatory proceedings, or investigations pending or, to the Knowledge
of the Company, threatened against the Company, the Tenneco Entities,
any of the Tenneco Entities' Subsidiaries, or, to the Knowledge of the
Company, any Investment. Neither the Company, the Tenneco Entities, any
of the Tenneco Entities' Subsidiaries, nor, to the Knowledge of the
Company, any Investments is a party to, nor are any of them or any of
their respective assets subject to or bound by, any order, judgment,
injunction, stipulation, order or decree (whether rendered by a court or
administrative agency or by
<PAGE>
arbitration) which, if adversely determined, could, individually or in
the aggregate, have a Material Adverse Effect or materially adversely
affect the ability of the Company to sell the Company Shares to be sold
by the Company hereunder or to consummate the other transactions
contemplated hereby. There are no material citations, fines or penalties
heretofore asserted against the Company, the Tenneco Entities, the
Tenneco Entities' Subsidiaries, or, to the Knowledge of the Company, any
Investments, under any foreign, federal, state or local law that remain
unpaid or that otherwise bind any assets of the Company, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries or Investments.
(n) COMPLIANCE WITH LAWS. None of the Company, the Tenneco
Entities, any of the Tenneco Entities' Subsidiaries or, to the Knowledge
of the Company, any of the Investments, has violated or failed to comply
with any applicable statute, law, ordinance, regulation, rule or order
of any Governmental Authority, or any judgment, decree or order of any
court, applicable to its business or operations, except where such
violations or failures would not, individually or in the aggregate, have
a Material Adverse Effect; and the conduct of the Company's, the Tenneco
Entities', the Tenneco Entities' Subsidiaries' and, to the Knowledge of
the Company, the Investments' businesses is in material conformity with
all applicable foreign, federal, state and local energy, public utility,
health and employee health and safety requirements and all other
applicable foreign, federal, state and local governmental and regulatory
requirements, except where the failures to be in such conformity would
not, individually or in the aggregate, have a Material Adverse Effect.
The Company, the Tenneco Entities, the Tenneco Entities' Subsidiaries
and, to the Knowledge of the Company, the Investments have all permits,
licenses, authorizations, consents, approvals and franchises from
Governmental Authorities required to conduct their respective businesses
as they are now being and during the past year have been conducted, and
as they are planned to be conducted, except where the failure to have
any such permits, licenses, authorizations, consents, approvals or
franchises would not, individually or in the aggregate, have a Material
Adverse Effect.
(o) EMPLOYMENT AGREEMENT AND RELATED MATTERS.
(i) Each "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (including each multiemployer plan
within the meaning of 3(37) of ERISA), each bonus, fringe
benefit, incentive, stock option, deferred compensation,
employment, consulting, severance and all other employee benefit
plans, programs, policies, agreements and arrangements,
<PAGE>
whether or not covered by ERISA under which the Company, the
Tenneco Entities or any of the Tenneco Entities' Subsidiaries has
or could have any present or future material obligation or
liability (collectively, the "BENEFIT PLANS") are listed in
SCHEDULE 5.1(O). The Company or the Tenneco Entities have
delivered to the Buyer, to the extent requested by the Buyer,
current, correct and complete copies of each Benefit Plan and any
related agreements or funding instruments (or, to the extent no
such copy exists, a current, correct and complete description
thereof) and, to the extent applicable, (A) the most recent
summary plan description and Internal Revenue Service
determination letter, if any, relating to each Benefit Plan and
(B) for the two most recent plan years (I) the form 5500 and
attached schedules; (II) audited financial statements; (III)
actuarial valuation reports; and (IV) attorney's response to an
auditor's request for information.
(ii) No Benefit Plan is a "multiemployer plan" as such
term is defined in Section 4001(a)(3) of ERISA ("MULTIEMPLOYER
PLAN"). Neither the Company, the Tenneco Entities, nor any of the
Tenneco Entities' Subsidiaries nor any trade or business, whether
or not incorporated, which is under common control with the
Company or the Tenneco Entities within the meaning of Code
Section 414(b), (c), (m) or (o) or ERISA Section 4001 (excluding
El Paso and its subsidiaries other than the Tenneco Entities and
the Tenneco Entities Subsidiaries') (collectively, the
"CONTROLLED GROUP") have incurred any liability in connection
with a complete or partial withdrawal from a Multiemployer Plan.
To the Knowledge of the Company and the Tenneco Entities, no such
Multiemployer Plan is in "reorganization" or is "insolvent"(as
those terms are defined in Section 4241 and Section 4245 of
ERISA, respectively).
(iii) Each Benefit Plan, which is intended to be
"qualified" within the meaning of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "CODE") (a "PENSION PLAN"),
is so qualified and has received a favorable determination letter
as to its qualification, and nothing has occurred which would
cause the loss of such qualification, in each case except for
such circumstances that, individually or in the aggregate, would
not have a Material Adverse Effect.
(iv) Each Benefit Plan is intended by the Company and
the Tenneco Entities to have been, and to the Knowledge of the
Company has been, established, maintained and administered in all
material respects in accordance with its terms and the
requirements of
<PAGE>
applicable law, including without limitation ERISA and the Code.
There are not now, nor have there been, any "accumulated funding
deficiencies" as defined in Section 412 of the Code (whether or
not waived) with respect to any Benefit Plan which have not been
fully satisfied. No "reportable event" (as that term is defined
in Section 4043(b) of ERISA) has occurred with respect to any
Benefit Plan.
(v) No Pension Plan maintained by a member of the
Controlled Group which is subject to Title IV of ERISA has been
terminated, in whole or in part, and no proceedings to terminate
a Benefit Plan pursuant to Subtitle C of Title IV of ERISA have
been instituted or, to the Knowledge of the Company, threatened.
As of the date of this Agreement, there are no pending or
threatened claims, actions, suits, complaints or proceedings by
or before any court, Governmental Authority, administrative
agency or commission alleging a breach or breaches of fiduciary
duties or violation of other applicable laws with respect to such
Benefit Plans, or otherwise involving the Benefit Plans, which
could result in material liability on the part of the Company,
the Tenneco Entities, any of the Tenneco Entities' Subsidiaries
or on a Benefit Plan or a Pension Plan maintained by a member of
the Controlled Group (other than benefit claims in the ordinary
course), nor, to the Knowledge of the Company, is there any basis
for any such claims, actions, suits, complaints or proceedings.
(vi) There has been no material adverse change in the
funded status of any Benefit Plan that is subject to Title IV of
ERISA since the most recent valuation date.
(vii) No Benefit Plan exists which could result in the
payment by the Company, the Tenneco Entities, any of the Tenneco
Entities' Subsidiaries, any member of its Controlled Group or the
Buyer of money or any other property or rights, or accelerate or
provide any other rights or benefits, to any person as a result
of the Transactions, including without limitation the sale of
Company Shares hereunder, whether or not such payment would
constitute a parachute payment within the meaning of Section 280G
of the Code, other than as expressly provided for in the
Transaction Documents.
(viii) The maximum liability under the obligations being
assumed by the Company under Section 9.04 of the Stock Purchase
Agreement does not exceed $1,400,000.
(p) LICENSES AND GOVERNMENT APPROVALS. Except as set
forth on SCHEDULE 5.1(P), the Company does not have
<PAGE>
Knowledge of any impediment to the renewal of any license, permit,
approval, consent, franchise and other authorization of any federal,
state, local or foreign Governmental Authority (collectively,
"LICENSES") possessed by or granted to the Company, the Tenneco Entities
or the Tenneco Entities' Subsidiaries and material to their respective
businesses as currently and during the past year have been conducted. To
the Knowledge of the Company, all such Licenses are valid and in full
force and effect and no proceeding is pending or, to the Knowledge of
the Company, threatened seeking the suspension, modification, revocation
or limitation of any such License. The Company, the Tenneco Entities and
the Tenneco Entities' Subsidiaries have all the necessary Licenses that
are required to permit the continued operation after the date hereof of
the businesses of the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries as they are now being and during the past year
have been conducted, with the exception of any change or changes in the
operation of such businesses as would not, individually or in the
aggregate, have a Material Adverse Effect. The Company, the Tenneco
Entities and the Tenneco Entities' Subsidiaries reasonably believe that,
other than for such exceptions that would not, individually or in the
aggregate, have a Material Adverse Effect: each of their Licenses will
be timely renewed and complied with, without material expense; and that
any additional Licenses that may be required of any of them to permit
any of their operations as planned will be timely obtained and complied
with, without material expense. Except as disclosed on SCHEDULE 5.1(P)
and except for the expiration or termination of all applicable waiting
periods under the HSR Act, the execution, delivery and performance of
this Agreement and the other Transaction Documents and the consummation
by the Company and the Tenneco Entities of the transactions contemplated
hereby and thereby (including without limitation the sale of the Company
Shares contemplated hereby and the borrowings contemplated by the Credit
Agreement) will not require the consent, approval or authorization of
any Governmental or regulatory Authority or any other Person under any
License, agreement, indenture or other instrument to which the Company,
the Tenneco Entities or any of the Tenneco Entities' Subsidiaries is a
party or to which any of their respective properties are subject that
have not already been obtained, and no declaration, filing or
registration with any Governmental or regulatory Authority is required
in connection with such transactions.
(q) BROKER'S OR FINDER'S FEES. Except for PaineWebber
Incorporated, neither the Company or the Tenneco Entities nor any
Affiliate or agent of either of them have authorized any Person to act
as a broker or finder or in any similar capacity in connection with the
transactions contemplated by this Agreement. The Company has previously
delivered to the Buyer a true, correct and complete copy of all
agreements,
<PAGE>
arrangements and undertakings between the Company and
PaineWebber Incorporated.
(r) TRANSACTIONS WITH AFFILIATES. Except as disclosed in SCHEDULE
5.1(R), neither the Company, the Tenneco Entities nor any of the Tenneco
Entities' Subsidiaries has any outstanding contract, agreement or other
arrangement with the Company, the Tenneco Entities, or any of the
Affiliates of the Company or the Tenneco Entities (other than those to
which the only parties are the Company, the Tenneco Entities and/or the
Tenneco Entities' Subsidiaries). Except as disclosed in Schedule 5.1(r),
neither El Paso nor any of its Affiliates has issued any performance
bonds, payment bonds, bid bonds, letters of credit, guaranties or
similar instruments for the benefit of the Company, the Tenneco
Entities, the Tenneco Entities' Subsidiaries nor the Investments.
(s) CORPORATE RECORDS. The books and records of the Company, the
Tenneco Entities and the Tenneco Entities' Subsidiaries are complete and
correct in all material respects and have been maintained in accordance
with good business practices.
(t) LABOR MATTERS. Except as set forth in SCHEDULE 5.1(T),
neither the Company, the Tenneco Entities, any of the Tenneco Entities'
Subsidiaries nor any member of the Controlled Group is subject to or a
party to any collective bargaining agreement, employment contract or
consulting agreement and no collective bargaining agreement, employment
agreement or consulting agreement is being negotiated. Except as
disclosed in SCHEDULE 5.1(T), there are no strikes, slowdowns, work
stoppages or other material labor controversies pending or, to the
Knowledge of the Company, threatened against or otherwise affecting the
Company, the Tenneco Entities or the Tenneco Entities' Subsidiaries.
Neither the Company, the Tenneco Entities nor any of the Tenneco
Entities' Subsidiaries has experienced any labor strike, slowdown, work
stoppage or other material labor controversy within the past three
years. Other than certain severance payments and retention bonuses due
to certain employees of the Company which will be paid in due course,
the Company, the Tenneco Entities and the Tenneco Entities' Subsidiaries
have paid in full to all their respective employees all wages, salaries,
commissions, bonuses, benefits and other compensation due to such
employees or otherwise arising under any policy, agreement, program,
statute or other law. Neither the Company, the Tenneco Entities nor any
of the Tenneco Entities' Subsidiaries is a party to, or otherwise bound
by, any consent decree with, or citation by, any court or Governmental
Authority relating to employees or employment practices. To the
Knowledge of the Company, during the past three years none of the
Company, the Tenneco Entities or any
<PAGE>
of the Tenneco Entities' Subsidiaries has received any petition from any
employees to form, join, or assist labor organizations to bargain
collectively through representatives of the employees' choosing or has
received information about employees engaging in other concerted
activities for the purpose of collective bargaining.
(u) TAX MATTERS. Except as set forth in the last
sentence of this Section 4.1(u) and in SCHEDULE 5.1(U):
(i) All Tax Returns (as hereinafter defined) required
by law to be filed (and/or maintained) on or prior to the date
hereof by, or with respect to the operations, activities or
assets of the Company, the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries (other than any consolidated, combined or
unitary income or franchise tax returns filed by either Tenneco,
Inc. or El Paso (as common parent) on behalf of any of the
Tenneco Entities or the Tenneco Entities' Subsidiaries) have been
properly and timely filed with the appropriate governmental
agencies (and/or maintained, as the case may be), and all such
Tax Returns are correct, accurate and complete in all material
respects. All Taxes (as hereinafter defined) shown as due on such
Tax Returns have been paid. For purposes of this Agreement, "TAX"
or "TAXES" will mean any and all federal, state, local, foreign
and other taxes and tax withholding obligations (including
interest, additions to tax, penalties and fines with respect
thereto) including, without limitation, taxes imposed on, or
measured by, income, franchise, profits, or gross receipts, and
also ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment
compensation, utility, severance, production, excise, stamp,
occupation, premium, windfall profits, transaction, and joint
taxes, and customs duties. "TAX RETURN" or "TAX RETURNS" will
mean any report, return or other information, or any amendment
thereof, filed or required to be filed, maintained or supplied in
connection with the calculation, determination, assessment,
collection or remittance of any Tax.
(ii) With respect to the Company, the Tenneco Entities
and each of the Tenneco Entities' Subsidiaries, except as set
forth in SCHEDULE 5.1(U), (A) no audit of any Tax Return is in
progress or pending or, to the Knowledge of the Company,
threatened, (B) no waiver of any statute of limitations has been
given and is in effect with respect to the assessment of any Tax
and (C) no deficiency has been assessed for any Tax by any
Governmental Authority.
<PAGE>
(iii) Set forth in SCHEDULE 5.1(U) is a list of all
current deficiencies asserted and assessments made by the IRS or
the state equivalent with respect to the Tenneco Entities and the
Tenneco Entities' Subsidiaries which deficiencies and assessments
have not been paid, settled, withdrawn, overturned or dismissed.
(iv) True, correct and complete copies of all notices
of deficiencies, assessments, audit reports, closing agreements
with and other notices from any taxing authority for all years
with respect to which the statute of limitations has not expired
will be delivered to the Buyer prior to the Initial Closing Date.
(v) Neither the Company, the Tenneco Entities nor any
of the Tenneco Entities' Subsidiaries has adopted a plan of
complete liquidation and no consent has been filed on behalf of
the Company, the Tenneco Entities or any of the Tenneco Entities'
Subsidiaries pursuant to Section 341(f) of the Code or any
predecessor provision.
(vi) The Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries have collected all sales and use Taxes
required to be collected, and have remitted, or will remit on a
timely basis, such amounts to the appropriate Governmental
Authorities where the failure to collect or remit would in the
aggregate have a Material Adverse Effect, or have been furnished
properly completed exemption certificates for all exempt
transactions. Each of the Company, the Tenneco Entities and the
Tenneco Entities' Subsidiaries has maintained in its possession
all records and supporting documents required by applicable sales
Tax statutes and regulations regarding the collection and payment
of all sales and use Taxes required to be collected and paid over
and regarding all exempt transactions for all periods open under
the applicable statutes of limitations as of the Initial Closing
Date.
(vii) The liabilities for Taxes reflected in the
Balance Sheet set forth on SCHEDULE 5.1(F) are accurate and the
amounts reflected for Taxes therein are sufficient for the
payment of all accrued, unpaid or deferred Taxes of the Tenneco
Entities and the Tenneco Entities' Subsidiaries for all periods
ended on or prior to December 31, 1995, whether or not disputed.
(viii) The Company (a) has not been a member of an
affiliated group filing a consolidated federal income Tax Return
(other then a group the common parent of which is the Company)
and (b) has no liability for Taxes of any Person (other than the
Company, the
<PAGE>
Tenneco Entities and the Tenneco Entities' Subsidiaries) under
U.S. Treasury regulation ss. 1.1502-6 (or any similar provision
of state, local or foreign law), as a transferee or successor, by
contract or otherwise.
(ix) Neither the Company nor the Tenneco Entities is a
United States real property holding corporation within the
meaning of Section 897 of the Code, or will have been a U.S. real
property holding corporation within the five years preceding the
date hereof or the Initial Closing Date. The shares of capital
stock of the Tenneco Entities acquired by the Company pursuant to
the Stock Purchase Agreement are not United States real property
interests within the meaning of Section 897 of the Code.
(x) The Company and the Tenneco Entities will
promptly notify or arrange for the notification of the Buyer of
any event materially affecting the continuing accuracy of any
representation in this Section 5.1(u) between the date hereof and
the Initial Closing Date.
The foregoing representations and warranties contained in this Section 4.1(u)
shall not apply to any Taxes attributable to any consolidated Tax Return filed
or required to be filed by El Paso or by Tenneco, Inc. as the common parent or
parent corporation of a group including the Tenneco Entities or the Tenneco
Entities' Subsidiaries.
(v) ENVIRONMENTAL MATTERS. (i) Except as set forth on
SCHEDULE 5.1(V), other than exceptions to the following
that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect:
(A) The Company, the Tenneco Entities, the Tenneco
Entities' Subsidiaries and, to the Knowledge of the Company, the
Investments are in compliance with all applicable Environmental
Laws; neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries has received any written
communication from any source within any applicable limitations
period that alleges that the Company, the Tenneco Entities or any
of the Tenneco Entities' Subsidiaries is not in such compliance;
and all Licenses required pursuant to the Environmental Laws to
operate the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries any of the Investments as they are now and
during the past year have been conducted have been obtained and
are currently in force, and will be timely renewed and complied
with, without material expense; and any additional such Licenses
that may be required of any of them to permit any of their
operations as
<PAGE>
planned will be timely obtained and complied with,
without material expense.
(B) There is no Environmental Claim against the
Company, the Tenneco Entities, any of the Tenneco Entities'
Subsidiaries or, to the Knowledge of the Company, any of the
Investments which is pending or, to the Knowledge of the Company,
threatened against or involving the Company, or, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries or, to the
Knowledge of the Company, against any Person whose liability for
such claim the Company, the Tenneco Entities or any of the
Tenneco Entities' Subsidiaries has or may have retained or
assumed either contractually or by operation of law.
(C) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including without
limitation the release, threatened release, emission, discharge
or disposal of any Material of Environmental Concern, that could
form the basis of any Environmental Claim (I) against the
Company, the Tenneco Entities, any of the Tenneco Entities'
Subsidiaries or, to the Knowledge of the Company, any of the
Investments or (II) against any person or entity whose liability
for any Environmental Claim the Company, the Tenneco Entities or
any of the Tenneco Entities' Subsidiaries may have retained or
assumed either contractually or by operation of law.
(ii) The Company has made available to the Buyer all written
reports evaluating issues of actual or potential noncompliance with,
liability under, or costs otherwise related to any Environmental Law
that have been prepared by or for the Company, the Tenneco Entities, any
of the Tenneco Entities' Subsidiaries or, to the Knowledge of the
Company, any of the Investments that are otherwise in any of their
possession or control.
(w) OIL AND GAS RESERVE INFORMATION. Except as
otherwise set forth in SCHEDULE 5.1(W) and except as would
not, individually or in the aggregate, have a Material
Adverse Effect:
(i) None of the wells included in the Oil and Gas
Interests of the Company, the Tenneco Entities and each of the
Tenneco Entities' Subsidiaries has been overproduced such that it
is subject or liable to being shut-in or to any other
overproduction penalty;
(ii) There have been no changes proposed in the
production allowables for any wells included in the Oil and Gas
Interests of Company, the Tenneco Entities and each of the
Tenneco Entities' Subsidiaries;
<PAGE>
(iii) All wells included in the Oil and Gas Interests
of Company, the Tenneco Entities and each of the Tenneco
Entities' Subsidiaries have been drilled and (if completed)
completed, operated, and produced in accordance with good oil and
gas field practices and in compliance in all material respects
with applicable Oil and Gas Leases and applicable laws, rules,
and regulations;
(iv) Neither the Company, the Tenneco Entities nor
each of the Tenneco Entities' Subsidiaries has agreed to or is
now obligated to abandon any well included in the Oil and Gas
Interests of the Company, the Tenneco Entities and each of the
Tenneco Entities' Subsidiaries that is not or will not be
abandoned and reclaimed in accordance with the applicable laws,
rules, and regulations and good oil and gas industry practices;
(v) Proceeds from the sale of Hydrocarbons produced
from the Oil and Gas Interests of Company, the Tenneco Entities
and each of the Tenneco Entities' Subsidiaries are being received
by Company, the Tenneco Entities and each of the Tenneco
Entities' Subsidiaries in a timely manner and are not being held
by third parties in suspense for any reason (except for amounts,
individually or in the aggregate, not in excess of $1,000,000 and
held in suspense in the ordinary course of business); and
(vi) No person has any call on, option to purchase, or
similar rights with respect to the Oil and Gas Interests of the
Company, the Tenneco Entities and each of the Tenneco Entities'
Subsidiaries or to the production attributable thereto, and upon
consummation of the transactions contemplated by this Agreement,
the Company, the Tenneco Entities or the Tenneco Entities'
Subsidiaries will have the right to market production from the
Oil and Gas Interests of Company, the Tenneco Entities and each
of the Tenneco Entities' Subsidiaries on terms no less favorable
than the terms upon which such company is currently marketing
such production.
(x) ENGINEERING REPORTS. All information supplied to De Golver &
MacNaughton and Netherland & Sewell and Associates Ltd. (the "DE
GOLVER") by or on behalf of the Tenneco Entities and the Tenneco
Entities' Subsidiaries that was material to such firm's review of the
Tenneco Entities and the Tenneco Entities' Subsidiaries estimates of oil
and gas reserves attributable to the Oil and Gas Interests of the
Tenneco Entities and the Tenneco Entities' Subsidiaries in connection
with the preparation of the oil and oil reserve engineering report
concerning the Oil and Gas Interests of the Tenneco Entities and the
Tenneco Entities' Subsidiaries as of July 1, 1996 by De Golver (the
<PAGE>
"ENGINEERING REPORT") was (at the time supplied or as modified or
amended prior to the issuance of the Engineering Report) true and
correct in all material respects. Except for changes in the
classification or values of oil and gas reserve or property interests
that occurred in the ordinary course of business since July 1, 1996, and
except for changes (including changes in commodity prices) generally
affecting the oil and gas industry on a nationwide basis, there has been
no Material Adverse Effect in respect of the Tenneco Entities or the
Tenneco Entities' Subsidiaries regarding the matters addressed in the
Engineering Report.
(y) NOT SUBJECT TO UTILITY REGULATORY AUTHORITIES. Neither the
Company, the Tenneco Entities nor any of the Tenneco Entities'
Subsidiaries owns or has any interest in as owner, operator or otherwise
in any properties, businesses, entities or operations that are subject
to regulation as a utility by federal, state or local utility regulatory
authorities.
(z) WORKER'S COMPENSATION AND OCCUPATIONAL DISEASE RESERVE. There
are no presently pending claims against the Company, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries not fully covered
by insurance for workers' compensation benefits and for federal and
state occupational disease benefits. To the Knowledge of the Company,
the Company, the Tenneco Entities, the Tenneco Entities' Subsidiaries,
their respective insurers or the funds listed in the preceding sentence
have timely paid in full all such benefits due.
(aa) OMISSIONS. To the Knowledge of the Company, no
representation or warranty of the Company contained in this Agreement
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or
therein, when read together, not materially misleading in light of the
circumstances under which they were made.
With respect to any Oil and Gas Interest, including the wells
thereon, not operated by Ventures, it is understood and agreed that the
representations and warranties set forth above in Sections 5.1(j) (to
the extent the operator carries insurance for the joint account), 5.1(n)
and 5.1(p) are understood to be made to the Knowledge of the Company
only.
5.2. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The
Buyer represents and warrants to the Company as follows:
(a) DUE ORGANIZATION AND POWER OF THE BUYER. The Buyer is a
limited partnership duly organized, validly existing and in good
standing under the laws of the state of its organization and has all
requisite power and authority to execute and deliver this Agreement and
the
<PAGE>
Securityholders Agreement and to perform its obligations hereunder and
thereunder.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution,
delivery and performance by the Buyer of this Agreement and the
Securityholders Agreement and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized, and no other
action on the part of the Buyer or its partners is necessary for the
execution, delivery and performance by the Buyer of this Agreement and
the Securityholders Agreement and the consummation by it of the
transactions contemplated hereby and thereby. This Agreement and the
Securityholders Agreement have been duly executed and delivered by the
Buyer and, assuming due authorization, execution and delivery by the
parties other than the Buyer hereto and thereto, constitute the legal,
valid and binding obligation of the Buyer, enforceable against the Buyer
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
(c) NO CONFLICT. Neither the execution and delivery of this
Agreement and the Securityholders Agreement nor the performance by the
Buyer of the transactions contemplated hereby and thereby, including
without limitation the purchase of the Company Shares hereunder, will:
(i) violate or conflict with any provision of the Articles of Limited
Partnership or limited partnership agreement of the Buyer; (ii) require
any consent or approval of, or filing with or notice to, any
Governmental or regulatory Authority under any provision of any law
applicable to the Buyer, except for the expiration or termination of all
applicable waiting periods under the HSR Act; (iii) result in any
violation of or default under any provision of any law, rule,
regulation, order, judgment or decree to which the Buyer is a party or
by which the Buyer is bound; or (iv) with or without the giving of
notice or the lapse of time or both, violate or constitute a default
under, or result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both)
any obligation under any mortgage, indenture, deed of trust, lease,
contract, agreement, license or other instrument or violate any
provision of any law, order, judgment, decree, restriction or ruling of
any Governmental Authority to which the Buyer or by which any of the
Buyer's assets is bound or encumbered.
(d) PURCHASE FOR INVESTMENT. The Buyer acknowledges that the
Company Shares purchased hereunder have not been registered or qualified
under the Securities Act of 1933, as amended or any state securities law
and may be sold or otherwise disposed of in the absence of such
registration
<PAGE>
only pursuant to an exemption from such registration and any other
applicable securities laws. The Buyer is purchasing the Company Shares
solely for its own account for the purpose of investment and not with a
view to or for sale in connection with any disposition thereof, and has
no present intention or plan to effect any resale, assignment or
distribution of any of the Company Shares. The Buyer acknowledges that
it has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of purchasing the
Company Shares, making an informed investment decision and of bearing
the economic risk of the purchase of the Company Shares.
(e) LITIGATION. No action, claim, suit or legal proceeding is now
pending, or, to the knowledge of the Buyer, threatened, against the
Buyer at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any Federal, state or local
government or of any agency or subdivision thereof, or before any
arbitrator or panel of arbitrators, which would adversely affect the
Buyer's ability to perform the obligations under this Agreement, the
Securityholders Agreement and other documents related hereto and thereto
to which the Buyer is a party.
(f) OWNERSHIP OF BUYER SUBORDINATED NOTE. On the date of any
Subsequent Closing, the Buyer will own the Buyer Subordinated Note free
and clear of all Liens and upon the delivery of the Buyer Subordinated
Note to the Company in accordance with Section 1.2(b) and the issuance
and delivery to the Buyer of the Option Shares, the Company will acquire
all right, title and interest of the Buyer in the Buyer Subordinated
Note, free and clear of all Liens other than Liens arising out of the
actions of the Company.
(g) OMISSIONS. To the knowledge of the Buyer, no representation
or warranty of the Buyer contained in this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
5.3. LIMITATIONS ON SURVIVAL. Each of the representations and
warranties made by the Company in Section 5.1(u) of this Agreement (including
the Schedules, insofar as the Schedules relate to such representations and
warranties) and in the certificates delivered pursuant to Section 7.1(a)(ii)
(insofar as they relate to such representations and warranties) shall survive
the Initial Closing to and until the date on which the statute of limitations
(taking into account any tolling agreements with respect thereto) with respect
to enforcement of any relevant sections of the Code and the regulations
promulgated thereunder against the Company, its subsidiaries and Affiliates
<PAGE>
has expired (at which time they will terminate). Each of the representations and
warranties made by the Company in Section 5.1(v) of this Agreement (including
the Schedules, insofar as the Schedules relate to such representations and
warranties) and in the certificates delivered pursuant to Section 7.1(a)(ii)
(insofar as they relate to such representations and warranties) shall survive
the Initial Closing to and until the first to occur of: (i) the completion of a
Qualified Public Offering (as such term is defined in the Securityholders
Agreement) and (ii) the date which is two years after the Initial Closing Date
(at which time they will terminate). Each of the representations and warranties
made by the Company in Sections 5.1(a), (b)(i), (d) and (e)(iv) of this
Agreement (including the Schedules, insofar as the Schedules relate to such
representations and warranties) and in the certificates delivered pursuant to
Section 7.1(b) (insofar as they relate to such representations and warranties)
and by the Buyer in Sections 5.2(a), (b), (c), (d) and (f) and the certificate
delivered pursuant to Section 7.2(b) (insofar as they relate to such
representations and warranties) shall survive the Initial Closing to and until
the first to occur of: (x) the completion of a Qualified Public Offering (as
such term is defined in the Stockholders Agreement) and (y) the date which is
twelve months after the Subsequent Closing Date or, if the Option is not
exercised prior to the end of the Exercise Period, the day after the expiration
of the Exercise Period (at which time they will terminate). All other
representations and warranties made by the parties in Article V of this
Agreement (including the Schedules, insofar as the Schedules relate to such
representations and warranties) and in the certificates delivered pursuant to
Sections 7.1(a)(ii) and 7.2(b) (insofar as they relate to such representations
and warranties) shall survive the Initial Closing to and until the first to
occur of: (i) the completion of a Qualified Public Offering (as such term is
defined in the Securityholders Agreement) and (ii) the date which is twelve
months after the Initial Closing Date (at which time they will terminate).
ARTICLE VI COVENANTS
6.1. CONDUCT OF BUSINESS PENDING THE INITIAL CLOSING DATE. The
Company agrees that, prior to the Initial Closing, unless specifically provided
for herein, unless expressly contemplated in any of the other Transaction
Documents or unless the Buyer has specifically given its prior written consent:
(a) The business of the Company, the Tenneco Entities and the
Tenneco Entities' Subsidiaries will be conducted only in the ordinary
course in compliance with applicable laws, regulations and contractual
obligations;
(b) No change will be made in the certificate of
incorporation or the by-laws of the Company, the Tenneco
Entities or any of the Tenneco Entities' Subsidiaries;
<PAGE>
(c) No change will be made in the authorized, issued or
outstanding capital stock of the Company, the Tenneco Entities or any of
the Tenneco Entities' Subsidiaries, no additional shares of such capital
stock will be issued and no subscriptions, options, rights, warrants,
claims, commitments or agreements relating to the authorized, issued or
outstanding capital stock of the Company, the Tenneco Entities or any of
the Tenneco Entities' Subsidiaries will be issued, granted, created or
entered into;
(d) No dividend or other distribution or payment will be
declared, set aside, paid or made in respect of shares of the capital
stock of the Company, the Tenneco Entities or the Tenneco Entities'
Subsidiaries, nor will the Company, the Tenneco Entities or the Tenneco
Entities' Subsidiaries, directly or indirectly, redeem, retire, purchase
or otherwise acquire any of such capital stock;
(e) Neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries will merge, amalgamate or consolidate
with any other corporation or acquire all or any substantial part of the
business or assets of any other Person, or acquire ownership or control
of any capital stock, bonds, or other securities of, or any property
interest in, any Person or acquire control of the management or policies
thereof. Neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries will enter into any negotiations with
respect to any of the actions described in this subsection (e);
(f) Neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries will, except as may be expressly
contemplated in any of the Transaction Documents and (other than with
respect to clause (i) below) except in the ordinary course of business:
(i) amend, supplement or otherwise modify any
Transaction Document or waive any condition to the
Company's obligations under the Stock Purchase
Agreement;
(ii) except for transactions reflected in the
Shareholder Advance Account (as such term is defined in the Stock
Purchase Agreement), enter into, create or assume: (A) any
obligation for borrowed money; or (B) any security agreement,
Lien, encumbrance, mortgage, deed of trust, pledge, conditional
sale or other title retention agreement; or (C) any Lien upon any
of its properties or assets whether now owned or hereafter
acquired;
(iii) assume, guarantee, endorse or otherwise
become liable with respect to the obligations of any
Person;
<PAGE>
(iv) make any loan or advance to, or assume,
guarantee, endorse or otherwise become liable with
respect to the capital stock or dividends of, any
Person;
(v) except for the Employment Agreement, enter into
any transaction with or for the benefit of, or create or assume
any obligation or liability to, any Affiliate (other than the
Tenneco Entities and the Tenneco Entities' Subsidiaries);
(vi) effect any increase in salaries, bonuses,
commissions or wages payable;
(vii) cancel or compromise any debt or claim or
waive any rights of substantial value; or
(viii) make any Tax election or settle or compromise any
material federal, state, local or foreign Tax liability.
(g) Other than in the ordinary course of business as heretofore
conducted, neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries will sell, lease, abandon, exchange,
assign, transfer, license or otherwise dispose of any property,
intangible assets or any machinery, equipment or other operating
property or tangible assets;
(h) Neither the Company, the Tenneco Entities nor any of the
Tenneco Entities' Subsidiaries will enter into or assume any contract,
agreement or commitment which, by reason of its size, term or other
factor, is not in the ordinary course of business as heretofore
conducted;
(i) The Company will use all reasonable efforts to preserve the
business organization of the Tenneco Entities and the Tenneco Entities'
Subsidiaries intact and to keep available the services of the present
employees and agents of the Tenneco Entities and the Tenneco Entities'
Subsidiaries and to preserve the good will of customers, suppliers,
employees, agents and sales representatives, distributors and others
having business relations with the Tenneco Entities and the Tenneco
Entities' Subsidiaries and no change will be made in existing practices
relating to profit sharing, bonuses or commissions;
(j) Each of the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries will maintain all assets owned, leased or
regularly used by it in operable condition and repair, ordinary wear and
tear excepted, and will maintain existing insurance coverage on such
assets as well as other existing insurance coverage; and
<PAGE>
(k) Each of the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries will maintain its books, accounts and records in
the usual and ordinary manner, on a basis consistent with prior years.
With respect to the covenants set forth in Section 5.1, to the
extent such covenants pertain to the Tenneco Entities or the Tenneco Entities'
Subsidiaries, it is understood that the Company's obligation with respect
thereto is only to use all reasonable efforts to cause El Paso to cause the
Tenneco Entities and the Tenneco Entities' Subsidiaries to observe and comply
with such covenants.
6.2. ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS;
CONFIDENTIALITY. (a) During the period commencing on the date hereof and ending
on the Initial Closing Date, the Company will, and will use all reasonable
efforts to cause El Paso and its Affiliates to, and to cause the Tenneco
Entities and the Tenneco Entities' Subsidiaries to, upon reasonable request,
afford to the Buyer, its counsel, accountants and other professional advisers
reasonable access during normal business hours to the offices, plants,
properties, contracts, books and records of the Company, the Tenneco Entities
and the Tenneco Entities' Subsidiaries (and permit the Buyer and its counsel,
accountants and other authorized representatives to make copies of such
contacts, books and records at their own expense), in order that the Buyer may
have the full opportunity to make such reasonable investigations as it desires
to make of the affairs of the Company, the Tenneco Entities and the Tenneco
Entities' Subsidiaries, PROVIDED that no investigation pursuant to this SECTION
7.2 will affect any representations or warranties or the conditions to the
obligations of the parties hereto to consummate the purchase of the Company
Shares as contemplated hereby or the other transactions contemplated hereby. The
Company agrees that it will, and will cause the Tenneco Entities and the Tenneco
Entities' Subsidiaries and their respective officers, accountants and other
professional advisers, to, furnish to the Buyer such additional information as
the Buyer may from time to time reasonably request.
(b) The Buyer agrees that it will, and will cause its officers,
employees, advisors and representatives to, hold in strict confidence all data
and information obtained from the Company, the Tenneco Entities or any of the
Tenneco Entities' Subsidiaries or on their behalf (other than information which
(i) is or becomes publicly available or (ii) which was already in the possession
of the Buyer, in each case other than as a result of a breach by the Buyer or
any of its officers, employees, advisors and representatives of this covenant or
other confidentiality agreement or legal or fiduciary obligation of secrecy to
the Company, the Tenneco Entities or any of the Tenneco Entities' Subsidiaries)
and will not, and will insure that such other persons do not, disclose such data
and information to others without the prior written consent of the Company,
except that the
<PAGE>
Buyer may provide such data and information in response to legal process or
applicable governmental regulations, but only that portion of the data and
information which, in the opinion of counsel for the Buyer, is legally required
to be furnished, and PROVIDED that the Buyer notifies the Company in writing of
its obligation to provide such confidential data and information and fully
cooperate with the Company to protect the confidentiality of such data and
information.
6.3. RELEASES. Each party hereto agrees that it will not, without
the consent of the Buyer and the Company, issue any press release or make any
other public statement or disclosure with respect to the transactions
contemplated hereby or their terms.
6.4. FURTHER ACTIONS. Subject to the terms and conditions
contained herein, each of the parties hereto agrees to use all reasonable
efforts promptly to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable efforts to satisfy the conditions precedent to the obligations of the
parties hereto, to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings and to proceed with the Initial
Closing as expeditiously as practicable; PROVIDED that this obligation will not
require any party to take any action materially adverse to such party,
including, without limitation, agreeing to divest or hold separate any assets,
and PROVIDED FURTHER that no contract or other agreement will be amended to
increase the amount payable thereunder or to otherwise modify the terms thereof
in a manner adverse to the Company, the Tenneco Entities or any of the Tenneco
Entities' Subsidiaries in order to obtain any such consent, approval,
authorization or otherwise without first obtaining the written approval of the
Buyer.
6.5. APPLICATION OF PROCEEDS. The payments to be made by the
Buyer pursuant to Section 1.2 shall be used by the Company exclusively for the
purpose of paying a portion of the purchase price for the shares of the Tenneco
Entities pursuant to the Stock Purchase Agreement.
6.6. OPTION SHARES. At all times prior to the earlier of the
expiration of the Exercise Period without the Option having been exercised or
the issuance of the Option Shares, the Company shall reserve and keep available
for issuance pursuant to the Option a number of duly authorized shares of Common
Stock equal to the number of Option Shares.
<PAGE>
ARTICLE VII CONDITIONS PRECEDENT
7.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER.
(a) The obligation of the Buyer to consummate the purchase of the
Firm Common Shares at the Initial Closing is subject to the satisfaction
at or prior to the Initial Closing of each of the following conditions:
(i) No preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or by any
Governmental Authority nor any statute, rule, regulation or
executive order promulgated or enacted by any Governmental
Authority which restrains, enjoins or otherwise prohibits any of
the Transactions shall be in effect.
(ii) (A) The representations and warranties of the
Company contained herein will be true and correct in all material
respects on and as of the Initial Closing Date, with the same
force and effect as though made on and as of the Initial Closing
Date, except to the extent that any representation or warranty is
made as of a specified date, in which case such representation or
warranty will be true and correct in all material respects as of
such date, and (B) the Buyer shall have received a certificate
signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to such effect.
(iii) (A) The Company shall have performed in all material
respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in
this Agreement and the other Transaction Documents to be
performed or complied with by it prior to or on the Initial
Closing Date (PROVIDED that the provisions of Section 5.1 shall
have been complied with in all material respects without giving
effect to the last sentence of Section 5.1), and (B) the Buyer
shall have received a certificate signed on behalf of the Company
by the chief executive officer and the chief financial officer of
the Company to such effect.
(iv) The Company and all other securityholders of
the Company each shall have executed and delivered the
Securityholders Agreement.
(v) The Credit Agreement will be in full force and
effect, will not have been breached in any material respect by
any of the parties thereto, and all of the conditions precedent
to the initial borrowings thereunder (other than the receipt by
the Company of the proceeds of the issuance of stock pursuant to
this
<PAGE>
Agreement) shall have been satisfied or waived. The Company shall
have delivered a certificate from its chief financial officer
stating that the conditions under this subsection (v) have been
satisfied.
(vi) The Stock Purchase Agreement will be in full force
and effect, will not have been breached in any material respect
by any of the respective parties thereto, all conditions to the
obligation of the Company to purchase the stock (as defined in
the Stock Purchase Agreement) shall have been satisfied in full
and all conditions to the obligations of El Paso to sell the
Stock shall have been satisfied or waived.
(vii) The Buyer shall have received evidence satisfactory
to the Buyer that all obligations of the Company set forth in
Section 5.03 of the Stock Purchase Agreement will be satisfied in
full at or prior to the Initial Closing.
(viii) The Employment Agreement will be in full force and
effect, will not have been breached in any material respect by
any of the parties thereto.
(ix) The Buyer shall have received a legal opinion from
Weil, Gotshal & Manges LLP dated the Initial Closing Date,
substantially in the form attached hereto as Exhibit D.
(b) The obligation of the Buyers to purchase Option Shares
following the Buyer's exercise of the Option is subject to the
satisfaction at or prior to the Subsequent Closing of such purchase of
each of the following additional conditions:
(i) No preliminary or permanent injunction or other
order issued by any federal or state court of competent
jurisdiction in the United States or by any United States federal
or state governmental or regulatory body nor any statute, rule,
regulation or executive order promulgated or enacted by any
United States federal or state governmental authority which
restrains, enjoins or otherwise prohibits the purchase of the
Option Shares shall be in effect.
(ii) (A) The representations and warranties of the
Company contained in paragraphs 5.1(a), 5.1(b)(i), 5.1(d) and
5.1(e)(iv) shall be true and correct in all material respects on
and as of the Subsequent Closing Date, with the same force and
effect as though made on and as of the Subsequent Closing Date,
and (B) the Buyer shall have received a certificate signed on
behalf of the Company by the chief executive officer
<PAGE>
and the chief financial officer of the Company to such
effect.
(iii) (A) The Company shall have performed all obligations
and agreements, and complied with all covenants and conditions,
contained in this Agreement to be performed or complied with by
it prior to or on the Subsequent Closing Date, and (B) the Buyer
shall have received a certificate signed on behalf of the Company
by the chief executive officer and the chief financial officer of
the Company to such effect.
(iv) All consents, approvals, authorizations or permits
of, actions by, or filings with or notifications to, and all
expirations of waiting periods imposed by, any Governmental
Authority which are necessary for the consummation of the Option
Purchase shall have been fulfilled, occurred or obtained, as
applicable, on terms reasonably satisfactory to the Buyer and
shall be in full force and effect.
7.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY. The obligation of the Company to consummate the
transactions contemplated by this Agreement is subject to the
satisfaction at or prior to the Initial Closing of each of the
following additional conditions:
(a) No preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or by any Governmental Authority
nor any statute, rule, regulation or executive order promulgated or
enacted by any Governmental Authority which restrains, enjoins or
otherwise prohibits any of the Transactions shall be in effect.
(b) (A) The representations and warranties of the Buyer contained
herein shall be true and correct in all material respects on and as of
the Initial Closing Date, with the same force and effect as though made
on and as of the Initial Closing Date, except to the extent that any
representation or warranty is made as of a specified date, in which case
such representation or warranty will be true and correct in all material
respects as of such date, and (B) the Company shall have received a
certificate signed on behalf of the Buyer by the Managing General
Partner of the Buyer to such effect.
(c) (A) The Buyer shall have performed all obligations and
agreements, and complied with all covenants and conditions, contained in
this Agreement to be performed or complied with by it prior to or on the
Initial Closing Date, and (B) the Company shall have received a
certificate signed on behalf of the Buyer by the Managing General
Partner of the Buyer to such effect.
<PAGE>
(d) The Buyer shall have executed and delivered the
Securityholders Agreement.
(e) The Credit Agreement will be in full force and effect, will
not have been breached in any material respect by any of the parties
thereto other than the Company, and all of the conditions precedent to
the initial borrowings thereunder (other than the receipt by the Company
of the proceeds of the issuance of stock pursuant to this Agreement)
shall have been satisfied or waived.
(f) The Stock Purchase Agreement will be in full force and effect
and will not have been breached in any material respect by any of the
respective parties thereto.
ARTICLE VIII INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. Subject to the limitations
set forth in Sections 8.6(a) and (b), the Company hereby agrees to indemnify the
Buyer and its Affiliates, and each of their respective officers, directors,
employees and representatives (each a "BUYER INDEMNIFIED PARTY" and collectively
the "BUYER INDEMNIFIED PARTIES") against, and agrees to protect, save and keep
harmless the Buyer Indemnified Parties from payment, and hereby assumes
liability for the payment, of any and all liabilities (including liabilities for
Taxes), obligations, losses, damages, penalties, claims, actions, suits,
judgments or settlements of any nature or kind, whether known or unknown,
absolute or contingent, accrued or unaccrued, realized or unrealized, direct or
indirect, liquidated or unliquidated and including all costs, expenses and
disbursements (including reasonable cost of investigation by, and reasonable
attorneys', accountants' and expert witnesses' fees and expenses payable to,
third parties) (collectively, "LOSS" or "LOSSES"), arising out of, resulting
from or in connection with (a) any breach by the Company of a representation or
warranty contained herein or in any certificate delivered pursuant to Section
7.1 or (b) any failure by the Company to perform any agreement or covenant
contained herein.
8.2. INDEMNIFICATION BY THE BUYER. Subject to the limitations set
forth in Sections 8.6(a) and (b), the Buyer hereby agrees to indemnify the
Company and its officers, directors, and employees, and their Affiliates and
representatives (each a "COMPANY INDEMNIFIED PARTY" and collectively the
"COMPANY INDEMNIFIED PARTIES") against, and agrees to protect, save and keep
harmless the Company Indemnified Parties from payment, and hereby assumes
liability for the payment, of any or all Losses or Loss arising out of or
resulting from (a) any breach by the Buyer of a representation or warranty
contained herein or in any certificate delivered pursuant to Section 7.2 or (b)
any failure by the Buyer to perform any agreement or covenant contained herein.
<PAGE>
8.3. PROCEDURE FOR GENERAL CLAIMS. (a) GENERAL CLAIMS BY THE
BUYER. The Buyer will give prompt written notice to the Company of any claim or
event other than a Third Party Claim (as defined in SECTION 8.4) with respect to
which the Buyer believe it is or may be entitled to indemnification pursuant to
SECTION 8.1 hereof (a "NOTICE OF CLAIM"), PROVIDED that the failure to provide a
Notice of Claim shall not relieve the Company of its obligations under this
Section 8 except to the extent the Company is actually prejudiced thereby. The
Notice of Claim will state the nature and basis of such claim or event, the
amount thereof to the extent known and the basis of the Buyer's belief that a
Buyer Indemnified Party is or may be entitled to indemnification with respect
thereto. The Company shall be entitled, at its option, to satisfy its
indemnification obligations with respect to any claim under this Section 8.3(a)
either (i) in cash, (ii) in shares of Common Stock or (iii) with an
Indemnification Note, PROVIDED that as long as any amounts remain outstanding
under the Credit Agreement, the Company shall satisfy its indemnity obligations
in Common Stock. If the Company elects to satisfy its obligations in shares of
Common Stock, the number of shares of Common Stock to be delivered in
satisfaction of such indemnification obligation shall be equal to the dollar
amount of the Loss or Losses divided by the Fair Market Value per Share as of
the date the Notice of Claim is delivered. For the purposes of this Section
8.3(a), the "FAIR MARKET VALUE PER SHARE" shall be the Fair Market Value (as
such term is defined in the Securityholders Agreement) per share of Common
Stock. If the Company and such Buyer Indemnified Party are unable to reach an
agreement on a Fair Market Value per Share within 30 days following the receipt
by the Company of the Notice of Claim, the Company and such Buyer Indemnified
Party shall engage a nationally-recognized investment banking firm familiar with
the oil and gas industry in the Gulf Coast/U.S. Gulf of Mexico and as mutually
agreed by them to determine as expeditiously as possible the aggregate fair
market value of all outstanding shares of Common Stock as if the entire Company
were being sold in a private sale and such aggregate market value for all
outstanding shares of Common Stock divided by the number of shares of Common
Stock outstanding immediately prior to the issuance of shares under this Section
8.3(a) shall be the Fair Market Value per Share. The fees of such investment
banking firm shall be paid by the Company.
(b) GENERAL CLAIMS BY THE COMPANY. The Company will give prompt
written notice to the Buyer with respect to any claim or event with respect to
which the Company believes a Company Indemnified Party is or may be entitled to
indemnification pursuant to SECTION 8.2 hereof. The notice will state the nature
and basis of said claim or event, the amount thereof to the extent known, and
the basis of the Company's belief that a Company Indemnified Party is or may be
entitled to indemnification with respect thereto.
<PAGE>
8.4. PROCEDURE FOR THIRD PARTY CLAIMS.
(a) CLAIMS BY THE BUYER AND THE COMPANY. The Buyer, on behalf of
itself or any Buyer Indemnified Party, on the one hand, or the Company, on
behalf of itself or any Company Indemnified Party on the other hand (the
"INDEMNIFIED PARTY"), will give prompt written notice to the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") pursuant to SECTION 8.1 OR
SECTION 8.2 hereof of any and all Losses or Loss arising out of or resulting
from any claim, action, suit or proceeding brought by any third party relating
to litigation, administrative proceedings or similar actions (collectively,
"THIRD PARTY CLAIMS") with respect to which such Indemnified Party believes it
is entitled to indemnification hereunder, together with an estimate of the
amount in dispute thereunder and a copy of any claim, process, legal pleadings
or correspondence with respect thereto received by the Indemnified Party. In
connection with any such Third Party Claim, the Indemnifying Party may, at its
election and expense, participate in the defense of such Third Party Claim and
no such Third Party Claim will be settled without the consent of the
Indemnifying Party, which will not be unreasonably withheld. With respect to any
Third Party Claim relating solely to the payment of money damages and which will
not result in the Indemnified Party becoming subject to injunctive or other
equitable relief, within 30 days of receipt of notice of such Third Party Claim,
the Indemnifying Party may, by written notice to the Indemnified Party, assume
the defense of such Third Party Claim through counsel of its own choosing which
is reasonably acceptable to the Indemnified Party, which will not be
unreasonably withheld, and with all expenses thereof to be paid by the
Indemnifying Party, in which event the Indemnifying Party will control the
defense of such Third Party Claim and the Indemnified Party may participate in
the defense thereof with all expenses thereof to be paid by such Indemnified
Party, PROVIDED that such Indemnified Party will have the right to employ
separate counsel to represent such Indemnified Party if, in such Indemnified
Party's reasonable judgment, a conflict of interest between the Indemnifying
Party and such Indemnified Party exists with respect to such Third Party Claim
in which event all reasonable expenses of such separate counsel will be paid by
the Indemnifying Party. If the Indemnifying Party fails to assume the defense of
such Third Party Claim by delivering a written notice of the Indemnifying
Party's intention to assume such defense within 30 days of receipt of the
initial notice thereof, or thereafter abandons or fails to diligently pursue
such defense, the Indemnified Party may assume such defense. In the event the
Indemnifying Party exercises its right to undertake the defense against any such
Third Party Claim as provided above, the Indemnified Party will cooperate with
the Indemnifying Party in such defense and make available to the Indemnifying
Party all pertinent records, materials and information in its possession or
under its control relating thereto as is reasonably required by the Indemnifying
Party, with all expenses incurred in connection therewith to be paid by the
Indemnifying Party. Similarly, in
<PAGE>
the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim as provided above, the Indemnifying
Party will cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party all such records, materials and information
in the Indemnifying Party's possession or under the Indemnifying Party's control
relating thereto as is reasonably required by the Indemnified Party, with all
expenses incurred in connection therewith to be paid by the Indemnifying Party.
Notwithstanding anything in this SECTION 8.4 to the contrary, however, in the
event of a claim with respect to which the Indemnifying Party has agreed to
assume the defense thereof, the Indemnifying Party will not thereafter be
entitled to dispute, and hereby agrees not to dispute, the Indemnified Party's
right to indemnification therefor pursuant to SECTION 8.1 or SECTION 8.2 hereof
or any subsequent claims of the Indemnified Party with respect to such Third
Party Claim.
(b) SETTLEMENT OR DECISION OF THIRD PARTY CLAIMS. The
Indemnifying Party will not, without the written consent of the Indemnified
Party, (i) settle or compromise any Third Party Claim or consent to the entry of
any judgment which does not include as an unconditional term thereof the
delivery by the claimant or plaintiff to the Indemnified Party of a written
release from all liability in respect of such Third Party Claim or (ii) settle
or compromise any Third Party Claim in any manner that may, in the reasonable
judgment of the Indemnified Party, adversely affect the Indemnified Party
(including without limitation any settlement or compromise that includes any
admission of negligence or other malfeasance on the part of the Indemnified
Party). Similarly, no Third Party Claim which is being defended in good faith by
the Indemnified Party in accordance with the terms of this Agreement will be
settled by the Indemnified Party without the written consent of the Indemnifying
Party, which consent will not be unreasonably withheld. Upon the settlement or
compromise of any Third Party Claim, the order of a court of competent
jurisdiction or arbitrator with respect thereto or the final, non-appealable
order of any appellate court with respect thereto, as the case may be, any
resulting settlement, award, damages or judgment will be paid (i) in the case of
any such Third Party Claim with respect to which the Indemnifying Party is the
Buyer, by the Buyer and (ii) in the case of any such Third Party Claim with
respect to which the Company is the Indemnifying Party, by the Company.
8.5. INDEMNIFICATION MATTERS. In cases where any
Indemnified Party has made a prior payment with respect to any liability that is
the subject of indemnification under SECTION 8.1 OR 8.2 hereof, the Indemnifying
Party will also pay interest on such funds at a rate per annum equal to the
published prime rate of The Chase Manhattan Bank in effect from time to time
during the relevant period, such interest to be due from the date of such prior
payment to the date of payment of any such funds by the Indemnifying Party. The
parties agree that payments by an
<PAGE>
Indemnifying Party made under SECTION 8.1 OR 8.2 hereof will be treated as an
adjustment to the Purchase Price for Tax purposes. The provisions of this
Article VII will not be deemed to be a limitation or waiver of any other remedy
afforded by law to the Buyer or the Company for indemnification under SECTION
8.1 OR 8.2 hereof.
8.6. GENERAL PROVISIONS.
(a) LIMITATIONS ON INDEMNIFICATION. (i) Notwithstanding anything
in this ARTICLE VII to the contrary other than the next succeeding sentence, an
Indemnifying Party will be required to indemnify and hold harmless an
Indemnified Party under SECTION 8.1 or SECTION 8.2 hereof with respect to any
Loss or Losses incurred by any such Indemnified Party only to the extent that
the aggregate amount of all Losses of the applicable Indemnified Parties (that
is, either the Buyer Indemnified Parties or the Company Indemnified Parties, as
the case may be) exceeds $2,000,000 in the aggregate, in which event the
Indemnifying Party will only be liable for the excess of such Loss or Losses
over $2,000,000. The foregoing limitations will not be applicable to any willful
breach by any party of any representation, warranty, covenant or agreement
hereunder.
(ii) With respect to any claim by the Buyer Indemnified Parties,
Losses (a) will include any Loss or Losses incurred by the Buyer which arises
from or relates to the diminution in the value per share of Common Stock caused
by any breach by the Company of a representation or warranty contained herein
and (b) will fully take into account the diminution in value of the Company
Shares held by the Buyer Indemnified Parties in the aggregate (determined by
reference to the number of shares of Common Stock outstanding on a fully diluted
basis) resulting from the indemnification payment made by the Company (whether
made in cash, in stock or in the form of a note). As an example of the operation
of clause (b) of the preceding sentence, if the Losses suffered by the Buyer
Indemnified Parties prior to the operation of clause (b) were $100,000 and the
Buyer Indemnified Parties in the aggregate owned 90% of the total issued and
outstanding Common Stock at the time of delivery of their Notice of Claim, the
indemnification payment made by the Company pursuant to this ARTICLE VII would
be $1 million (or its equivalent in stock if paid in stock pursuant to Section
8.3). Notwithstanding anything to the contrary in this Section 8.6, for the
purpose of determining whether a Loss or Losses to a Buyer Indemnified Party
resulting from a diminution in the value per share of Common Stock exceeds
$2,000,000, such Loss or Losses shall be measured as the amount of such Loss or
Losses without giving effect to clause (b) of this Section 8.6(a)(ii). As an
example of the operation of the preceding sentence, total Losses to the Company
of $1,800,000 would not be indemnifiable by the Company to the Buyer Indemnified
Parties despite the fact that the operation of clause (b) of this Section
8.6(a)(ii) would
<PAGE>
otherwise have caused the indemnification payment to exceed
$2,000,000.
(b) TERMINATION OF INDEMNIFICATION. The obligations to indemnify
and hold harmless an Indemnified Party pursuant to SECTIONS 8.1 AND 8.2 will
terminate with respect to any theretofore unasserted claim when the applicable
representation or warranty terminates pursuant to SECTION 5.3; PROVIDED,
HOWEVER, that such obligations to indemnify and hold harmless will not terminate
with respect to any item as to which the Person to be indemnified will have,
before the expiration of the applicable period, previously made a claim by
delivering a notice pursuant to SECTION 8.3 or SECTION 8.4 hereof to the
Indemnifying Party.
ARTICLE IX MISCELLANEOUS
9.1. TERMINATION AND ABANDONMENT. (a) GENERAL. This
Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time, but not later than the
Initial Closing Date:
(i) by mutual consent of the parties hereto;
(ii) by the Buyer or the Company, if any court of competent
jurisdiction or any Governmental Authority will have issued an order,
decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby or with
respect to any of the other Transactions and such order, decree, ruling
or other action will have become final and nonappealable; or
(iii) if the Initial Closing will not have occurred by January
31, 1997, despite the reasonable efforts of the parties hereto to close.
(b) PROCEDURE UPON TERMINATION. In the event of the termination
and abandonment of this Agreement, written notice thereof will promptly be given
to the other parties hereto and this Agreement will terminate and the
transactions contemplated hereby will be abandoned without further action by any
of the parties hereto.
9.2. FEES AND EXPENSES. If the transactions contemplated hereby
are consummated, the Company shall pay all fees and expenses incident to the
negotiation, preparation and execution of this Agreement and all other
Transaction Documents and consummation of transactions contemplated hereby,
including attorneys' fees and expenses and other reasonable out of pocket
expenses.
9.3. TRANSFER TAXES. The Company will be responsible
for the payment of any and all sales, use, transfer, recording or
<PAGE>
similar taxes required to be paid in connection with the consummation of the
transactions contemplated by this Agreement.
9.4. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given (i) when delivered by hand,
(ii) two business days after being mailed, certified or registered mail, return
receipt requested, with postage prepaid, (iii) when sent by telegram or telecopy
(the receipt of which is confirmed) or (iv) one business day after being sent by
Express Mail, Federal Express or other courier service, as follows:
(a) if to the Company, to it at:
1100 Louisiana, 15th Floor
Houston, TX 77002
Attention: Michael V. Ronca
Telecopy: (713) 757-8253
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, TX 77002
Attention: James L. Rice III
Telecopy: 713-224-9511
(b) if to the Buyer, to it at:
475 Steamboat Road
Greenwich, Connecticut 06830
Attention: William E. Macaulay
Telecopy: 203-661-6729
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Richard Capelouto
Telecopy: 212-455-2502
or to such other persons or addresses as any party will specify as to itself by
notice in writing to the other parties.
9.5. BINDING EFFECT; BENEFIT. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
<PAGE>
9.6. ASSIGNABILITY. Without the prior written consent of the
other parties hereto no party to this Agreement may assign any of its or his
rights or obligations hereunder to any other person. Notwithstanding the
foregoing, the Buyer may assign any of its rights or obligations hereunder to
any Affiliate but no such assignment will release the Assignor of any
obligations hereunder. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors in interest
and assigns.
9.7. AMENDMENT AND MODIFICATION; WAIVER. Subject to applicable
law, this Agreement may be amended, modified and supplemented by a written
instrument authorized and executed on behalf of the parties at any time prior to
the Initial Closing Date with respect to any of the terms contained herein. No
waiver by any party of any of the provisions hereof will be effective unless
explicitly set forth in writing and executed by the party so waiving. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including without limitation any investigation by or on behalf of any party,
will be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein, and in any documents delivered or to be delivered pursuant to
this Agreement and in connection with the Initial and the Subsequent Closing
hereunder. The waiver by any party hereto of a breach of any provision of this
Agreement will not operate or be construed as a waiver of any other or
subsequent breach.
9.8. SECTION HEADINGS. The section headings contained
in this Agreement are inserted for reference purposes only and
will not affect the meaning or interpretation of this Agreement.
9.9. ARBITRATION. Any controversy, dispute or claim arising out
of, in connection with, or in relation to, the interpretation, performance or
breach of this Agreement, including without limitation the validity, scope and
enforceability of this Section 8.9, may at the election of any of the parties
hereto be solely and finally settled by arbitration conducted in accordance with
the then existing rules for commercial arbitration of the American Arbitration
Association, or any successor organization. Judgement upon any award rendered by
the arbitrator(s) may be entered by the State or Federal Court having
jurisdiction thereof. Any of the parties may demand arbitration by written
notice to the others and to the American Arbitration Association ("DEMAND FOR
ARBITRATION"). Any Demand for Arbitration pursuant to this Section 8.9 will be
made within one year from the date that the dispute upon which the demand is
based arose. The parties intend that this agreement to arbitrate be valid,
enforceable and irrevocable.
9.10. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which will be deemed to be an
<PAGE>
original, and all of which together will be deemed to be one and
the same instrument.
9.11. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
DOMAIN ENERGY CORPORATION
By: /s/ MICHAEL V. RONCA
Name: Michael V. Ronca
Title: President and Chief Executive
Officer
FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP
By: FIRST RESERVE CORPORATION,
its managing general partner
By: /s/ JONATHAN S. LINKER
Name: Jonathan S. Linker
Title: Managing Director
<PAGE>
SCHEDULE 5.1(C)
INVESTMENTS
===========================================================================
A. TENNECO ENTITIES' SUBSIDIARIES
- ---------------------------------------------------------------------------
OWNERSHIP INTEREST OF THE
TENNECO ENTITIES IN SUCH
SUBSIDIARY NAME SUBSIDIARY
- ---------------------------------------------------------------------------
Oceana Exploration Company, Tenneco Ventures
L.C. Corporation 80% - Member
- ---------------------------------------------------------------------------
Matrix Energy - T Limited Tenneco Ventures
Partnership Corporation 80% - Limited
Partner
- ---------------------------------------------------------------------------
Tenneco Ventures Finance Tenneco Ventures
Corporation Corporation 100% - Common
- ---------------------------------------------------------------------------
Tenneco/EnCap Gas Fund Tenneco Ventures
Partnership Corporation 50% - General
Partner
- ---------------------------------------------------------------------------
Michigan Gas Fund I Tenneco Ventures
Corporation 50% - General
Partner
- ---------------------------------------------------------------------------
New York Gas Fund I Tenneco Ventures
Corporation 50% - General
Partner
- ---------------------------------------------------------------------------
Texas Gas Fund I Tenneco Ventures
Corporation 50% - General
Partner
- ---------------------------------------------------------------------------
Texas Gas Fund II Tenneco Ventures
Corporation 50% - General
Partner
===========================================================================
<PAGE>
===========================================================================
B. OTHER INVESTMENTS OF DOMAIN ENERGY CORPORATION, THE
TENNECO ENTITIES, AND THE TENNECO ENTITIES' SUBSIDIARIES
- ---------------------------------------------------------------------------
HOLDER OF INVESTMENT NATURE OF INVESTMENT
- ---------------------------------------------------------------------------
Tenneco Ventures 19.25% (reducing to 11%) -
Corporation indirect interest (through
Michigan Energy
Corporation, LLC and
Michigan Gas Fund I) in
West Shore Processing
Company, LLC
- ---------------------------------------------------------------------------
Tenneco Ventures 1% - Class A Member in
Corporation Michigan Energy Company,
LLC
26.5% - indirect interest
(through Michigan Gas Fund
I) in Michigan Energy
Company, LLC
- ---------------------------------------------------------------------------
Tenneco Ventures 18.8% (reducing to 11%) -
Corporation indirect interest (through
Michigan Energy Company,
LLC, West Shore Processing
Company, LLC and Michigan
Gas Fund I) in Basin
Pipeline Company, LLC
- ---------------------------------------------------------------------------
Tenneco Ventures Warrants to acquire 28,350
Corporation shares of Common Stock of
Benton Corp.
- ---------------------------------------------------------------------------
Tenneco Ventures 63,000 Shares of National
Corporation Energy Group Common Stock
- ---------------------------------------------------------------------------
Tenneco Ventures 34.65% Class A Member of
Corporation Michigan Production
Company, LLC
- ---------------------------------------------------------------------------
Michigan Gas Fund I 53% - Class A Member of
Michigan Energy Company,
LLC
===========================================================================
2
<PAGE>
SCHEDULE 5.1(d)(ii)
NO CONFLICTS
None.
<PAGE>
SCHEDULE 5.1(e)(i)
CAPITAL STOCK OF DOMAIN ENERGY CORPORATION--POST-CLOSING
AUTHORIZED ISSUED/OUTSTANDING
20,000 shares of Common Stock 9,519.4717 shares of
Common Stock held by
First Reserve Fund VII,
Limited Partnership
<PAGE>
SCHEDULE 5.1(e)(ii)(a)
TENNECO ENTITIES AND TENNECO ENTITIES' SUBSIDIARIES:
PRE-CLOSING CAPITAL STRUCTURE
<TABLE>
<CAPTION>
===================================================================================================================
PERSONS HOLDING OWNERSHIP
AUTHORIZED ISSUED/OUTSTANDING INTERESTS AND NATURE OF SUCH
ENTITY SHARES SHARES INTEREST
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tenneco Ventures 200 200 Tennessee Gas Pipeline
Corporation Corporation 100% - Common
- -------------------------------------------------------------------------------------------------------------------
Tenneco Gas 200 200 Tennessee Gas Pipeline
Production Corporation 100% - Common
Corporation
- -------------------------------------------------------------------------------------------------------------------
Oceana Exploration N/A N/A Tenneco Ventures Corporation:
Company, L.C. 80% - Member
Encap Ventures 1993 Limited
Partnership 20% - Member
- -------------------------------------------------------------------------------------------------------------------
Matrix Energy - N/A N/A Tenneco Ventures Corporation 80%
T Limited - Limited Partner
Partnership
Matrix Oil & Gas, Inc. 20% -
General Partner
- -------------------------------------------------------------------------------------------------------------------
Tenneco Ventures 200 200 Tenneco Ventures Corporation
Finance Corporation 100% - Common
- -------------------------------------------------------------------------------------------------------------------
Tenneco/EnCap Gas N/A N/A Tenneco Ventures Corporation 50%
Fund Partnership - General Partner
EnCap Ventures 1993 Limited
Partnership 50% - General
Partner
<PAGE>
- -------------------------------------------------------------------------------------------------------------------
Michigan Gas Fund I N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership 50% - General
Partner
- -------------------------------------------------------------------------------------------------------------------
New York Gas Fund I N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership 50% - General
Partner
- -------------------------------------------------------------------------------------------------------------------
Texas Gas Fund I N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership 50% - General
Partner
- -------------------------------------------------------------------------------------------------------------------
Texas Gas Fund II N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership
50% - General Partner
===================================================================================================================
2
<PAGE>
SCHEDULE 5.1(e)(ii)(b)
TENNECO ENTITIES AND TENNECO ENTITIES' SUBSIDIARIES:
POST-CLOSING CAPITAL STRUCTURE
==================================================================================================================
PERSONS HOLDING OWNERSHIP
AUTHORIZED ISSUED/OUTSTANDING INTERESTS AND NATURE OF SUCH
ENTITY SHARES SHARES INTEREST
- ------------------------------------------------------------------------------------------------------------------
Tenneco Ventures 200 200 Domain Energy Corporation 100% -
Corporation Common
- ------------------------------------------------------------------------------------------------------------------
Tenneco Gas 200 200 Domain Energy Corporation 100% -
Production Common
Corporation
- ------------------------------------------------------------------------------------------------------------------
Oceana Exploration N/A N/A Tenneco Ventures Corporation:
Company, L.C. 80% - Member
Encap Ventures 1993 Limited
Partnership 20% - Member
- ------------------------------------------------------------------------------------------------------------------
Matrix Energy - T N/A N/A Tenneco Ventures Corporation 80%
Limited Partnership - Limited Partner
Matrix Oil & Gas, Inc. 20% -
General Partner
- ------------------------------------------------------------------------------------------------------------------
Tenneco Ventures 200 200 Tenneco Ventures Corporation
Finance Corporation 100% - Common
- ------------------------------------------------------------------------------------------------------------------
Tenneco/EnCap Gas N/A N/A Tenneco Ventures Corporation 50%
Fund Partnership - General Partner
EnCap Ventures 1993 Limited
Partnership 50% - General
Partner
<PAGE>
- ------------------------------------------------------------------------------------------------------------------
Michigan Gas Fund I N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership 50% - General
Partner
- ------------------------------------------------------------------------------------------------------------------
New York Gas Fund I N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership 50% - General
Partner
- ------------------------------------------------------------------------------------------------------------------
Texas Gas Fund I N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership 50% - General
Partner
- ------------------------------------------------------------------------------------------------------------------
Texas Gas Fund II N/A N/A Tenneco Ventures Corporation 50%
- General Partner
Encap Ventures 1993 Limited
Partnership
50% - General Partner
==================================================================================================================
</TABLE>
2
<PAGE>
SCHEDULE 5.1(e)(iii)
LIENS IN RESPECT OF THE STOCK OF DOMAIN ENERGY
CORPORATION, THE TENNECO ENTITIES AND THE
TENNECO ENTITIES' SUBSIDIARIES
Tenneco Ventures Corporation ("TVC") currently receives 80% of the
distributions available from Matrix Energy - T Limited Partnership. Following
Payout #1, TVC's distribution allocation will decrease to 50%, and following
Payout #2, TVC's distribution allocation will decrease to 32.5%. Payout #1 will
be achieved after TVC has received cash distributions equal to its contributions
plus a 15% rate of return. Payout #2 will be achieved after TVC has received
cash distributions equal to its contributions plus a 20% rate of return.
<PAGE>
SCHEDULE 5.1(e)(v)
CAPITAL STRUCTURE OF THE COMPANY, THE TENNECO ENTITIES
AND THE SUBSIDIARIES--OUTSTANDING RIGHTS
Tenneco Ventures Corporation ("TVC") currently receives 80% of the distributions
available from Matrix Energy - T Limited Partnership. Following Payout #1, TVC's
distribution allocation will decrease to 50%, and following Payout #2, TVC's
distribution allocation will decrease to 32.5%. Payout #1 will be achieved after
TVC has received cash distributions equal to its contributions plus a 15% rate
of return. Payout #2 will be achieved after TVC has received cash distributions
equal to its contributions plus a 20% rate of return.
Subscription Agreement, dated as of December 31, 1996, between First Reserve
Fund VII, Limited Partnership, and Domain Energy Corporation.
First Reserve Fund VII, Limited Partnership, as the sole stockholder of the
Company as of the date hereof has agreeed with the members of Management that
Management will have the right, shortly after the Closing Date, to purchase in
the aggregate 480.53 shares of the Company's Common Stock for an aggregate
purchase price of $1,514,354.00. To evidenceMichael V. Ronca's rights in that
regard, the Company has entered into that certain Management Investor
Subscription Agreement, dated as of December 31, 1996, with Michael V. Ronca.
The Company will enter into substantially similar agreements shortly after the
Closing Date with each of the other members of Management who elect to exercise
their respective rights to acquire their pro rata share of the 480.53 shares of
Common Stock of the Company.
Subordinated Promissory Note, dated December 31, 1996, by Domain Energy
Guarantor Corporation in favor of First Reserve Fund VII, Limited Partnership,
which is convertible into 2,539 shares of the Company's Common Stock.
<PAGE>
SCHEDULE 5.1(f)
FINANCIAL STATEMENTS
None.
<PAGE>
SCHEDULE 5.1(g)
ABSENCE OF CERTAIN CHANGES OR EVENTS
After December 31, 1995, the following series of transactions were entered into
by Tenneco Ventures Corporation and its Subsidiaries related to Michigan
activities.
CONTRIBUTION AGREEMENT
On March 29, 1996, a Contribution Agreement was executed among Hi P Limited
Partnership, Montana BC Limited Partnership, Dwain Immel, Manistee Gas Limited
Liability Company ("Manistee"), and Michigan Gas Fund I.
The agreement provided for the formation of Michigan Production Company, LLC
("MPC") and Michigan Energy Company, LLC ("MEC"). Debt owed by Manistee and
Basin Pipeline Company, LLC ("Basin") to Michigan Gas Fund I of, collectively,
approximately $18.7 million was contributed by Michigan Gas Fund I to MPC and
MEC in exchange for substantially all of the assets of Manistee and Basin.
Except for approximately $2.6 million, the obligations of Manistee and Basin to
repay such debt was forgiven. The $2.6 million of remaining obligation is
recourse only to certain property and equipment still owned by Manistee, with a
purchase option by MEC.
PARTICIPATION, OWNERSHIP, AND OPERATING AGREEMENT FOR WEST SHORE PROCESSING
COMPANY, LLC ("WEST SHORE") On May 2, 1996, the referenced agreement was
executed providing for the creation of West Shore and the contribution of $16.7
million of capital by MarkWest Michigan, LLC ("MarkWest") to the activities of
West Shore and Basin. In exchange for the contribution, MarkWest earns up to a
60% ownership interest in West Shore and Basin. The capital is primarily
dedicated to building pipeline extensions and a processing plant. MPC and Oceana
Exploration Company, L.C. have also dedicated present and future gas reserves to
West Shore pursuant to a Gas Gathering Treating and Processing Agreement.
BANK OF AMERICA, AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF MAY 2, 1996,
AMONG MPC AND MEC, AS THE BORROWERS AND BANK OF AMERICA ILLINOIS, AS THE LENDER
Pursuant to the referenced agreement, Bank of America ("Bank") has loaned $11.5
million to MPC and MEC, collectively, secured by the assets of MPC and MEC.
Loans are available in excess of $11.5 million (up to $30 million) as additional
producing
<PAGE>
collateral, or other collateral acceptable to the Bank, is provided.
Prior to December 31, 1996, the Bank and the Borrowers will execute amendments
to the Credit Agreement releasing Tennessee Gas Pipeline Company and Tenneco
Ventures Corporation from
certain guaranty obligations.
2
<PAGE>
SCHEDULE 5.1(h)(i)
TITLE TO PROPERTIES
Amended and Restated Gathering System Mortgage, Deed of Trust,
Assignment, Security Agreement and Financing Statement from West Shore
Processing Company, LLC to Bank of America Illinois.
Amended and Restated Pipeline Mortgage, Deed of Trust, Assignment,
Security Agreement and Financing Statement from Basin Pipeline Company, LLC to
Bank of America Illinois.
Mortgage, Deed of Trust, Indenture, Security Agreement, Financing
Statement and Assignment of Production, dated as of June 7, 1996, between
Tenneco Ventures Finance Corporation and Murray E. Brasseux, as Trustee.
MICHIGAN TITLE STATUS REPORT
ISLEY#1-22 WI: BPO .80 APO .65
NRI: BPO .6247453 APO .5122453
Well completed and shut-in August 19, 1980. 1994-5
shut-in royalty payments were improperly paid. All but
2 mineral owners accepted shut-in checks and ratified
the unit. Russell E. and Robert B. Isley (1/2 interest
of 1/4 of unit) refused their checks and refused to
ratify the unit.
Allocated value reduced by 12.5% due to unresolved title defect.
JONSECK#5-2A WI: BPO .6875 APO .6875
NRI: BPO .57987292 APO .57987292
Well completed and shut-in June 6, 1984. 1994-5
shut-in royalty payments were improperly paid. Several
lessors accepted replacement checks and ratified the
unit, however mineral owners representing 94% of the
<PAGE>
unit are either unleased or have filed affidavits terminating their
leases.
Allocated value reduced by 94% due to unresolved title defect.
2
<PAGE>
SCHEDULE 5.1(h)(iv)
ENCUMBRANCES
None.
<PAGE>
SCHEDULE 5.1(i)
ABSENCE OF LIENS
Amended and Restated Gathering System Mortgage, Deed of Trust,
Assignment, Security Agreement and Financing Statement from West Shore
Processing Company, LLC to Bank of America Illinois.
Amended and Restated Pipeline Mortgage, Deed of Trust, Assignment,
Security Agreement and Financing Statement from Basin Pipeline Company, LLC to
Bank of America Illinois.
Mortgage, Deed of Trust, Indenture, Security Agreement, Financing
Statement and Assignment of Production, dated as of June 7, 1996, between
Tenneco Ventures Finance Corporation and Murray E. Brasseux, as Trustee.
Security Agreement by Basin Pipeline Company, LLC in favor of Bank
of America Illinois.
Security Agreement by West Shore Processing Company, LLC in favor of
Bank of America Illinois.
1
<PAGE>
SCHEDULE 5.1(k)
CONTRACTS
Amended and Restated Credit Agreement, dated as of May 2, 1996 among
Michigan Production Company, L.L.C., Michigan Energy Company, L.L.C. and Bank of
America Illinois.
Secured Guaranty, dated as of May 2, 1996, by West Shore Processing
Company, LLC in favor of Bank of America Illinois.
Pledge Agreement, dated as of May 2, 1996, by Tenneco Ventures
Corporation in favor of Bank of America Illinois.
Subordinated Promissory Note, dated December 31, 1996, by Domain
Energy Guarantor Corporation in favor of First Reserve Fund VII, Limited
Partnership ($8 million).
Loan Agreement, dated September 29, 1995, between Tenneco/EnCap Gas
Fund Partnership and Bank One, Texas, National Association (pro rata portion of
$10 million).
Guaranty, dated September 29, 1995, by Domain Energy Guarantor
Corporation (as assignee of Tennessee Gas Pipeline Company), in favor of Bank
One, Texas, National Association.
Pledge Agreement, dated as of May 2, 1996, by West Shore Processing
Company, LLC in favor of Bank of America Illinois.
Credit Agreement, dated as of June 7, 1996, between Tenneco Ventures
Finance Corporation and Compass Bank--Houston.
Credit Agreement, dated June 16, 1992, by and between Tenneco Gas
Production Corporation and the Trustees of General Electric Pension Trust.
Guaranty, dated June 16, 1992, by Tennessee Gas Pipeline Company in
favor of General Electric Pension Trust.
Credit Agreement, dated June 16, 1992, by and between Tenneco Gas
Production Corporation and Bankers Trust Company, as Trustee for the GTE Service
Corporation Plan for Employees' Pensions.
Guaranty, dated Juned 16, 1992, by Tennessee Gas Pipeline Company in
favor of GTE Service Corporation Plan for Employees' Pensions.
1
<PAGE>
Credit Agreement, dated June 30, 1993, by and between Tenneco Gas
Production Corporation and The Delta Master Trust by Harris Trust and Savings
Bank, as Directed Trustee.
Guaranty, dated June 30, 1993, by Tennessee Gas Pipeline Company in
favor of The Delta Master Trust by Harris Trust and Savings Bank, as Directed
Trustee.
Credit Agreement, dated December 31, 1994, by and between Tenneco
Gas Production Corporation and Trustees of General Electric Pension Trust.
Credit Agreement, dated December 31, 1994, by and between Tenneco
Gas Production Corporation and Bankers Trust Company, as Trustee for the GTE
Service Corporation Plan for Employees' Pensions.
Credit Agreement, dated December 31, 1994, by and between Tenneco
Gas Production Corporation and The Delta Master Trust by Harris Trust and
Savings Bank, as Directed Trustee.
Commodity Swap Agreement, dated August 15, 1995, between Enron
Capital & Trade Resources Corp. and Tenneco Ventures Corporation.
Commodity Swap Agreement, dated as of January 12, 1995, between
Enron Capital & Trade Resources Corp. and Tenneco Gas Production Corporation.
2
<PAGE>
Commodity Swap Agreement, dated as of November 19, 1996, between
Enron Capital & Trade Resources Corp. and Tenneco Ventures Corporation.
Commodity Swap Agreement, dated as of December 16, 1996, between
Enron Capital & Trade Resources Corp. and Tenneco Ventures Corporation.
Rabbit Island/Belle Island Letter Agreement, dated May 5, 1993,
between Tenneco Ventures Corporation and Benton Oil and Gas Company (00C010014).
Belle Island/Rabbit Island Purchase and Participation Agreement,
dated June 30, 1993, between Tenneco Ventures Corporation and Benton Oil and Gas
Company (00C010014-A).
Texaco Rabbit Island Exploration Agreement, dated September 10,
1992, between Texaco E & P Inc. and Benton Oil and Gas Company (00C010014-B).
Rabbit Island Gas Purchase Agreement, dated March 1, 1995, between
Texaco Natural Gas Inc. and Tenneco Ventures Corporation (00C010014-G)
Rabbit Island Production Handling Agreement, dated March 10, 1995,
between Texaco E & P Inc. and Tenneco Ventures Corporation (00C010014-K)
Global Settlement Agreement, dated February 22, 1994, between the
State of Louisiana and Texaco E & P Inc. (00C010014-L).
Texaco Gas Purchase Agreement, dated April 1, 1996, between Texaco
Natural Gas Inc. and Tenneco Ventures Corporation (00C010014-O).
Shell Offshore Letter Agreement, dated April 2, 1996, between Shell
Offshore Inc. and Tenneco Ventures Corporation (00C010014-P).
Rabbit Island Crude Oil Contract, dated April 1, 1996, between
Tenneco Ventures Corporation and Texon Corporation (00C010014-Q).
Rabbit Island Settlement and Release Agreement, dated December 2,
1996, between Shell Offshore Inc. and Tenneco Ventures Corporation (00C010014-
R).
Gas Purchase and Sales Agreement, dated April 1, 1996, between
Tenneco Ventures Corporation and Tenneco Energy Marketing Company (00C010035-A).
Cox & Perkins/Acquisition Agreement, dated May 19, 1994, between Cox
& Perkins Exploration, Inc. and Tenneco Ventures Corporation (00C010048).
3
<PAGE>
College Point Letter of Intent, dated June 10, 1994, between Linder
Energy Company and Tenneco Ventures Corporation (00C010055).
College Point Purchase and Participation Agreement, dated July 27,
1994, between Linder Energy Company and Tenneco Ventures Corporation
(00C010055-A).
College Point Joint Operating Agreement, dated July 27, 1994,
between Linder Energy Company and Tenneco Ventures Corporation (00C010055-B).
College Point Gas Purchase Contract, dated December 1, 1994, between
Linder Energy Company and Louisiana Gas Marketing Co. (00C010055-C).
College Point Prospect Sale Agreement, dated July 15, 1993, between
Basin Exploration, L.L.C. and Linder Oil Company (00C010055-D).
College Point Joint Operating Agreement - TR 33, dated January 10,
1996, between Linder Oil Company and the State of Louisiana (00C010055-E).
Pennzoil Acquisition Agreement, dated November 23, 1994, between
Pennzoil and Tenneco Ventures Corporation (00C010087).
Eugene Island 372 Joint Operating Agreement, dated June 1, 1978,
between Unocal Corporation and Pennzoil (00C010088).
Eugene Island 372 Subsurface Agreement, dated September 29, 1987,
between Unocal and Union Texas Petroleum Corporation (00C010088-A).
Eugene Island 372 Crude Oil Purchase Agreement, dated January 23,
1995, between Tenneco Ventures Corporation and Texon Corporation (00C010088-B).
High Island III Joint Operating Agreement, dated August 1, 1973,
between Texaco E & P Inc. and Tenneco Ventures Corporation (00C010090).
High Island III 110/111 Unit Operating Agreement, dated October 1,
1974, between Continental Oil Co. and Atlantic Richfield Co., et al.
(00C010090-A).
High Island 110/111 Gas Balancing Agreement, dated January 2, 1978,
between Continental Oil Company and Atlantic Richfield Co., et al.
(00C010090-B).
High Island 110/111 Platform Agreement, dated April 1, 1983, between
Getty Oil Company and Superior Oil Company, et al. (00C010090-C).
4
<PAGE>
High Island 110/111 Barracuda Gas Processing Agreement, dated
November 1, 1984, between Gulf Oil Corporation and Shell Western E & P Inc.
(00C010090-D).
High Island 110/111 Gas Settlement Agreement, dated May 19, 1994,
between Texaco E & P Inc. and Pennzoil (00C010090-E).
Sonat/Tenneco Ventures Corporation Interest Exchange and Production
Acquisition Agreement, dated May 1, 1995, between Sonat Exploration Company,
Inc. and Tenneco Ventures Corporation (00C010090-F).
High Island 110/111 Seismic License Agreement, dated September 14,
1995, between Datatel, Inc. and Tenneco Ventures Corporation (00C010090-G).
High Island 547 Joint Operating Agreement, dated July 1, 1974,
between Texaco E & P Inc. and Pennzoil (00C010092).
High Island 548 Platform Facility Agreement, dated January 7, 1977,
between Texaco Inc. - New Orleans, Louisiana (00C010092-A).
High Island 547 Gas Balancing Agreement, dated October 11, 1985,
between Texaco Inc. and Pennzoil, et al. (00C010092-B).
High Island 547 Farmout Agreement to Samedan Oil Corporation, dated
August 4, 1992, between Texaco E & P Inc. et al. and Samedan Oil Corporation
(00C010092-C).
High Island 548 Joint Operating Agreement, dated July 1, 1974,
between Texaco E & P Inc. and Pennzoil (00C010093).
High Island 548 Platform Facility Agreement, dated January 7, 1977,
between Texaco Inc. - New Orleans, Louisiana and Pennzoil, et al. (00C010093-A).
High Island 548 Gas Balancing Agreement, dated October 11, 1985,
between Texaco Inc. - New Orleans, Louisiana and Pennzoil Producing Co., et al.
(00C010093-B).
High Island 548 Farmout Agreement to Samedan Oil Corporation, dated
August 4, 1992, between Texaco E & P Inc., et al. and Samedan Oil Corporation
(00C010093-C).
High Island 548 Farmout Agreement, dated July 14, 1995, between
Tenneco Ventures Corporation and Samedan Oil Corporation (00C010093-D).
5
<PAGE>
High Island 570 Joint Operating Agreement, dated January 1, 1980,
between Exxon Corporation and Pennzoil (00C010094).
High Island Pipeline Joint Operating Agreement, dated February 18,
1994, between Amoco Pipeline Company and Tenneco Ventures Corporation
(00C010094-B).
High Island 570 Crude Oil Purchase Agreement, dated December 21,
1995, between Amoco Pipeline Company and Tenneco Ventures Corporation
(00C010094-B).
Main Pass 74 Unit Order Agreement, dated February 22, 1988,
between Exxon Corporation and Texaco Inc., et al. (00C010095).
Main Pass 74 Unit Operating Agreement, dated February 22, 1988,
between Exxon Corporation and Texaco Inc. et al. (00C010095-A).
Main Pass 75 Joint Operating Agreement, dated February 1, 1971,
between Texaco E & P Inc. and Tenneco Oil Company (00C010095-B).
Main Pass 74/75 Crude Oil Purchasing Contract, dated January 20,
1995, between Tenneco Ventures Corporation and Texon Corporation (00C010095- C).
Main Pass 74 Seismic Data Option Agreement, dated July 25, 1995,
between Seismic Resources Inc. and Tenneco Ventures Corporation (00C010095-E).
Matagorda 519 Joint Operating Agreement, dated December 1, 1974,
between Amoco Production Company and Pennzoil (00C010096).
Matagorda 519 Unitization Order Agreement, dated August 1, 1984,
between Amoco Production Company and Pennzoil (00C010096-A).
Matagorda 519 Unit Joint Operating Agreement, dated August 1, 1984,
between Amoco Production Company and Pennzoil (00C010096-B).
Matagorda 519 Unit Order Pooling Agreement, dated July 8, 1991,
between the State of Texas and Amoco Production Company (00C010096-C).
West Cameron 352 Joint Operating Agreement, dated December 1, 1974,
between Mobil Oil Corporation and Pennzoil (00C010099).
West Cameron 352 Platform Utility Agreement, dated July 15, 1977,
between Mobil Oil Corporation and Pennzoil (00C010099-A).
6
<PAGE>
West Cameron 343/352 Gas Balancing Agreement, dated December 13,
1979, between Mobil Oil E & P Southeast Inc. and Pennzoil (00C010099-B).
West Cameron 352 Production Facility Agreement, dated August 27,
1994, between Sonat Exploration Company, Inc. and Pennzoil, et al.
(00C010099-C).
West Cameron 409, Island Operating Agreement, dated February 17,
1995, between Island Operating Company, Inc. and Tenneco Ventures Corporation
(00C010122).
West Cameron 409, Conoco Inc. Purchase and Sale Agreement, dated May
31, 1995, between Conoco, Inc. and Tenneco Ventures Corporation (00C010122-A).
West Cameron 409 Joint Operating Agreement, dated June 1, 1995,
between Matrix Oil & Gas Inc. and Tenneco Ventures Corporation (00C010122-B).
West Cameron 409 Transportation Agreement, dated February 1, 1995,
between Texas Eastern Transmission, Inc. and Tenneco Ventures Corporation
(00C010122-C).
West Cameron 409 Gas Gathering Agreement, dated September 16, 1996,
between Tenneco Offshore Gathering and Tenneco Ventures Corporation
(00C010122-D).
Matrix Oil & Gas Production Acquisition and Exchange Agreement,
dated April 1, 1995, between Tenneco Ventures Corporation and Matrix Oil & Gas
Inc. (00C010123).
Matrix Energy-T Ltd. Partnership Agreement, dated May 11, 1995,
between Matrix Oil & Gas Inc. and Tenneco Ventures Corporation (00C010123-A).
West Cameron 192/193 Joint Operating Agreement, dated May 18, 1993,
between Matrix Oil & Gas Inc. and Santa Fe Minerals Inc. (00C010125).
West Cameron 192/193 Gas Purchase Agreement, dated April 1, 1995,
between Matrix Oil & Gas Inc. and Associated Gas Services Inc. (00C010125-A).
West Cameron 192/193 Transportation Agreement, dated August 13,
1993, between Matrix Oil & Gas Inc. and Tennessee Gas Pipeline Company
(00C010125-B).
West Cameron 192/193 Crude Oil Purchase Agreement, dated August 13,
1993, between Matrix Oil & Gas Inc. and Conoco Inc. (00C010125-C).
7
<PAGE>
West Cameron 192/193 Oil Transportation Agreement, dated April 1,
1993, between Matrix Oil & Gas Inc. and Tennessee Gas Pipeline Company
(00C010125-D).
West Cameron 192/193 Grande Chenier Joint Operating Agreement, dated
January 17, 1963, between Conoco Inc. and Santa Fe Minerals Inc. (00C010125-E).
West Cameron 601 Joint Operating Agreement, dated July 15, 1992,
between Matrix Oil & Gas Inc. and Trade & Development Corporation (00C010126).
West Cameron 601 Transportation Agreement, dated November 21, 1992,
between ANR Pipeline Company and Trade & Development Corporation (00C010126-A).
West Cameron 601 Liquids Transportation Agreement, dated August 1,
1992, between Tennessee Gas Pipeline Company and Trade & Development Corporation
(00C010126-B).
West Delta 30 PSA Product Acquisition Agreement, dated August 10,
1995, between Shell Offshore Inc. and Tenneco Ventures Corporation (00C010136).
West Delta 30 Exploration Agreement, dated August 11, 1995, between
Shell Offshore Inc. and Tenneco Ventures Corporation (00C010136-A).
West Delta 30 "E" Platform Lease Agreement, dated August 2, 1994,
between Exxon Company, USA and Shell Offshore Inc. (00C010136-AA).
West Delta 30 Vessel Services Agreement, dated December 5, 1995,
between Seneca Resources Corporation and Tenneco Ventures Corporation
(00C010136-AB).
West Delta 30 Telecom Lease Agreement, dated December 18, 1995,
between Exxon Company, USA and Tenneco Ventures Corporation (00C010136-AC).
West Delta 30 - Seneca Joint Operating Agreement, dated September 1,
1995, between Seneca Resources Corporation and Tenneco Ventures Corporation
(00C010136-AD).
West Delta 30 - New Squel Joint Operating Agreement, dated April 2,
1996, between Exxon Corporation and Tenneco Ventures Corporation (00C010136-AE).
West Delta 30 Facility Agreement, dated August 11, 1995, between
Shell Offshore Inc. and Tenneco Ventures Corporation (00C010136-B).
8
<PAGE>
West Delta 30 Facility Agreement, dated August 28, 1995, between
Shell Offshore Inc. and Tenneco Ventures Corporation (00C010136-C).
West Delta 30 Facility Agreement, dated August 28, 1995, between
Shell Offshore Inc. and Tenneco Ventures Corporation (00C010136-D).
West Delta 30 Agreement, dated August 28, 1995, between Shell
Offshore Inc. and Tenneco Ventures Corporation (00C01036-E).
West Delta 30 Squel Joint Operating Agreement (old), dated April 20,
1950, between Humble Oil & Refining Co. and Shell Oil Company (00C01036-F).
West Delta 30 Quarters Joint Operating Agreement, dated July 1,
1962, between Humble Oil & Refining Company and Shell Oil Company (00C01036-G).
West Delta 30 Facility Agreement, dated February 1, 1963, between
Humble Oil & Refining Company and Shell Oil Company (00C010136-H).
West Delta 30 Gas Gathering Agreement, dated February 1, 1963,
between Humble Oil & Refining Company and Shell Oil Company (00C010136-I).
West Delta 30 Gas Gathering Agreement, between Humble Oil & Refining
Company and Shell Oil Company (00C010136-J).
West Delta 30 Gas Gathering Agreement, dated February 1, 1963,
between Humble Oil & Refining Company and Shell Oil Company (00C010136-K).
West Delta 30 Gas Gathering Agreement, dated February 6, 1968,
between Humble Oil & Refining Company and Shell Oil Company (00C010136-L).
West Delta 30 Gas Gathering Agreement, dated February 6, 1968,
between Humble Oil & Refining Company and Shell Oil Company (00C010136-M).
West Delta 30 Miscellaneous Agreement, between Shell Offshore Inc.
and Tenneco Ventures Corporation (00C010136-N).
West Delta 30 Miscellaneous Agreement, dated January 29, 1981,
between Shell Offshore Inc. and Transco Exploration Company (00C010136-O).
West Delta 30 Miscellaneous Agreement, dated September 3, 1993,
between Shell Offshore Inc. and Exxon Company, USA (00C010136-P).
West Delta 30 Miscellaneous Agreement, dated August 1, 1986, between
Shell Offshore Inc. (00C010136-Q).
9
<PAGE>
West Delta 30 Miscellaneous Agreement, dated March 6, 1967, between
Shell Offshore Inc. and Humble Oil & Refining Company (00C010136-R).
West Delta 30 Miscellaneous Agreement, dated January 1, 1994,
between Shell Offshore Inc. and Exxon Corporation (00C010136-S).
West Delta 30 GRA SU Joint Operating Agreement, dated November 1,
1966, between Shell Oil Company and Humble Oil & Refining Company (00C010136-T).
West Delta 30 C-3 RB1 SU Joint Operating Agreement, dated October
15, 1976, between Shell Oil Company and Exxon Corporation (00C010136-U).
West Delta 30 C-4 RQ SU Joint Operating Agreement, dated March 1,
1969, between Shell Oil Company and Humble Refining & Oil Company (00C010136-V).
West Delta 30 I RA SU Joint Operating Agreement, dated March 1,
1970, between Shell Oil Company and Humble Refining & Oil Company (00C010136-W).
West Delta 30 I-1 RA SU Joint Operating Agreement, dated June 1,
1970, between Shell Oil Company and Humble Refining & Oil Company (00C010136-X).
West Delta 30 I-2 RA SU Joint Operating Agreement, dated October 1,
1969, between Shell Oil Company and Humble Refining & Oil Company (00C010136-Y).
West Delta 30 Crude Oil Purchase Agreement, dated September 20,
1995, between Texon Corporation and Tenneco Ventures Corporation (00C010136-Z).
Wasson Purchase and Sale Agreement, dated June 27, 1996, between
Kerr McGee Corporation - E & P and Tenneco Ventures Corporation (00C010184).
Wasson "A" Joint Operating Agreement, dated January 20, 1938,
between Shell Western E & P, Inc. and Tenneco Ventures Corporation
(00C010184-A).
Wasson "B" Joint Operating Agreement, dated September 26, 1938,
between Shell Western E & P, Inc. and Tenneco Ventures Corporation
(00C010184-B).
Unit Order Agreement, Denver Unit, dated January 1, 1964, between
Shell Western E & P, Inc. and Tenneco Ventures Corporation (00C010184-C).
10
<PAGE>
Unit Joint Operating Agreement, Denver Unit, dated February 1, 1964,
between Shell Western E & P, Inc. and Tenneco Ventures Corporation
(00C010184-D).
Cornell Unit Order Agreement, dated February 1, 1965, between Exxon
Company USA and Tenneco Ventures Corporation (00C010184-E).
Cornell Unit Joint Operating Agreement, dated April 1, 1981, between
Exxon Company USA and Tenneco Ventures Corporation (00C010184-F).
Wasson CO2 Purchase and Sale Agreement, dated June 11, 1985, between
Shell Western E & P, Inc. and Tenneco Ventures Corporation (00C010184-G).
Wasson In-Kind CO2 Supply Agreement, dated June 14, 1985, between
Exxon Corporation and Tenneco Ventures Corporation (00C010184-H).
Cornell Unit CO2 Pipeline Joint Operating Agreement, dated November
6, 1985, between Exxon Company USA and Tenneco Ventures Corporation
(00C010184-I).
Wasson Unit Line Injection Joint Operating Agreement, dated December
29, 1988, between Exxon Company USA and Shell Western E & P Inc. (00C010184-J).
Wasson - Willard Plant Processing Agreement, dated November 21,
1989, between Atlantic Richfield Company and Tenneco Ventures Corporation
(00C010184-K).
Wasson - Cornell Exchange Agreement, dated July 12, 1990, between
Kerr McGee Corporation - E & P and Cornell Production Company (00C010184-L).
Cornell Unit - Purchases of WI Agreement, dated August 15, 1990,
between Kerr McGee Corporation - E & P and James M. Milligan, et al.
(00C010184-M).
Cornell Unit - Surface Deeds Agreement, dated September 25, 1991,
between Exxon Corporation and Various Surface Owners (00C010184-N).
Cornell Unit - Water Rights Agreement, dated February 1, 1965,
between M M Cattle Company, et al. and Cornell Oil Company (00C010184-O).
Cornell - Crude Oil Purchase Agreement, dated July 22, 1996, between
Tenneco Ventures Corporation and Texon Corporation (00C010184-P).
11
<PAGE>
Wasson - Pitcairn/Flag Redfern Production Acquisition Agreement,
dated June 2, 1983, between Pitco and Flag-Redfern Oil Company (00C010184-Q).
Certificate of Financial Responsibility, dated April 22, 1996,
between Minerals Management Service and Matrix Oil & Gas Inc. (00C010187).
Gas Purchase and Sales Agreement/HPL, dated August 1, 1994, between
Cox & Perkins Exploration, Inc. and Houston Pipe Line Company (00M000002).
Gas Processing Agreement/Warrior, dated February 22, 1992, between
Cox & Perkins Exploration, Inc. and Associated Natural Gas, Inc. (00M000002-A).
Gas Purchase and Sales Agreement/Centana, dated February 1, 1996,
between Cox & Perkins Exploration, Inc. and Centana Gathering Company
(00M000007).
Gold-Zapp Mollnar Unit #1 Order Agreement, dated August 21, 1995,
between Cox & Perkins Exploration, Inc. and Tenneco Ventures Corporation
(00U000040).
Runnells #1 Gas Unit Order Agreement, dated February 5, 1996,
between Cox & Perkins Exploration, Inc. and Tenneco Ventures Corporation
(00U000052).
Lange-Boatright #1 Gas Unit Order Agreement, dated January 22, 1996,
between Cox & Perkins Exploration, Inc. and Tenneco Ventures Corporation
(00U000053).
Lange #1 Gas Unit Order Agreement, dated February 7, 1996, between
Cox & Perkins Exploration, Inc. and Tenneco Ventures Corporation (00U000054).
Johnnie Mae #1 Gas Unit Order Agreement, dated February 6, 1996,
between Cox & Perkins Exploration, Inc. and Tenneco Ventures Corporation
(00U000055).
Lutringer #1 Gas Unit Order Agreement, dated February 23, 1996,
between Cox & Perkins Exploration, Inc. and Tenneco Ventures Corporation
(00U000056).
Lange Runnels No. 1 Unit Order Agreement, between Cox & Perkins
Exploration, Inc. and Tenneco Ventures Corporation (00U000059).
12
<PAGE>
Swanson-Meek No. 1 Gas Unit Order Agreement, dated May 6, 1996,
between Cox & Perkins Exploration, Inc. and Tenneco Ventures Corporation
(00U000062).
General Electric Pension Trust Agreement, dated June 16, 1992,
between General Electric Pension Trust and Tenneco Ventures Corporation
(01C010002).
General Electric Pension Trust Agreement (D/T Mtg.), dated April 5,
1993, between General Electric Pension Trust and Tenneco Ventures Corporation
(01C010002-A).
Tenngasco Gas & Sales Purchase Agreement #4332, dated March 1, 1993,
between Tenneco Gas Production Corporation and Tenngasco Corporation
(01C010011).
Tenngasco (General Electric) TGPC Gas Sales Agreement, dated March
1, 1993, between Tenneco Gas Production Corporation and Tenngasco Corporation
(01C010012).
Delta Master Trust Agreement, dated June 30, 1993, between Delta Air
Lines Pension and Tenneco Gas Production Corporation (01C010031).
MMS R-O-W-Surety Bond number 71S33123-02-95 in the amount of
$300,000 issued in connection with all OCS ROWS leases located in Areawide Gulf,
effective as of February 13, 1995.
MMS Lease Development Surety Bond number 71S33123-03-95 in the
amount of $500,000 issued in connection with the OCS-G 3282 lease located in WC
409, effective as of April 24, 1995.
MMS Lease Development Surety Bond number 71S33123-04-95 in the
amount of $500,000 issued in connection with the OCS-G 4565 lease located in GA
303, effective as of April 24, 1995.
MMS Lease Development Surety Bond number 71S33123-05-95 in the
amount of $500,000 issued in connection with the OCS-G 6010 lease located in MU
846, effective as of April 24, 1995.
MMS Lease Development Surety Bond number 71S33123-06-95 in the
amount of $500,000 issued in connection with the OCS-G 6011 lease located in MU
847, effective as of April 24, 1995.
13
<PAGE>
MMS Areawide Development Surety Bond number 71S33123-02-96 in the
amount of $3,000,000 issued in connection with certain offshore leases located
in Areawide Gulf, effective as of January 16, 1996.
MMS Supplemental Surety Bond numbers B05833, B05834 - NCX in the
amount of $550,000 issued in connection with the OCS-G 4591/3485 leases located
in HI 282/285, effective as of March 27, 1996.
MMS Supplemental Surety Bond number 71S33123-03-96 in the amount of
$1,500,000 issued in connection with the OCS-G 2857 lease located in EC 042,
effective as of May 24, 1996.
MMS Supplemental Surety Bond number 71S33123-05-96 in the amount of
$1,900,000 issued in connection with the OCS-G 2127 lease located in EC 033,
effective as of May 24, 1996.
MMS Supplemental Surety Bond number 71S33123-06-96 in the amount of
$450,000 issued in connection with the OCS-G 4565 lease located in GA 303,
effective as of May 24, 1996.
State of Michigan Well Bond number 71S33123-07-96 in the amount of
$250,000 issued in connection with certain Michigan blanket well leases,
effective as of August 23, 1996.
Contribution Agreement dated March 29, 1996 among Hi P Limited
Partnership, Montana BC Limited Partnership, Dwain Immel, Manistee Gas Limited
Liability Company, and Michigan Gas Fund I.
Gas Gathering, Treating and Processing Agreement dated May 2, 1996
between Oceana Exploration Company, LC (formerly Oceana Adquisition Company,
L.L.C.) and West Shore Processing Company, LLC.
Letter Agreement dated May 2, 1996 between Oceana Exploration
Company, LC (formerly Oceana Acquisition Company, L.L.C.) and MarkWest Michigan,
LLC regarding certin drilling obligations.
Belle Isle Joint Operating Agreement, dated as of January 1, 1991 by
and between Texaco Exploration and Production, Inc. and Benton Oil and Gas
Company.
Apache Belle Isle Joint Operating Agreement, dated January 1, 1993
by and between Apache Corporation and Tenneco Ventures Corporation.
Suemauer Joint Operating Agreement, dated February 1, 1992 by and
between Suemaur Exploration, Inc. and Tenneco Ventures Corporation.
College Point Joint Operating Agreement, dated July 27, 1994 by and
between Linder Energy Company and Tenneco Ventures Corporation.
Pistol Pete/St. Mary Operating Company Joint Operating Agreement,
dated July 20, 1995 by and between St. Mary Operating Company and Tenneco
Ventures Corporation.
Mustang Joint Operating Agreement, dated August 12, 1995 by and
between Wiser Oil Company, Inc. and Tenneco Ventures Corporation.
Bevo Joint Operating Agreement, dated November 28, 1994 by and
between Wiser Oil Company, Inc. and Tenneco Ventures Corporation.
Bevo/Son of Bevo Joint Operating Agreement, dated October 15, 1962
by and between Exxon Corporation and Allstate Insurance Company.
Bevo (104-J) Joint Operating Agreement, dated October 1, 1995 by and
between Tenneco Ventures Corporation and Brigham Oil & Gas, L.P.
Eugene Island 372 Joint Operating Agreement, dated June 1, 1978 by
and between Unocal Corporation and Pennzoil.
Linder Oil Joint Operating Agreement, dated July 27, 1994 by and
between Linder Energy Company and Tenneco Ventures Corporation.
Pistol Pete/St. Mary Operating Company Joint Operating Agreement,
dated July 20, 1995 by and between St. Mary Operating Company and Tenneco Gas
Production Corporation.
14
<PAGE>
Mustang Joint Operating Agreement, dated August 12, 1996 by and
between Wiser Oil Company, Inc. and Tenneco Ventures Corporation.
Bevo Joint Operating Agreement, dated November 28, 1994 by and
between Wiser Oil Company, Inc. and Tenneco Ventures Corporation.
Bevo/Son of Bevo Joint Operating Agreement, dated October 15, 1962
by and between Exxon Corporation and UMC Petroleum Corporation.
Brigham et al. Joint Operating Agreement, dated October 1, 1995 by
and between Tenneco Gas Production Corporation and Brigham Oil & Gas, L.P.
Bevo/Son of Bevo Joint Operating Agreement, dated October 15, 1962
by and between Exxon Corporation.
Brigham et al. Joint Operating Agreement, dated October 1, 1995 by
and between Tenneco Gas Production Corporation and Brigham Oil & Gas, L.P.
Sooner Joint Operating Agreement, dated May 1, 1996 by and between
Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
Bevo/Son of Bevo Joint Operating Agreement, dated October 15, 1962
by and between Exxon Corporation.
Brigham et al. Joint Operating Agreement, dated October 1, 1995 by
and between Tenneco Gas Production Corporation and Brigham Oil & Gas, L.P.
Sooner Joint Operating Agreement, dated May 1, 1996 by and between
Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
Paladin Prospects Joint Operating Agreement, dated May 1, 1995 by
and between Gecko, Inc. and Tenneco Gas Production Corp. II.
Estacado Joint Operating Agreement, dated May 15, 1995 by and
between Gecko, Inc. and Tenneco Gas Production Corp. II.
Kenedy Ranch Joint Operating Agreement, dated February 1, 1996 by
and between Hunt Petroleum Corporation and Tenneco Gas Production Corp. II.
15
<PAGE>
Texaco Rabbit Island Exploration Agreement, dated September 10, 1992
by and between Texaco E&, Inc. and Benton Oil and Gas Company.
Texaco Belle Isle Exploration Agreement, dated March 5, 1992 by and
between Texaco Exploration and Production, Inc. and Benton Oil and Gas Company.
Suemaur Exploration Agreement, dated January 1, 1995 by and between
Tenneco Ventures Corporation and Suemaur Exploration, Inc.
McCaskill Geophysical Exploration Agreement, dated August 15, 1995
by and between Suemaur Exploration, Inc. and Tenneco Ventures Corporation.
Brigham Oil & Gas, L.P. Exploration Agreement, dated July 1, 1994 by
and between Brigham Oil & Gas, L.P. and Tenneco Ventures Corporation.
Mustang Exploration Agreement, dated December 15, 1994 by and
between Brigham Oil & Gas, L.P. and Tenneco Ventures Corporation.
Bevo Geophysical Exploration Agreement, dated July 15, 1994 by and
between Brigham Oil & Gas, L.P. and Tenneco Ventures Corporation.
Energy Investments Exploration Agreement, dated March 1, 1995 by and
between Energy Investments Company, Inc. and Tenneco Ventures Corporation.
West Delta 30 Exploration Agreement, dated August 11, 1995 by and
between Seneca Resources Corporation and Tenneco Ventures Corporation.
Mobil 864 Exploration Agreement, dated February 27, 1990 by and
between Atlantic Richfield and BG Exploration America, Inc.
Brigham Oil & Gas, L.P. Exploration Agreement, dated July 1, 1994 by
and between Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
Mustang Exploration Agreement, dated December 15, 1994 by and
between Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
Bevo Geophysical Exploration Agreement, dated July 15, 1994 by and
between Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
16
<PAGE>
Araxas Exploration Agreement, dated August 1, 1994 by and between
Araxas Exploration Inc. and Tenneco Ventures Corporation.
Son of Bevo Geophysical Exploration Agreement, dated March 1, 1995
by and between Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
Sooner Exploration Agreement, dated March 1, 1995 by and between
Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
Brigham Oil & Gas, L.P. Exploration Agreement, dated March 1, 1995
by and between Brigham Oil & Gas, L.P. and Tenneco Gas Production Corporation.
Sooner Exploration Agreement, dated March 1, 1995 by and between
Brigham Oil & Gas, L.P. and Tenneco Gas Production Corp. II.
Lumberjack Brigham Geophysical Exploration Agreement, dated March 1,
1995 by and between Brigham Oil & Gas, L.P. and Tenneco Gas Production Corp. II.
West Delta 30 Exploration Agreement, dated August 11, 1995 by and
between Seneca Resources Corporation and Tenneco Ventures Corporation.
Vastar Resources Unit Operating Agreement, dated August 4, 1994 by
and between Vastar Resources, Inc. and Tenneco Ventures Corporation.
Belle Isle/Rabbit Island Purchase and Participation Agreement, dated
June 30, 1993 by and between Tenneco Ventures Corporation and Benton Oil & Gas
Company.
Cox & Perkins/Aquisition Purchase and Participation Agreement, dated
May 19, 1994 by and between Cox & Perkins Exploration, Inc. and Tenneco Ventures
Corporation.
College Point Purchase and Participation Agreement, dated July 27,
1994 by and between Linder Energy Company and Tenneco Ventures Corporation.
College Point Purchase and Participation Agreement, dated July 27,
1994 by and between Linder Energy Company and Tenneco Ventures Corporation.
Kenedy Ranch Purchase and Participation Agreement, dated June 1,
1995 by and between Output Exploration Company, Inc. and Tenneco Gas Production
Corp. II.
17
<PAGE>
SCHEDULE 5.1(m)
LITIGATION
PLAINS RESOURCES:
A settlement has been reached in a lawsuit between Nicklos Drilling
Company and Plains Resources et. al. The lawsuit stemmed from costs incurred
when drillpipe was stuck in the Boagni #1 well, which led to a total loss of the
wellbore, necessitating a redrill of the well. Tenneco Ventures' share of the
settlement, which includes Joint Interest Billings and legal costs, is $230,000.
This settlement will be paid in January of 1997.
GECKO:
In late 1995, three employees of a storage tank rental firm were
killed while cleaning out one of their tanks that had previously been used on a
location in which Tenneco Ventures had a working interest. The problem stemmed
from the employees having been exposed to Hydrogen Sulfide (H2S). According to
the operator of the well, Gecko Operating, the tank was tested prior to being
moved from a well site and found to be free of any H2S contamination. The source
of the H2S was traced to wash water utilized by the employees in their own yard.
The water had reportedly been taken from a different tank in their yard and
neither the source water nor the tank water was connected in any way to Gecko's
operations. Despite this background, Tenneco Ventures has received word that a
lawsuit is being filed against Gecko which could subsequently expose Tenneco
Ventures' to the litigation. The potential liability of Tenneco Ventures, if
any, is unknown.
WEST DELTA 30:
Tenneco Ventures has been advised that legal action is being pursued
by an individual as a result of injuries sustained while working at a platform
on the West Delta 30 block. The potential liability of Tenneco Ventures, if any,
is unknown.
MUSTANG ISLAND 847:
In the Fall of 1995, a helicopter pilot under contract to OCS,
Tenneco Ventures' contract operator for the field, inadvertently stepped off
into a stairwell while tying down his aircraft on the B platform at Mustang
Island 847. The pilot reportedly received minor cuts, bruises and contusions,
was held overnight at a hospital for observation, and released. To Tenneco
Ventures' knowledge, no claims have been made or are
<PAGE>
pending relating to this incident, which is being identified as the only known
injury sustained on a property operated by Tenneco Ventures.
WEST COTE BLANCHE BAY
Tenneco Ventures and Tenneco Gas Production Corporation ("TGPC")
have 7.19889% and 3.59890% working interests, respectively, in West Cote Blanche
Bay. In connection with those interests, Tenneco Ventures and TGPC are alleged
by Texaco Exploration and Production, Inc. ("Texaco") to owe a portion of $1.3
million, which represents total debt outstanding to Texaco from Benton Oil and
Gas Company of Louisiana, Tenneco Ventures and TGPC. Texaco has indicated that
it will pursue all available remedies to collect amounts owing. Management
believes that the likely exposure of Tenneco Ventures and TGPC does not exceed
$175,000, and efforts are underway with Texaco to resolve this dispute.
2
<PAGE>
SCHEDULE 5.1(o)
EMPLOYMENT AGREEMENTS AND RELATED MATTERS
1996 Stock Purchase and Option Plan for Key Employees of Domain
Energy Corporation and Affiliates.
<PAGE>
SCHEDULE 5.1(p)
LICENSES AND GOVERNMENT APPROVALS
None.
<PAGE>
SCHEDULE 5.1(r)
TRANSACTIONS WITH AFFILIATES
Employment Agreement, dated as of December 31, 1996, between Domain
Energy Corporation and Michael V. Ronca.
Gas Purchase and Sales Agreement effective April 1, 1996, by and
between Tenneco Energy Marketing Company and Tenneco Ventures Corporation.
Gas Purchase and Sales Agreement effective March 1, 1993, between
Tenngasco Corporation and Tenneco Gas Production Corporation.
Guaranty by Tennessee Gas Pipeline Company in favor of Bank of
America Illinois.
Guaranty by Tennessee Gas Pipeline Company, dated September 29,
1995, in favor of Bank One, Texas, National Association.
Guaranty by Tennessee Gas Pipeline Company, dated December 29, 1994,
in favor of Pennzoil.
<PAGE>
SCHEDULE 5.1(t)
LABOR MATTERS
Employment Agreement, dated as of December 31, 1996, between Domain
Energy Corporation and Michael V. Ronca.
<PAGE>
SCHEDULE 5.1(u)
TAX MATTERS
None.
<PAGE>
SCHEDULE 5.1(v)
ENVIRONMENTAL MATTERS
Shortly after Tenneco Ventures Corporation acquired West Delta 30,
in the course of repairs to a flowline the personnel representing Seneca
Resources, the Operator, noticed small sheens occurring coincidentally with
movement of divers working on the bottom. To the best of their knowledge, the
personnel believe that the source was a pre-existing condition of the mudline
and the previous owner, Shell, was notified accordingly by Seneca.
<PAGE>
SCHEDULE 5.1(w)
OIL AND GAS RESERVE INFORMATION
None.
EXHIBIT 10.5
AMENDED AND RESTATED MANAGEMENT INVESTOR
SUBSCRIPTION AGREEMENT
This Amended and Restated Management Investor Subscription Agreement
(this "Investment Agreement") dated effective as of December 31, 1996 is made by
Michael V. Ronca (the "Investor") for the benefit of Domain Energy Corporation,
a Delaware corporation (the "Company").
R E C I T A L S
WHEREAS, El Paso Tennessee Pipeline Co. (formerly named Tenneco
Inc.) ("Tenneco"), El Paso Natural Gas Company ("El Paso") and El Paso Merger
Company, an indirect wholly-owned subsidiary of El Paso ("Merger Company"),
entered into that certain Amended and Restated Agreement and Plan of Merger
dated as of June 19, 1996 pursuant to which, effective December 12, 1996, Merger
Company merged with and into Tenneco, resulting in Tenneco becoming an indirect,
wholly-owned subsidiary of El Paso;
WHEREAS, the Company has been incorporated at the direction of
Michael V. Ronca, President and Chief Executive Officer of Tenneco Ventures
Corporation, an indirect, wholly-owned subsidiary of Tenneco ("Tenneco
Ventures"), and First Reserve Fund VII, Limited Partnership ("Fund VII");
WHEREAS, by assignment from Teleo Ventures, Inc., all of the
outstanding capital stock of which is owned by Michael V. Ronca, the Company is
a party to a Stock Purchase Agreement, dated as of December 24, 1996 (the "Stock
Purchase Agreement") with El Paso pursuant to which the Company agreed to
purchase from El Paso all of the outstanding capital stock of Tenneco Ventures
and Tenneco Gas Production Corporation (the "Ventures Companies Acquisition");
WHEREAS, pursuant to a Subscription Agreement dated as of December
31, 1996 (the "First Reserve Subscription Agreement"), among the Company and
Fund VII, Fund VII agreed to purchase from the Company, and the Company agreed
to issue and sell to Fund VII, an aggregate of 9,519.4717 shares (the "First
Reserve Shares") of Common Stock of the Company, par value $.01 per share
("Common Stock") at a purchase price of $3,151.4354 per share;
WHEREAS, all securityholders of the Company are required to execute
and deliver the Securityholders' Agreement among the Company and its
securityholders dated as
<PAGE>
of December 31, 1996 (the "Securityholders' Agreement") and to be bound thereby;
WHEREAS, pursuant to offers by means of separate Management Investor
Subscription Agreements (collectively, the "Management Investors Subscription
Agreements"), each of Michael V. Ronca, Herbert A. Newhouse, Catherine L. Sliva,
Rick G. Lester, Douglas H. Woodul, Steven M. Curran, Dean R. Bouillion and
Lucynda S. Herrin (each of such persons individually a "Management Investor"
and, collectively, the "Management Investors") will be permitted to purchase
from the Company, and the Company will be authorized to issue and sell to the
Management Investors an aggregate of up to 517.6542 shares (the "Management
Investors' Shares" and, collectively with the First Reserve Shares, the
"Shares") of Common Stock;
WHEREAS, in reliance on exemptions from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and from applicable state securities laws (the "Blue Sky Laws"), the Shares will
be offered, issued and sold to Fund VII and the Management Investors without
registration under the Securities Act or applicable Blue Sky Laws;
WHEREAS, the Investor recognizes that there are conditions to and
requirements of exemptions applicable to any issuance of securities; and
WHEREAS, the Investor and the Company have entered into that certain
Management Investor Subscription Agreement dated as of December 31, 1996 and
each of them desire to amend and restate such agreement in its entirety;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows.
ARTICLE I.
SUBSCRIPTION
Section 1.1. SUBSCRIPTION FOR SHARES. Subject to the terms and
provisions of this Investment Agreement, the Investor hereby irrevocably
subscribes for and agrees to purchase 237.9868 Shares (the "Investor Shares") at
$3,151.4354 per Share. Such aggregate subscription price
2
<PAGE>
(the "Subscription Price") shall be payable in part in cash and in part by the
delivery by the Investor to the Company of a promissory note in the form of that
attached hereto as Exhibit A (the "Note") and a Pledge Agreement pledging the
Investor Shares and other equity securities issued by the Company, in the form
of that attached hereto as Exhibit B (the "Pledge Agreement"). The amount of the
Note will be equal, at the option of the Investor, to a maximum of $249,200.00
(calculated by multiplying 40% by the $623,000.00 severance and retention bonus
payment due the Investor from Tenneco, the obligation to pay which has been
assumed by the Company). The Subscription Price will be paid promptly following
the receipt by the Investor of the severance and retention bonus payment
referred to above, net of applicable withholdings. Upon delivery of the
Subscription Price and the Pledge Agreement, the Company will issue the 237.9868
Investor Shares.
Section 1.2. INDEMNIFICATION. The Investor understands and
acknowledges the meaning and legal consequences of the representations,
warranties and agreements made by the Investor in this Investment Agreement and
that the Company has relied upon such representations, warranties and
agreements, and the Investor hereby agrees to indemnify and hold harmless the
Company, and all directors, officers, employees, stockholders, agents and
representatives thereof, from and against any and all claims, demands, losses,
damages, expenses or liabilities (including without limitation attorneys' fees)
due to or arising out of a breach of any such representations, warranties or
agreements. Notwithstanding the foregoing, however, no representation, warranty
or agreement made herein by the Investor shall in any manner be deemed to
constitute a waiver of any rights available to the Investor under federal or
state securities laws.
ARTICLE II.
INVESTMENT CONSIDERATIONS AND
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.1. CERTAIN INVESTMENT CONSIDERATIONS. In addition to the
other information reviewed by the Investor in connection with the Investor's
evaluation of an investment in the Shares and in addition to the other
investment considerations set forth in this Investment Agreement, the Investor
understands and has carefully considered each of the following investment
considerations prior to the Investor's investment in the Investor Shares:
3
<PAGE>
(a) CONTROL BY THE FIRST RESERVE ENTITIES. Upon consummation of the
Ventures Companies Acquisition and the issuance and sale of the Shares under the
First Reserve Subscription Agreement and the Management Investors Subscription
Agreements (assuming all Management Investors' Shares offered thereby are fully
subscribed), (i) the First Reserve Entities will collectively own 9,519.4717
shares of Common Stock, representing 94.8426% of the then issued and outstanding
shares of Common Stock, and (ii) the Management Investors will collectively own
517.6542 shares of Common Stock, representing 5.1574% of the then issued and
outstanding shares of Common Stock. As a consequence thereof, the First Reserve
Entities will have voting control of the Company. Under the terms of the
Securityholders' Agreement, (i) the Board will consist of five members, three of
whom the First Reserve Entities will have the right to designate and two of whom
the Management Investors will have the right to designate, and (ii) all
Significant Transactions (as such term is defined in the Securityholders'
Agreement, and which term includes mergers and sales of assets) may be
authorized and effected only by a vote of at least a majority of the whole
Board. Because such a majority requires three members of the Board, the First
Reserve Entities will have the ability to control all Significant Transactions
by means of their three Board designees.
(b) NO ASSURANCE OF PROFITS. The Investor recognizes that no
assurances of profits, ability to repay debt, cash distributions or capital
appreciation have been made or can be made regarding the Company.
(c) INDEBTEDNESS AND CAPITAL STRUCTURE. In connection with the
consummation of the Ventures Companies Acquisition, the Company has entered into
a Credit Agreement among the Company, certain subsidiaries of the Company, as
subsidiary guarantors (the "Subsidiary Guarantors"), certain lenders
(collectively, the "Lenders"), and The Chase Manhattan Bank, as Administrative
Agent for the Lenders (the "Credit Agreement"). The Company has borrowed
approximately $61.2 million under the Credit Agreement to finance in part the
Ventures Companies Acquisition. Consequently, the Company has a substantial
level of outstanding indebtedness. Specifically, as a result of the Ventures
Companies Acquisition and related transactions, the Company has total
consolidated indebtedness for money borrowed of approximately $89.4 million and,
upon consummation of the subscriptions by the Management Investors, will have
stockholders' equity of approximately $31.6 million. The total debt-to-total
capitalization ratio of the Company upon the consummation of the Ventures
Companies Acquisition and the subscriptions by
4
<PAGE>
the Management Investors is expected to be approximately .74 to 1.0 on a fully
consolidated basis.
The indebtedness incurred in connection with the financing of the
Ventures Companies Acquisition will pose substantial risks to the holders of the
Shares. Such risks include, but are not limited to, the following: (i)
significant interest expense and principal repayment obligations will be
incurred by the Company; (ii) the ability of the Company to satisfy its
obligations and to reduce its debt will depend upon the Company's future
operating performance, general economic conditions, interest rates, future
prices of oil and gas, and other factors, including factors beyond the control
of the Company; (iii) the Company might not generate sufficient cash flow to pay
interest on or principal of the indebtedness under the Credit Agreement; (iv)
the indebtedness incurred will limit the Company's ability to effect future
financings or acquisitions or to take advantage of significant business
opportunities that may arise and may otherwise restrict corporate activities and
limit the Company's ability to withstand competitive pressures or adverse
economic conditions; and (v) the Company will have restrictions on operations
and use of available cash flow. In addition, as a result of the increased level
of indebtedness and related debt service obligations, the Company will be less
able to meet its obligations in the event of a downturn in the oil and gas
business generally or in the economy.
(d) ASSET ENCUMBRANCES. The Company and the Subsidiary Guarantors
have granted to the Lenders liens on and security interests in substantially all
of their assets. In the event of a default under the Credit Agreement (whether
as a result of the failure to comply with a payment or other covenant, a
cross-default provision or otherwise), the Lenders, who have a prior, secured
claim on substantially all of the assets of the Company and the Subsidiary
Guarantors, may attempt to foreclose on their collateral, in which event the
Company's financial condition, and the value of the Shares would be materially
adversely affected.
(e) RESTRICTIONS AND COVENANTS. The Credit Agreement contains
numerous financial and operating covenants, including restrictions on use of
available cash flow and restrictions on additional financings. Such covenants
and restrictions may limit the Company's ability to conduct its business. The
Company's ability to comply with the terms of the Credit Agreement (including
its ability to comply with such covenants) and to satisfy its other debt
obligations will depend, in part, on the future performance
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of the Company and its subsidiaries. Such future performance will be subject to
prevailing economic conditions and to financial, business and other factors,
including factors beyond the control of the Company. In the event the Company
fails to comply with the various covenants contained in the Credit Agreement, it
could be declared in default thereunder and the debt thereunder could be
accelerated, in which event the Company's financial condition, and the value of
the Shares would be materially adversely affected.
(f) INTEREST RATE SENSITIVITY. The indebtedness incurred under the
Credit Agreement will bear interest at rates which will fluctuate with the Prime
Rate and the Eurodollar rate (as defined therein). Any significant increase in
prevailing interest rates could have a material and adverse effect on the
Company's financial condition.
(g) COMPETITION. The Company's business is highly competitive. A
number of United States and foreign entities will compete with the Company, and
many of the Company's competitors will have greater financial resources than the
Company.
(h) ENVIRONMENTAL MATTERS. As a result of the Ventures Companies
Acquisition, the Company is subject to extensive federal, state and local
environmental laws, regulations and permit requirements. The Company's business
will inherently expose it to various risks, such as the potential for harmful
substances escaping into the environment and causing damage or injury.
Significant costs could be incurred on account of environmental laws or
regulations in the future, and the Company cannot predict the impact on its
operations of new or changed laws or regulations.
(i) TRANSFER RESTRICTIONS; COMPANY CALL. Pursuant to the terms of
the Securityholders' Agreement, the Investor may not sell, transfer or otherwise
dispose of the Shares being purchased by the Investor until the earlier of (i)
five years after the date hereof and (ii) the occurrence of a Qualified Public
Offering (as defined in the Securityholders' Agreement). In addition, the
Securityholders' Agreement generally provides that upon the termination of the
Investor's employment with the Company, the Company has the option, on the terms
and subject to the conditions of the Securityholders' Agreement, to purchase the
Shares being purchased by the Investor pursuant to this Investment Agreement.
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Section 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Investor, by executing this Investment Agreement, acknowledges, covenants,
agrees, represents and warrants that:
(1) INVESTMENT FOR OWN ACCOUNT. The Investor Shares are being
acquired by the Investor solely for the Investor's own account, for investment
purposes only and not with a view to, and not for offer or sale in connection
with, any distribution or resale of the Investor Shares, and no one other than
the Investor has or will have any beneficial interest in the Investor Shares.
(2) ADEQUATE INFORMATION. The Company has made available and the
Investor has fully and completely reviewed all such information that the
Investor considers necessary or appropriate to evaluate the risks and merits of
an investment in the Investor Shares (including without limitation, the Stock
Purchase Agreement, the First Reserve Subscription Agreement, the
Securityholders' Agreement and the Credit Agreement). The Investor has not
distributed this Investment Agreement or such information to any person or
entity other than the Investor's legal and tax advisors, if any, and no one
other than such persons and entities and the Investor has used this Investment
Agreement or such information.
(3) OPPORTUNITY TO QUESTION. The Investor has had the opportunity to
question, and has questioned, to the extent the Investor has deemed necessary or
appropriate, representatives of the Company so as to receive answers and verify
information obtained in the Investor's examination of the Company, including
without limitation the information referred to in paragraph (2) of this Section
2.2 and all other documents or information that the Investor has reviewed in
relation to his or her investment in the Investor Shares.
(4) NO OTHER REPRESENTATIONS. No oral or written representations
have been made to the Investor in connection with the Investor's acquisition of
the Investor Shares that were in any way inconsistent with the information
reviewed by the Investor.
(5) KNOWLEDGE AND EXPERIENCE. The Investor has such knowledge and
experience in financial, tax and business matters, including without limitation
substantial experience in evaluating and investing in common stock and other
securities (including without limitation the common stock and other securities
of new and speculative companies and companies engaged in oil and gas
exploration and production), so as to enable the Investor to utilize the
information
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referred to in paragraph (2) of this Section 2.2 and all other information made
available to the Investor in order to evaluate the risks and merits of an
investment in the Investor Shares and to make an informed investment decision
with respect thereto. In addition, the Investor has been advised to consult with
an attorney regarding legal matters concerning the Company and to consult with a
tax advisor regarding the tax consequences of investing in the Company and
purchasing the Investor Shares.
(6) INDEPENDENT DECISION. The Investor is not relying on the Company
or any references to any legal or other opinion in the materials reviewed by the
Investor with respect to the tax considerations of the Investor relating to an
investment in the Investor Shares pursuant to Section 1.1 hereof. The Investor
has relied solely on its own examination and independent investigation of the
Company, the Investor Shares and Securityholders' Agreement in making its
decision to acquire the Investor Shares.
(7) FINANCIAL CONDITION. The Investor's financial condition and
income are such that (i) the Investor is under no present need to dispose of any
portion of the Investor Shares to satisfy any existing or contemplated
undertaking or indebtedness and (ii) the Investor is able to bear the economic
risk of investment in the Investor Shares, including the risk of losing the
entire investment and the risk of not being able to sell or transfer any of the
Investor Shares for an indefinite period of time. In this regard, the Investor
recognizes that the Securityholders' Agreement contains a prohibition on any
transfer of such Shares for a period of five years from the date of issuance.
(8) RESTRICTED SECURITIES. The Investor understands that the
Investor may be required to bear the economic risk of investment in the Investor
Shares for an indefinite period of time because the Investor Shares (a) may not,
without full compliance with the registration and prospectus delivery
requirements of the Securities Act and applicable Blue Sky Laws, be offered,
sold or delivered except in a transaction exempt from, or not subject to, the
registration and prospectus delivery requirements of the Securities Act and
applicable Blue Sky Laws and (b) are additionally subject to all of the
prohibitions, restrictions and other limitations on transfer set forth in the
Securityholders' Agreement. The Investor understands that the Company has no
obligation to cause or permit the registration of any of the Investor Shares
under the Securities Act or any Blue Sky Laws except as may be set forth in the
Securityholders' Agreement.
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(9) RESTRICTIONS ON RESALE OR TRANSFER. The Investor will not
transfer or pledge any or all of the Investor Shares in violation of the
Securityholders' Agreement or the Securities Act or any applicable Blue Sky Laws
and in the event that the Investor pledges any of the Investor Shares (to the
extent permitted under the Securityholders' Agreement, the Securities Act and
any applicable Blue Sky Laws), the Investor will comply with the
Securityholders' Agreement in connection therewith, will advise the pledgee of
the transfer restrictions imposed on the Investor Shares by this Investment
Agreement and will use its best efforts to obtain an undertaking from such
pledgee not to transfer such Investor Shares in violation of the Securities Act
or applicable Blue Sky Laws.
(10) RESTRICTIVE LEGEND. The certificates from time to time
evidencing the Investor Shares may, at the Company's sole option, bear a legend
that provides that the Investor Shares have not been registered under the
Securities Act or any applicable Blue Sky Laws and that the Investor Shares may
not be transferred unless the Company is first delivered a legal opinion,
satisfactory to the Company in its sole discretion, to the effect that such
transfer may be made without compliance with the registration and prospectus
delivery requirements of the Securities Act and applicable Blue Sky Laws. Such
legal opinion shall be given by counsel satisfactory to the Company in its sole
discretion, at the Investor's expense. Under the terms of the Securityholders'
Agreement, the certificates representing the Shares are required to bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, AND ARE SUBJECT TO THE PROVISIONS
(INCLUDING THE RESTRICTIONS ON TRANSFER) SET FORTH IN THAT CERTAIN
SECURITYHOLDERS' AGREEMENT DATED AS OF DECEMBER 31, 1996 AMONG DOMAIN
ENERGY CORPORATION (THE "COMPANY"), FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP AND THE INDIVIDUALS AND TRUSTS SIGNATORY THERETO, AS SUCH
AGREEMENT MAY BE AMENDED (AS AMENDED, IF AMENDED, THE "SECURITYHOLDERS'
AGREEMENT"), A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT (AND THE HOLDER OF
THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES THAT SUCH
SECURITIES MAY NOT AND WILL NOT) BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE
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DISPOSED OF (1) EXCEPT IN COMPLIANCE WITH THE SECURITYHOLDERS' AGREEMENT
AND (2) EXCEPT AS OTHERWISE PROVIDED IN THE SECURITYHOLDERS' AGREEMENT,
UNLESS AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL FOR THE
HOLDER SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED. ADDITIONALLY, IF THE HOLDER IS A CITIZEN OR
RESIDENT OF ANY COUNTRY OTHER THAN THE UNITED STATES, OR THE HOLDER
DESIRES TO EFFECT ANY SUCH TRANSACTION IN ANY SUCH COUNTRY, THE COMPANY
MUST BE FURNISHED WITH A SATISFACTORY OPINION OR OTHER ADVICE OF COUNSEL
FOR THE HOLDER THAT SUCH TRANSACTION WILL NOT VIOLATE THE LAWS OF SUCH
COUNTRY."
The Investor has read and understands the restrictions on transfer set forth in
such legend and in the Securityholders' Agreement and agrees to comply with all
such restrictions.
(11) FURTHER ACTIONS. The Investor shall, at the Company's expense,
take all further actions necessary to facilitate the issuance of the Investor
Shares to the Investor under an appropriate exemption from registration under
the Securities Act and applicable Blue Sky Laws, including without limitation
providing the Company with such information as the Company may require to
complete a Form D and any related or similar forms or applications required
under the Securities Act or applicable Blue Sky Laws.
(12) AUTHORIZATION; LEGAL COMPETENCE. The Investor has full power
and authority to execute this Investment Agreement and to invest in the Investor
Shares, and this Investment Agreement constitutes the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms.
(13) ACCREDITED INVESTOR; BLUE SKY LAWS. The Investor is an
"accredited investor" as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended. The Investor
understands that no commissioners of securities or equivalent officials of any
state have made any finding or determination relating to the fairness of an
investment in the Shares and that no such person has recommended or endorsed the
Shares. The Investor is a "sophisticated investor" as such term is defined by
the Texas Blue Sky Regulations relating to limited offering exemptions, in that
the purchase of the Investor Shares by the Investor does not exceed 20% of the
Investor's net worth
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on the date hereof, and the Investor has knowledge of finance, securities and
investments, generally.
This Amended and Restated Management Investor Subscription Agreement
amends, supersedes and restates in its entirety the Management Investor
Subscription Agreement by the Investor for the benefit of the Company dated as
of December 31, 1996. The provisions hereof shall inure to the benefit of the
Company, its successors and assigns and shall be binding upon the Investor, its
legal representatives, successors and assigns.
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IN WITNESS WHEREOF, the Investor has executed, or duly authorized
and caused the execution of, this Investment Agreement on February 13, 1997, to
be effective for all purposes as of December 31, 1996.
INVESTOR
/s/MICHAEL V. RONCA
MICHAEL V. RONCA
Acknowledged and Accepted on February 13, 1997, to be effective for all
purposes as of December 31, 1996:
DOMAIN ENERGY CORPORATION
By:/s/ RICK G. LESTER
Rick G. Lester
Vice President and Chief Financial Officer
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Management Investor Subscription Agreement
EXHIBIT A
PROMISSORY NOTE
$249,200.00 Houston, Texas
February __, 1997
FOR VALUE RECEIVED, the undersigned, Michael V. Ronca (the
"Executive"), hereby unconditionally promises to pay to the order of Domain
Energy Corporation, a Delaware corporation (the "Company") at its offices, in
lawful money of the United States of America, the principal amount of TWO
HUNDRED FORTY-NINE THOUSAND, TWO HUNDRED DOLLARS ($249,200.00). The principal
amount shall be paid on the earliest to occur of (i) if there has occurred a
Qualified Public Offering (as such term is defined in the Securityholders
Agreement (the "Securityholders Agreement") dated as of December 31, 1996 by and
among the Company, the Executive and the individuals and trusts party thereto),
the Executive's termination of employment by the Company for Cause or without
Good Reason by the Executive, (ii) if there has occurred a Qualified Public
Offering, one year after the Executive's termination of employment without Cause
by the Company or with Good Reason by the Executive, (iii) the disposition of
any of the Investor Shares (as such term is defined in the Management Investor
Subscription Agreement referred to below) by the Executive, provided, that the
Executive shall be required only to pay that amount of the principal amount
which is equal to the proceeds received from any such disposition (with any
outstanding unpaid principal remaining subject to this sentence) and (iv)
December 31, 2003 (the "Maturity Date"). The Executive further agrees to pay
interest in like money at such office on the unpaid principal amount hereof from
time to time outstanding at an interest rate equal to 8% on (x) June 30 and
December 31 of each year (each such date, a "Interim Interest Payment Date"),
(y) the Maturity Date and (z) with respect to the amount of any optional
repayment, on the date of any such optional repayment; provided, however, that
with respect to interest payments due pursuant to clause (x) above, on written
notice given to Company not less than 15 days prior to any Interim Interest
Payment Date the Executive may elect to satisfy his or her interest payment
obligations by increasing the principal amount of this note by the amount of
such interest due. Such an election shall apply to all interest payments due on
all future Interim Interest Payment Dates until revoked. "Cause" shall mean,
except as otherwise provided in an employment agreement between the Company and
the Executive, (i) the commission of an act of fraud or embezzlement or other
willful misconduct against the Company or its affiliates (including the
unauthorized disclosure of confidential or proprietary
<PAGE>
information of the Company or any of its subsidiaries which results in material
financial loss to the Company or any of its affiliates), (ii) the commission by
the Executive of a felony, or (iii) the willful failure to render services to
the Company or any of its affiliates in accordance with his or her employment
which failure amounts to a material neglect of duties to the Company or any of
its affiliates; and "Good Reason" shall mean, except as otherwise provided in an
employment agreement between the Company and the Executive, (x) any material
reduction by the Company of the Executive's authority, duties or
responsibilities (except in connection with the termination of the Executive's
employment for Cause, as a result of Permanent Disability, as such term is
defined below, or as a result of the Executive's death or Retirement, as such
term is defined below), (y) any reduction by the Company in the Executive's base
salary or (z) the Company's moving the Executive's place of employment outside
the Houston, Texas metropolitan area. Notwithstanding the immediately preceding
sentence, the definitions in any employment agreement in effect on the date
hereof between the Company and the Executive of "Cause" and "Good Reason" shall
supersede and replace the definitions of "Cause" and "Good Reason" in the
immediately preceding sentence and shall be deemed incorporated by reference in
this Note in their entirety.
The following shall constitute "Events of Default" under the terms
of this Note:
(i) default in payment when due and payable, upon acceleration
or otherwise, of principal of this Note;
(ii) default for five (5) days or more in the payment when due
of interest on the Note.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
For purposes of this Note, the Executive shall be deemed to have a
"Permanent Disability" if the Executive is unable to engage in the activities
required by the Executive's job by reason of any medically determined physical
or mental impairment which can be expected to result in death or which can be
expected to last for a continuous period of not less than 12 months.
For purposes of this Note, "Retirement" shall mean the voluntary
termination of employment by the Executive at age 62 or older (or such other age
as may be approved by the Board of Directors of the Company) after having been
employed by the Company for at least three years after the date hereof.
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This Note is subject to optional prepayment in whole or in part at
any time. Reference is hereby made to the Pledge Agreement for a description of
the properties and assets in which a security interest has been granted.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable by the Company.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Management Investor Subscription
Agreement dated as of February __, 1997 between the Company and the Executive
(the "Management Investor Subscription Agreement").
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
MICHAEL V. RONCA
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Management Investor Subscription Agreement
EXHIBIT B
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of February __, 1997, made by Michael V.
Ronca (the "EXECUTIVE") in favor of Domain Energy Corporation, a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has agreed to make a loan (the "Loan") to the
Executive for the acquisition of Investor Shares (as defined in the Management
Investor Subscription Agreement of even date herewith between the Company and
the Executive (the "Management Investor Subscription Agreement")), to be
evidenced by a note substantially in the form of Exhibit A to the Management
Investor Subscription Agreement (the "Note");
WHEREAS, the Executive will be the legal and beneficial owner of the
shares of Pledged Stock (as hereinafter defined) issued by the Company; and
WHEREAS, it is a condition precedent to the obligation of the Company to
make the Loan to the Executive that the Executive shall have executed and
delivered this Pledge Agreement to the Company.
NOW, THEREFORE, in consideration of the premises and to induce the Company
to make the Loan, the Executive hereby agrees with the Company, as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in
the Note or the Management Investor Subscription Agreement and used herein shall
have the meanings assigned to them in the Note and the Management Investor
Subscription Agreement, respectively.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Pledge Agreement, as the same may be amended, modified
or otherwise supplemented from time to time.
<PAGE>
"CODE": the Uniform Commercial Code from time to time in effect in the
State of New York.
"COLLATERAL": the Pledged Stock and all Proceeds.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Company.
"DEFAULT": any event that is or with the passage of time or the giving of
notice or both would be an Event of Default under the Note.
"OBLIGATIONS": the collective reference to the unpaid principal of and
interest on the Note and all other obligations and liabilities of the Executive
to the Company (including, without limitation, interest accruing at the then
applicable rate provided in the Note after the maturity of the Loan and interest
accruing at the then applicable rate provided in the Note after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Executive, whether or not a
claim for post-filing or postpetition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with the Note and this Agreement or any other document made, delivered or given
in connection therewith, in each case whether on account of principal, interest,
costs, expenses or otherwise.
"PERSON": any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PLEDGED STOCK": the shares of capital stock listed on SCHEDULE 1 hereto,
together with all stock certificates received upon exercise of any such options
or rights of any nature whatsoever that may be issued or granted by the Company
to the Executive while this Agreement is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(l) of
the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Stock, collections thereon or distributions with
respect thereto.
"SECURITIES ACT": the Securities Act of 1933, as amended.
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(a) 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 to any particular provision of this Agreement, and section and
paragraph references are to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Executive hereby delivers to
the Company all the Pledged Stock and hereby grants to the Company a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Company of each
certificate representing one or more shares of Pledged Stock to the Company, the
Executive shall deliver an undated stock power covering such certificate, duly
executed in blank by the Executive with, if the Company so requests, signature
guaranteed.
4. COVENANTS. The Executive covenants and agrees with the Company that,
from and after the date of this Agreement until this Agreement is terminated and
the security interests created hereby are released:
(a) If the Executive shall (i) as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof or
(ii) acquire ownership of shares of Common Stock upon the exercise of stock
options, the Executive shall accept the same as the agent of the Company, hold
the same in trust for the Company, and deliver the same forthwith to the Company
in the exact form received, duly endorsed by the Executive to the Company, if
required, together with an undated stock power covering such certificate duly
executed in blank by the Executive and with, if the Company so requests,
signature guaranteed, to be held by the Company, subject to the terms hereof, as
additional collateral security for the Obligations.
(b) Without the prior written consent of the Company, the Executive
will not (1) sell, assign, transfer, exchange, or otherwise dispose of, or
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grant any option with respect to, the Collateral, (2) create, incur or permit to
exist any lien or option in favor of, or any claim of any Person with respect
to, any of the Collateral, or any interest therein, except for the security
interests created by this Agreement or (3) enter into any agreement or
undertaking restricting the right or ability of the Executive or the Company to
sell, assign or transfer any of the Collateral.
(c) The Executive shall maintain the security interest created by
this Agreement as a first, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Company, and at the
sole expense of the Executive, the Executive will promptly and duly execute and
deliver such further instruments and documents and take such further actions as
the Company may reasonably request for the purposes of obtaining or preserving
the full benefits of this Agreement and of the rights and powers herein granted.
If any amount payable under or in connection with any of the Collateral shall be
or become evidenced by any promissory note, other instrument or chattel paper,
such note, instrument or chattel paper shall be immediately delivered to the
Company, duly endorsed in a manner satisfactory to the Company, to be held as
Collateral pursuant to this Agreement.
(d) The Executive shall pay, and save the Company harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined
to be payable with respect to any of the Collateral or in connection with any of
the transactions contemplated by this Agreement.
5. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall have
occurred and be continuing and the Company shall have given notice to the
Executive of the Company's intent to exercise its corresponding rights pursuant
to Section 6 below, the Executive shall be permitted to receive all cash
dividends paid in respect of the Pledged Stock and to exercise all voting and
corporate rights with respect to the Pledged Stock.
6. RIGHTS OF THE COMPANY. If an Event of Default shall occur and be
continuing and the Company shall give notice of its intent to exercise such
rights to the Executive the Company shall have the right to receive any and all
cash dividends paid in respect of the Pledged Stock and make application thereof
to the Obligations in such order as the Company may determine.
7. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Company's election, the Company may apply all or
any
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<PAGE>
part of Proceeds held in any Collateral Account in payment of the Obligations in
such order as the Company may elect.
(b) If an Event of Default shall have occurred and be continuing,
the Company may exercise, in addition to all other rights and remedies granted
in this Agreement and in any other instrument or agreement securing, evidencing
or relating to the obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, the Company, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Executive or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of Company or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Company shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in the
Executive, which right or equity is hereby waived or released. The Company shall
apply any Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Company hereunder,
including, without limitation, reasonable attorneys' fees and disbursements of
counsel to the Company, to the payment in whole or in part of the Obligations,
in such order as the Company may elect, and only after such application and
after the payment by the Company of any other amount required by any provision
of law, including, without limitation, Section 9-504(l)(c) of the Code, need the
Company account for the surplus, if any, to the Executive. To the extent
permitted by applicable law, the Executive waives all claims, damages and
demands it may acquire against the Company arising out of the exercise by it of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition. The
Executive shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Company to collect such
deficiency.
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8. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
Code, the Executive authorizes the Company to file financing statements with
respect to the Collateral without the signature of the Executive in such form
and in such filing offices as the Company reasonably determines appropriate to
perfect the security interests of the Company under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
9. NOTICES. All notices, requests and demands to or upon the Company or
the Executive to be effective shall be in writing (or by telex, facsimile or
similar electronic transfer confirmed in writing) and shall be deemed to have
been duly given or made (1) when delivered by hand or (2) if given by mail, when
deposited in the mails by certified mail, return receipt requested, or (3) if by
telex, facsimile or similar electronic transfer, when sent and receipt has been
confirmed, addressed to the Company or the Executive at its address or
transmission number for notices provided on the signature page hereto. The
Company and the Executive may change their addresses and transmission numbers
for notices by notice in the manner provided in this Section 9.
10. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Executive and
the Company, PROVIDED that any provision of this Agreement may be waived by the
Company in a letter or agreement executed by the Company or by telex or
facsimile transmission from the Company.
(b) The Company shall not by any act (except by a written instrument
pursuant to paragraph 11(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default ot Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Company, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Company of any right or
remedy hereunder on
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any one occasion shall not be construed as a bar to any right or remedy which
the Company would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
12. SECTION HEADINGS. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Executive and shall inure to the benefit of the
Company and their successors and assigns.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
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IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.
By:
Spouse:
Address for Notices:
17318 Chagal Lane
Spring, Texas 77379
Fax: (____) ____-______
Accepted this ____ day of February, 1997
DOMAIN ENERGY CORPORATION
By:
Rick G. Lester
Vice President and Chief Financial Officer
Address for Notice:
Domain Energy Corporation
P.O. Box 2511
Houston, Texas 77252-2511
Fax: (713) 757-8314
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SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
1. Stock Certificate No. 0002, representing 237.9868 shares of Common Stock,
par value $.01 per share, of Domain Energy Corporation.
EXHIBIT 10.6
MANAGEMENT INVESTOR SUBSCRIPTION AGREEMENT
This Management Investor Subscription Agreement (this "Investment
Agreement") dated as of February 21, 1997 is made by Herbert A. Newhouse (the
"Investor") for the benefit of Domain Energy Corporation, a Delaware corporation
(the "Company").
R E C I T A L S
WHEREAS, El Paso Tennessee Pipeline Co. (formerly named Tenneco
Inc.) ("Tenneco"), El Paso Natural Gas Company ("El Paso") and El Paso Merger
Company, an indirect wholly-owned subsidiary of El Paso ("Merger Company"),
entered into that certain Amended and Restated Agreement and Plan of Merger
dated as of June 19, 1996 pursuant to which, effective December 12, 1996, Merger
Company merged with and into Tenneco, resulting in Tenneco becoming an indirect,
wholly-owned subsidiary of El Paso;
WHEREAS, the Company has been incorporated at the direction of
Michael V. Ronca, President and Chief Executive Officer of Tenneco Ventures
Corporation, an indirect, wholly-owned subsidiary of Tenneco ("Tenneco
Ventures"), and First Reserve Fund VII, Limited Partnership ("Fund VII");
WHEREAS, by assignment from Teleo Ventures, Inc., all of the
outstanding capital stock of which is owned by Michael V. Ronca, the Company is
a party to a Stock Purchase Agreement, dated as of December 24, 1996 (the "Stock
Purchase Agreement") with El Paso pursuant to which the Company agreed to
purchase from El Paso all of the outstanding capital stock of Tenneco Ventures
and Tenneco Gas Production Corporation (the "Ventures Companies Acquisition");
WHEREAS, to provide funds for the Ventures Companies Acquisition,
pursuant to a Subscription Agreement dated as of December 31, 1996 (the "First
Reserve Subscription Agreement"), between the Company and Fund VII, Fund VII
agreed to purchase and did purchase from the Company, and the Company agreed to
issue and sell and did issue and sell to Fund VII, an aggregate of 9,519.4717
shares (the "First Reserve Shares") of Common Stock of the Company, par value
$.01 per share ("Common Stock") at a purchase price of $3,151.4354 per share;
WHEREAS, pursuant to an Amended and Restated Management Investor
Subscription Agreement dated as of February 12, 1997 between the Company and
Michael V. Ronca, Mr. Ronca agreed to purchase from the Company, and the
<PAGE>
Company agreed to issue and sell to Mr. Ronca, an aggregate of 237.9868 shares
of Common Stock at a purchase price of $3,151.4354 per share (the "Ronca
Shares");
WHEREAS, the Ventures Companies Acquisition was consummated on
December 31, 1996;
WHEREAS, all securityholders of the Company are required to execute
and deliver the Securityholders' Agreement among the Company and its
securityholders dated as of December 31, 1996 (the "Securityholders' Agreement")
and to be bound thereby, a copy of which Securityholders' Agreement is attached
to the Domain Energy Corporation Private Placement Memorandum dated February 13,
1997 relating to the offering of the Management Investors' Shares (as defined
below) (the "Memorandum") as Exhibit B thereto;
WHEREAS, pursuant to the Memorandum and separate Management Investor
Subscription Agreements (collectively, the "Management Investors Subscription
Agreements"), each of Herbert A. Newhouse, Catherine L. Sliva, Rick G. Lester,
Douglas H. Woodul, Steven M. Curran, Dean R. Bouillion and Lucynda S. Herrin
(each of such persons individually a "Management Investor" and, collectively,
the "Management Investors") will be permitted to purchase from the Company, and
the Company will be authorized to issue and sell to the Management Investors, an
aggregate of 279.6674 shares (the "Management Investors' Shares" and,
collectively with the First Reserve Shares and the Ronca Shares, the "Shares")
of Common Stock;
WHEREAS, in reliance on exemptions from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and from applicable state securities laws (the "Blue Sky Laws"), the Shares were
offered, issued and sold to Fund VII and, in the case of Mr. Ronca and the
Management Investors will be offered, sold and issued to Mr. Ronca and the
Management Investors pursuant to the Memorandum, without registration under the
Securities Act or applicable Blue Sky Laws; and
WHEREAS, the Investor recognizes that there are conditions to and
requirements of exemptions applicable to any issuance of securities;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows.
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ARTICLE I.
SUBSCRIPTION
Section 1.1. SUBSCRIPTION FOR SHARES. Subject to the terms and
provisions of this Investment Agreement, the Investor hereby irrevocably
subscribes for and agrees to purchase 79.3289 Shares (the "Investor Shares") at
$3,151.4354 per Share. The aggregate subscription price (the "Subscription
Price") shall be payable in cash, or in part in cash and in part by the delivery
by the Investor to the Company of a promissory note in the form of that attached
hereto as Exhibit A (the "Note") and a Pledge Agreement pledging the Investor
Shares and other equity securities issued by the Company, in the form of that
attached hereto as Exhibit B (the "Pledge Agreement"). The Subscription Price
will be paid and, if applicable, the Note and Pledge Agreement delivered upon
execution hereof by the Investor and acceptance hereof by the Company. Upon
payment of the Subscription Price and, if applicable, delivery of the Note and
Pledge Agreement, and upon execution of the Securityholders Agreement by the
Investor and his or her spouse, if applicable, the Company will issue the
Investor Shares, to be pledged by the Investor to secure the Note, if
applicable.
Section 1.2. INDEMNIFICATION. The Investor understands and
acknowledges the meaning and legal consequences of the representations,
warranties and agreements made by the Investor in this Investment Agreement and
that the Company has relied upon such representations, warranties and
agreements, and the Investor hereby agrees to indemnify and hold harmless the
Company, and all directors, officers, employees, stockholders, agents and
representatives thereof, from and against any and all claims, demands, losses,
damages, expenses or liabilities (including without limitation attorneys' fees)
due to or arising out of a breach of any such representations, warranties or
agreements. Notwithstanding the foregoing, however, no representation, warranty
or agreement made herein by the Investor shall in any manner be deemed to
constitute a waiver of any rights available to the Investor under federal or
state securities laws.
ARTICLE II.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Investor, by executing this Investment Agreement, acknowledges, covenants,
agrees, represents and warrants that:
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(a) NO ASSURANCE OF PROFITS. The Investor recognizes that no
assurances of profits, ability to repay debt, cash distributions or capital
appreciation have been made or can be made regarding the Company.
(b) INVESTMENT FOR OWN ACCOUNT. The Investor Shares are being
acquired by the Investor solely for the Investor's own account, for investment
purposes only and not with a view to, and not for offer or sale in connection
with, any distribution or resale of the Investor Shares, and no one other than
the Investor has or will have any beneficial interest in the Investor Shares.
(c) ADEQUATE INFORMATION. The Company has made available and the
Investor has fully and completely reviewed the Memorandum and all such other
information that the Investor considers necessary or appropriate to evaluate the
risks and merits of an investment in the Investor Shares (including without
limitation, the Stock Purchase Agreement, the First Reserve Subscription
Agreement, the Securityholders' Agreement and the Credit Agreement). The
Investor has not distributed the Memorandum or this Investment Agreement or such
information to any person or entity other than the Investor's legal, tax and
accounting advisors, if any.
(d) OPPORTUNITY TO QUESTION. The Investor has had the opportunity to
question, and has questioned, to the extent the Investor has deemed necessary or
appropriate, representatives of the Company so as to receive answers and verify
information contained in the Memorandum or obtained in the Investor's
examination of the Company, including without limitation the information
referred to in paragraph (c) of this Section 2.1 and the Memorandum and all
other documents or information that the Investor has reviewed in relation to his
or her investment in the Investor Shares.
(e) NO OTHER REPRESENTATIONS. No oral or written representations
have been made to the Investor in connection with the Investor's acquisition of
the Investor Shares that were in any way inconsistent with the Memorandum or the
other information reviewed by the Investor.
(f) KNOWLEDGE AND EXPERIENCE. The Investor has such knowledge and
experience in financial, tax and business matters, including without limitation
substantial experience in evaluating and investing in common stock and other
securities (including without limitation the common stock and other securities
of new and speculative companies and companies engaged in oil and gas
exploration and production), so as to enable the Investor to utilize the
information referred to in paragraph (c) of this Section 2.1 and all other
information made available to the Investor in order to evaluate the risks and
merits of an investment in the Investor Shares and to make an informed
investment decision with respect thereto. In addition,
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<PAGE>
the Investor has been advised to consult with an attorney regarding legal
matters concerning the Company and to consult with a tax and/or accounting
advisor regarding the tax consequences of investing in the Company and
purchasing the Investor Shares.
(g) INDEPENDENT DECISION. The Investor is not relying on the Company
or any references to any legal or other opinion in the materials reviewed by the
Investor with respect to the tax considerations of the Investor relating to an
investment in the Investor Shares pursuant to Section 1.1 hereof. The Investor
has relied solely on its own examination and independent investigation of the
Company, the Investor Shares and Securityholders' Agreement in making its
decision to acquire the Investor Shares.
(h) FINANCIAL CONDITION. The Investor's financial condition and
income are such that (i) the Investor is under no present need to dispose of any
portion of the Investor Shares to satisfy any existing or contemplated
undertaking or indebtedness and (ii) the Investor is able to bear the economic
risk of investment in the Investor Shares, including the risk of losing the
entire investment and the risk of not being able to sell or transfer any of the
Investor Shares for an indefinite period of time. In this regard, the Investor
recognizes that the Securityholders' Agreement contains a prohibition on any
transfer of such Shares for the period described in the Memorandum.
(i) RESTRICTED SECURITIES. The Investor understands that the
Investor may be required to bear the economic risk of investment in the Investor
Shares for an indefinite period of time because the Investor Shares (i) may not,
without full compliance with the registration and prospectus delivery
requirements of the Securities Act and applicable Blue Sky Laws, be offered,
sold or delivered except in a transaction exempt from, or not subject to, the
registration and prospectus delivery requirements of the Securities Act and
applicable Blue Sky Laws and (ii) are additionally subject to all of the
prohibitions, restrictions and other limitations on transfer set forth in the
Securityholders' Agreement. The Investor understands that the Company has no
obligation to cause or permit the registration of any of the Investor Shares
under the Securities Act or any Blue Sky Laws except as set forth in the
Securityholders' Agreement.
(j) RESTRICTIONS ON RESALE OR TRANSFER. The Investor will not
transfer or pledge any or all of the Investor Shares in violation of the
Securityholders' Agreement or the Securities Act or any applicable Blue Sky Laws
and in the event that the Investor pledges any of the Investor Shares to a
person or entity other than the Company or another party to the Securityholders'
Agreement (to the extent permitted under the Securityholders' Agreement, the
Securities Act and any applicable Blue Sky
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Laws), the Investor will comply with the Securityholders' Agreement in
connection therewith, will advise the pledgee of the transfer restrictions
imposed on the Investor Shares by this Investment Agreement and will use his or
her best efforts to obtain an undertaking from such pledgee not to transfer such
Investor Shares in violation of the Securities Act or applicable Blue Sky Laws.
(k) RESTRICTIVE LEGEND. The certificates from time to time
evidencing the Investor Shares may, at the Company's sole option, bear a legend
that provides that the Investor Shares have not been registered under the
Securities Act or any applicable Blue Sky Laws and that the Investor Shares may
not be transferred unless the Company is first delivered a legal opinion,
satisfactory to the Company in its sole discretion, to the effect that such
transfer may be made without compliance with the registration and prospectus
delivery requirements of the Securities Act and applicable Blue Sky Laws. Such
legal opinion shall be given by counsel satisfactory to the Company in its sole
discretion, at the Investor's expense. Under the terms of the Securityholders'
Agreement, the certificates representing the Shares are required to bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, AND ARE SUBJECT TO THE PROVISIONS
(INCLUDING THE RESTRICTIONS ON TRANSFER) SET FORTH IN THAT CERTAIN
SECURITYHOLDERS' AGREEMENT DATED AS OF DECEMBER 31, 1996 AMONG DOMAIN
ENERGY CORPORATION (THE "COMPANY"), FIRST RESERVE FUND VII, LIMITED
PARTNERSHIP AND THE INDIVIDUALS AND TRUSTS SIGNATORY THERETO, AS SUCH
AGREEMENT MAY BE AMENDED (AS AMENDED, IF AMENDED, THE "SECURITYHOLDERS'
AGREEMENT"), A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT (AND THE HOLDER OF
THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES THAT SUCH
SECURITIES MAY NOT AND WILL NOT) BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF (1) EXCEPT IN COMPLIANCE WITH THE
SECURITYHOLDERS' AGREEMENT AND (2) EXCEPT AS OTHERWISE PROVIDED IN THE
SECURITYHOLDERS' AGREEMENT, UNLESS AND UNTIL SUCH SECURITIES ARE
REGISTERED UNDER THE SECURITIES ACT
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AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL FOR THE
HOLDER SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED. ADDITIONALLY, IF THE HOLDER IS A CITIZEN OR
RESIDENT OF ANY COUNTRY OTHER THAN THE UNITED STATES, OR THE HOLDER
DESIRES TO EFFECT ANY SUCH TRANSACTION IN ANY SUCH COUNTRY, THE COMPANY
MUST BE FURNISHED WITH A SATISFACTORY OPINION OR OTHER ADVICE OF COUNSEL
FOR THE HOLDER THAT SUCH TRANSACTION WILL NOT VIOLATE THE LAWS OF SUCH
COUNTRY."
The Investor has read and understands the restrictions on transfer set forth in
such legend and in the Securityholders' Agreement and agrees to comply with all
such restrictions.
(l) FURTHER ACTIONS. The Investor shall, at the Company's expense,
take all further actions necessary to facilitate the issuance of the Investor
Shares to the Investor under an appropriate exemption from registration under
the Securities Act and applicable Blue Sky Laws, including without limitation
providing the Company with such information as the Company may require to
complete a Form D and any related or similar forms or applications required
under the Securities Act or applicable Blue Sky Laws.
(m) AUTHORIZATION; LEGAL COMPETENCE. The Investor has full power and
authority to execute this Investment Agreement and to invest in the Investor
Shares, and this Investment Agreement constitutes the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms.
(n) NO "MERIT REVIEW". The Investor understands that no
commissioners of securities or equivalent officials of any state have made any
finding or determination relating to the fairness of an investment in the Shares
and that no such person has recommended or endorsed the Shares.
The provisions hereof shall inure to the benefit of the Company, its
successors and assigns and shall be binding upon the Investor, his or her legal
representatives, successors and assigns.
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IN WITNESS WHEREOF, the Investor has executed this Management
Investor Subscription Agreement as of February 21, 1997.
INVESTOR
/s/ HERBERT A. NEWHOUSE
HERBERT A. NEWHOUSE
Acknowledged and Accepted as of February 21, 1997:
DOMAIN ENERGY CORPORATION
By:/s/MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive Officer
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Management Investor Subscription Agreement
PROMISSORY NOTE
$87,000.00 Houston, Texas
February __, 1997
FOR VALUE RECEIVED, the undersigned, Herbert A. Newhouse (the
"Executive"), hereby unconditionally promises to pay to the order of Domain
Energy Corporation, a Delaware corporation (the "Company") at its offices, in
lawful money of the United States of America, the principal amount of
EIGHTY-SEVEN THOUSAND DOLLARS ($87,000.00). The principal amount shall be paid
on the earliest to occur of (i) if there has occurred a Qualified Public
Offering (as such term is defined in the Securityholders Agreement (the
"Securityholders Agreement") dated as of December 31, 1996 by and among the
Company, the Executive and the individuals and trusts party thereto), the
Executive's termination of employment by the Company for Cause or without Good
Reason by the Executive, (ii) if there has occurred a Qualified Public Offering,
one year after the Executive's termination of employment without Cause by the
Company or with Good Reason by the Executive, (iii) the disposition of any of
the Investor Shares (as such term is defined in the Management Investor
Subscription Agreement referred to below) by the Executive, provided, that the
Executive shall be required only to pay that amount of the principal amount
which is equal to the proceeds received from any such disposition (with any
outstanding unpaid principal remaining subject to this sentence) and (iv)
December 31, 2003 (the "Maturity Date"). The Executive further agrees to pay
interest in like money at such office on the unpaid principal amount hereof from
time to time outstanding at an interest rate equal to 8% on (x) June 30 and
December 31 of each year (each such date, a "Interim Interest Payment Date"),
(y) the Maturity Date and (z) with respect to the amount of any optional
repayment, on the date of any such optional repayment; provided, however, that
with respect to interest payments due pursuant to clause (x) above, on written
notice given to Company not less than 15 days prior to any Interim Interest
Payment Date the Executive may elect to satisfy his or her interest payment
obligations by increasing the principal amount of this note by the amount of
such interest due. Such an election shall apply to all interest payments due on
all future Interim Interest Payment Dates until revoked. "Cause" shall mean,
except as otherwise provided in an employment agreement between the Company and
the Executive, (i) the commission of an act of fraud or embezzlement or other
willful misconduct against the Company or its affiliates (including the
unauthorized disclosure of confidential or proprietary information of the
Company or any of its subsidiaries
<PAGE>
which results in material financial loss to the Company or any of its
affiliates), (ii) the commission by the Executive of a felony, or (iii) the
willful failure to render services to the Company or any of its affiliates in
accordance with his or her employment which failure amounts to a material
neglect of duties to the Company or any of its affiliates; and "Good Reason"
shall mean, except as otherwise provided in an employment agreement between the
Company and the Executive, (x) any material reduction by the Company of the
Executive's authority, duties or responsibilities (except in connection with the
termination of the Executive's employment for Cause, as a result of Permanent
Disability, as such term is defined below, or as a result of the Executive's
death or Retirement, as such term is defined below), (y) any reduction by the
Company in the Executive's base salary or (z) the Company's moving the
Executive's place of employment outside the Houston, Texas metropolitan area.
Notwithstanding the immediately preceding sentence, the definitions in any
employment agreement in effect on the date hereof between the Company and the
Executive of "Cause" and "Good Reason" shall supersede and replace the
definitions of "Cause" and "Good Reason" in the immediately preceding sentence
and shall be deemed incorporated by reference in this Note in their entirety.
The following shall constitute "Events of Default" under the terms
of this Note:
(i) default in payment when due and payable, upon acceleration
or otherwise, of principal of this Note;
(ii) default for five (5) days or more in the payment when due
of interest on the Note.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
For purposes of this Note, the Executive shall be deemed to have a
"Permanent Disability" if the Executive is unable to engage in the activities
required by the Executive's job by reason of any medically determined physical
or mental impairment which can be expected to result in death or which can be
expected to last for a continuous period of not less than 12 months.
For purposes of this Note, "Retirement" shall mean the voluntary
termination of employment by the Executive at age 62 or older (or such other age
as may be approved by the Board of Directors of the Company) after having been
employed by the Company for at least three years after the date hereof.
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This Note is subject to optional prepayment in whole or in part at
any time. Reference is hereby made to the Pledge Agreement for a description of
the properties and assets in which a security interest has been granted.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable by the Company.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Management Investor Subscription
Agreement dated as of February __, 1997 between the Company and the Executive
(the "Management Investor Subscription Agreement").
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
HERBERT A. NEWHOUSE
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Management Investor Subscription Agreement
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of February __, 1997, made by Herbert A.
Newhouse (the "EXECUTIVE") in favor of Domain Energy Corporation, a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has agreed to make a loan (the "Loan") to the
Executive for the acquisition of Investor Shares (as defined in the Management
Investor Subscription Agreement of even date herewith between the Company and
the Executive (the "Management Investor Subscription Agreement")), to be
evidenced by a note substantially in the form of Exhibit A to the Management
Investor Subscription Agreement (the "Note");
WHEREAS, the Executive will be the legal and beneficial owner of the
shares of Pledged Stock (as hereinafter defined) issued by the Company; and
WHEREAS, it is a condition precedent to the obligation of the Company to
make the Loan to the Executive that the Executive shall have executed and
delivered this Pledge Agreement to the Company.
NOW, THEREFORE, in consideration of the premises and to induce the Company
to make the Loan, the Executive hereby agrees with the Company, as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in
the Note or the Management Investor Subscription Agreement and used herein shall
have the meanings assigned to them in the Note and the Management Investor
Subscription Agreement, respectively.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Pledge Agreement, as the same may be amended, modified
or otherwise supplemented from time to time.
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"CODE": the Uniform Commercial Code from time to time in effect in the
State of New York.
"COLLATERAL": the Pledged Stock and all Proceeds.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Company.
"DEFAULT": any event that is or with the passage of time or the giving of
notice or both would be an Event of Default under the Note.
"OBLIGATIONS": the collective reference to the unpaid principal of and
interest on the Note and all other obligations and liabilities of the Executive
to the Company (including, without limitation, interest accruing at the then
applicable rate provided in the Note after the maturity of the Loan and interest
accruing at the then applicable rate provided in the Note after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Executive, whether or not a
claim for post-filing or postpetition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with the Note and this Agreement or any other document made, delivered or given
in connection therewith, in each case whether on account of principal, interest,
costs, expenses or otherwise.
"PERSON": any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PLEDGED STOCK": the shares of capital stock listed on SCHEDULE 1 hereto,
together with all stock certificates received upon exercise of any such options
or rights of any nature whatsoever that may be issued or granted by the Company
to the Executive while this Agreement is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(l) of
the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Stock, collections thereon or distributions with
respect thereto.
"SECURITIES ACT": the Securities Act of 1933, as amended.
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(a) 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 to any particular provision of this Agreement, and section and
paragraph references are to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Executive hereby delivers to
the Company all the Pledged Stock and hereby grants to the Company a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Company of each
certificate representing one or more shares of Pledged Stock to the Company, the
Executive shall deliver an undated stock power covering such certificate, duly
executed in blank by the Executive with, if the Company so requests, signature
guaranteed.
4. COVENANTS. The Executive covenants and agrees with the Company that,
from and after the date of this Agreement until this Agreement is terminated and
the security interests created hereby are released:
(a) If the Executive shall (i) as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof or
(ii) acquire ownership of shares of Common Stock upon the exercise of stock
options, the Executive shall accept the same as the agent of the Company, hold
the same in trust for the Company, and deliver the same forthwith to the Company
in the exact form received, duly endorsed by the Executive to the Company, if
required, together with an undated stock power covering such certificate duly
executed in blank by the Executive and with, if the Company so requests,
signature guaranteed, to be held by the Company, subject to the terms hereof, as
additional collateral security for the Obligations.
(b) Without the prior written consent of the Company, the Executive
will not (1) sell, assign, transfer, exchange, or otherwise dispose of, or
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grant any option with respect to, the Collateral, (2) create, incur or permit to
exist any lien or option in favor of, or any claim of any Person with respect
to, any of the Collateral, or any interest therein, except for the security
interests created by this Agreement or (3) enter into any agreement or
undertaking restricting the right or ability of the Executive or the Company to
sell, assign or transfer any of the Collateral.
(c) The Executive shall maintain the security interest created by
this Agreement as a first, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Company, and at the
sole expense of the Executive, the Executive will promptly and duly execute and
deliver such further instruments and documents and take such further actions as
the Company may reasonably request for the purposes of obtaining or preserving
the full benefits of this Agreement and of the rights and powers herein granted.
If any amount payable under or in connection with any of the Collateral shall be
or become evidenced by any promissory note, other instrument or chattel paper,
such note, instrument or chattel paper shall be immediately delivered to the
Company, duly endorsed in a manner satisfactory to the Company, to be held as
Collateral pursuant to this Agreement.
(d) The Executive shall pay, and save the Company harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined
to be payable with respect to any of the Collateral or in connection with any of
the transactions contemplated by this Agreement.
5. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall have
occurred and be continuing and the Company shall have given notice to the
Executive of the Company's intent to exercise its corresponding rights pursuant
to Section 6 below, the Executive shall be permitted to receive all cash
dividends paid in respect of the Pledged Stock and to exercise all voting and
corporate rights with respect to the Pledged Stock.
6. RIGHTS OF THE COMPANY. If an Event of Default shall occur and be
continuing and the Company shall give notice of its intent to exercise such
rights to the Executive the Company shall have the right to receive any and all
cash dividends paid in respect of the Pledged Stock and make application thereof
to the Obligations in such order as the Company may determine.
7. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Company's election, the Company may apply all or
any
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part of Proceeds held in any Collateral Account in payment of the Obligations in
such order as the Company may elect.
(b) If an Event of Default shall have occurred and be continuing,
the Company may exercise, in addition to all other rights and remedies granted
in this Agreement and in any other instrument or agreement securing, evidencing
or relating to the obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, the Company, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Executive or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of Company or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Company shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in the
Executive, which right or equity is hereby waived or released. The Company shall
apply any Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Company hereunder,
including, without limitation, reasonable attorneys' fees and disbursements of
counsel to the Company, to the payment in whole or in part of the Obligations,
in such order as the Company may elect, and only after such application and
after the payment by the Company of any other amount required by any provision
of law, including, without limitation, Section 9-504(l)(c) of the Code, need the
Company account for the surplus, if any, to the Executive. To the extent
permitted by applicable law, the Executive waives all claims, damages and
demands it may acquire against the Company arising out of the exercise by it of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition. The
Executive shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Company to collect such
deficiency.
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8. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
Code, the Executive authorizes the Company to file financing statements with
respect to the Collateral without the signature of the Executive in such form
and in such filing offices as the Company reasonably determines appropriate to
perfect the security interests of the Company under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
9. NOTICES. All notices, requests and demands to or upon the Company or
the Executive to be effective shall be in writing (or by telex, facsimile or
similar electronic transfer confirmed in writing) and shall be deemed to have
been duly given or made (1) when delivered by hand or (2) if given by mail, when
deposited in the mails by certified mail, return receipt requested, or (3) if by
telex, facsimile or similar electronic transfer, when sent and receipt has been
confirmed, addressed to the Company or the Executive at its address or
transmission number for notices provided on the signature page hereto. The
Company and the Executive may change their addresses and transmission numbers
for notices by notice in the manner provided in this Section 9.
10. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Executive and
the Company, PROVIDED that any provision of this Agreement may be waived by the
Company in a letter or agreement executed by the Company or by telex or
facsimile transmission from the Company.
(b) The Company shall not by any act (except by a written instrument
pursuant to paragraph 11(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default ot Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Company, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Company of any right or
remedy hereunder on
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any one occasion shall not be construed as a bar to any right or remedy which
the Company would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
12. SECTION HEADINGS. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Executive and shall inure to the benefit of the
Company and their successors and assigns.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
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IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.
By:
Spouse:
Address for Notices:
5510 Havenwoods
Houston, Texas 77066
Fax: (____) ____-______
Accepted this ____ day of February, 1997
DOMAIN ENERGY CORPORATION
By:
Michael V. Ronca
President and Chief Executive Officer
Address for Notices:
Domain Energy Corporation
P.O. Box 2511
Houston, Texas 77252-2511
Fax: (713) 757-8314
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SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
1. Stock Certificate No. 0003, representing 79.3289 shares of Common Stock,
par value $.01 per share, of Domain Energy Corporation.
EXHIBIT 10.7
PROMISSORY NOTE
$249,200.00 Houston, Texas
February 21, 1997
FOR VALUE RECEIVED, the undersigned, Michael V. Ronca (the
"Executive"), hereby unconditionally promises to pay to the order of Domain
Energy Corporation, a Delaware corporation (the "Company") at its offices, in
lawful money of the United States of America, the principal amount of TWO
HUNDRED FORTY-NINE THOUSAND, TWO HUNDRED DOLLARS ($249,200.00). The principal
amount shall be paid on the earliest to occur of (i) if there has occurred a
Qualified Public Offering (as such term is defined in the Securityholders
Agreement (the "Securityholders Agreement") dated as of December 31, 1996 by and
among the Company, the Executive and the individuals and trusts party thereto),
the Executive's termination of employment by the Company for Cause or without
Good Reason by the Executive, (ii) if there has occurred a Qualified Public
Offering, one year after the Executive's termination of employment without Cause
by the Company or with Good Reason by the Executive, (iii) the disposition of
any of the Investor Shares (as such term is defined in the Management Investor
Subscription Agreement referred to below) by the Executive, provided, that the
Executive shall be required only to pay that amount of the principal amount
which is equal to the proceeds received from any such disposition (with any
outstanding unpaid principal remaining subject to this sentence) and (iv)
December 31, 2003 (the "Maturity Date"). The Executive further agrees to pay
interest in like money at such office on the unpaid principal amount hereof from
time to time outstanding at an interest rate equal to 8% per annum on (x) June
30 and December 31 of each year (each such date, a "Interim Interest Payment
Date"), (y) the Maturity Date and (z) with respect to the amount of any optional
repayment, on the date of any such optional repayment; provided, however, that
with respect to interest payments due pursuant to clause (x) above, on written
notice given to Company not less than 15 days prior to any Interim Interest
Payment Date the Executive may elect to satisfy his or her interest payment
obligations by increasing the principal amount of this note by the amount of
such interest due. Such an election shall apply to all interest payments due on
all future Interim Interest Payment Dates until revoked. "Cause" shall mean,
except as otherwise provided in an employment agreement between the Company and
the Executive, (i) the commission of an act of fraud or embezzlement or other
willful misconduct against the Company or its affiliates (including the
unauthorized disclosure of confidential or proprietary information of the
Company or any of its subsidiaries which results in material
<PAGE>
financial loss to the Company or any of its affiliates), (ii) the commission by
the Executive of a felony, or (iii) the willful failure to render services to
the Company or any of its affiliates in accordance with his or her employment
which failure amounts to a material neglect of duties to the Company or any of
its affiliates; and "Good Reason" shall mean, except as otherwise provided in an
employment agreement between the Company and the Executive, (x) any material
reduction by the Company of the Executive's authority, duties or
responsibilities (except in connection with the termination of the Executive's
employment for Cause, as a result of Permanent Disability, as such term is
defined below, or as a result of the Executive's death or Retirement, as such
term is defined below), (y) any reduction by the Company in the Executive's base
salary or (z) the Company's moving the Executive's place of employment outside
the Houston, Texas metropolitan area. Notwithstanding the immediately preceding
sentence, the definitions in any employment agreement in effect on the date
hereof between the Company and the Executive of "Cause" and "Good Reason" shall
supersede and replace the definitions of "Cause" and "Good Reason" in the
immediately preceding sentence and shall be deemed incorporated by reference in
this Note in their entirety.
The following shall constitute "Events of Default" under the terms
of this Note:
(i) default in payment when due and payable, upon acceleration
or otherwise, of principal of this Note;
(ii) default for five (5) days or more in the payment when due
of interest on the Note.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
For purposes of this Note, the Executive shall be deemed to have a
"Permanent Disability" if the Executive is unable to engage in the activities
required by the Executive's job by reason of any medically determined physical
or mental impairment which can be expected to result in death or which can be
expected to last for a continuous period of not less than 12 months.
For purposes of this Note, "Retirement" shall mean the voluntary
termination of employment by the Executive at age 62 or older (or such other age
as may be approved by the Board of Directors of the Company) after having been
employed by the Company for at least three years after the date hereof.
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This Note is subject to optional prepayment in whole or in part at
any time. Reference is hereby made to the Pledge Agreement for a description of
the properties and assets in which a security interest has been granted.
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable by the Company.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Amended and Restated Management Investor
Subscription Agreement effective as of December 31, 1996 between the Company and
the Executive (the "Management Investor Subscription Agreement").
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
/s/ MICHAEL V. RONCA
MICHAEL V. RONCA
3
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of February 21, 1997, made by Michael V.
Ronca (the "EXECUTIVE") in favor of Domain Energy Corporation, a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has agreed to make a loan (the "Loan") to the
Executive for the acquisition of Investor Shares (as defined in the Management
Investor Subscription Agreement of even date herewith between the Company and
the Executive (the "Management Investor Subscription Agreement")), to be
evidenced by a note substantially in the form of Exhibit A to the Management
Investor Subscription Agreement (the "Note");
WHEREAS, the Executive will be the legal and beneficial owner of the
shares of Pledged Stock (as hereinafter defined) issued by the Company; and
WHEREAS, it is a condition precedent to the obligation of the Company to
make the Loan to the Executive that the Executive shall have executed and
delivered this Pledge Agreement to the Company.
NOW, THEREFORE, in consideration of the premises and to induce the Company
to make the Loan, the Executive hereby agrees with the Company, as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in
the Note or the Management Investor Subscription Agreement and used herein shall
have the meanings assigned to them in the Note and the Management Investor
Subscription Agreement, respectively.
(b) The following terms shall have the following meanings:
"AGREEMENT": this Pledge Agreement, as the same may be amended, modified
or otherwise supplemented from time to time.
"CODE": the Uniform Commercial Code from time to time in effect in the
State of New York.
<PAGE>
"COLLATERAL": the Pledged Stock and all Proceeds.
"COLLATERAL ACCOUNT": any account established to hold money Proceeds,
maintained under the sole dominion and control of the Company.
"DEFAULT": any event that is or with the passage of time or the giving of
notice or both would be an Event of Default under the Note.
"OBLIGATIONS": the collective reference to the unpaid principal of and
interest on the Note and all other obligations and liabilities of the Executive
to the Company (including, without limitation, interest accruing at the then
applicable rate provided in the Note after the maturity of the Loan and interest
accruing at the then applicable rate provided in the Note after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Executive, whether or not a
claim for post-filing or postpetition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with the Note and this Agreement or any other document made, delivered or given
in connection therewith, in each case whether on account of principal, interest,
costs, expenses or otherwise.
"PERSON": any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PLEDGED STOCK": the shares of capital stock listed on SCHEDULE 1 hereto,
together with all stock certificates received upon exercise of any such options
or rights of any nature whatsoever that may be issued or granted by the Company
to the Executive while this Agreement is in effect.
"PROCEEDS": all "proceeds" as such term is defined in Section 9-306(l) of
the Uniform Commercial Code in effect in the State of New York on the date
hereof and, in any event, shall include, without limitation, all dividends or
other income from the Pledged Stock, collections thereon or distributions with
respect thereto.
"SECURITIES ACT": the Securities Act of 1933, as amended.
(a) 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 to any particular provision of this Agreement, and section and
paragraph references are to this Agreement unless otherwise specified.
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(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Executive hereby delivers to
the Company all the Pledged Stock and hereby grants to the Company a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. STOCK POWERS. Concurrently with the delivery to the Company of each
certificate representing one or more shares of Pledged Stock to the Company, the
Executive shall deliver an undated stock power covering such certificate, duly
executed in blank by the Executive with, if the Company so requests, signature
guaranteed.
4. COVENANTS. The Executive covenants and agrees with the Company that,
from and after the date of this Agreement until this Agreement is terminated and
the security interests created hereby are released:
(a) If the Executive shall (i) as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect thereof or
(ii) acquire ownership of shares of Common Stock upon the exercise of stock
options, the Executive shall accept the same as the agent of the Company, hold
the same in trust for the Company, and deliver the same forthwith to the Company
in the exact form received, duly endorsed by the Executive to the Company, if
required, together with an undated stock power covering such certificate duly
executed in blank by the Executive and with, if the Company so requests,
signature guaranteed, to be held by the Company, subject to the terms hereof, as
additional collateral security for the Obligations.
(b) Without the prior written consent of the Company, the Executive
will not (1) sell, assign, transfer, exchange, or otherwise dispose of, or grant
any option with respect to, the Collateral, (2) create, incur or permit to exist
any lien or option in favor of, or any claim of any Person with respect to, any
of the Collateral, or any interest therein, except for the security interests
created by this Agreement or (3) enter into any agreement or undertaking
restricting the right or
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ability of the Executive or the Company to sell, assign or transfer any of the
Collateral.
(c) The Executive shall maintain the security interest created by
this Agreement as a first, perfected security interest and shall defend such
security interest against claims and demands of all Persons whomsoever. At any
time and from time to time, upon the written request of the Company, and at the
sole expense of the Executive, the Executive will promptly and duly execute and
deliver such further instruments and documents and take such further actions as
the Company may reasonably request for the purposes of obtaining or preserving
the full benefits of this Agreement and of the rights and powers herein granted.
If any amount payable under or in connection with any of the Collateral shall be
or become evidenced by any promissory note, other instrument or chattel paper,
such note, instrument or chattel paper shall be immediately delivered to the
Company, duly endorsed in a manner satisfactory to the Company, to be held as
Collateral pursuant to this Agreement.
(d) The Executive shall pay, and save the Company harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined
to be payable with respect to any of the Collateral or in connection with any of
the transactions contemplated by this Agreement.
5. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default shall have
occurred and be continuing and the Company shall have given notice to the
Executive of the Company's intent to exercise its corresponding rights pursuant
to Section 6 below, the Executive shall be permitted to receive all cash
dividends paid in respect of the Pledged Stock and to exercise all voting and
corporate rights with respect to the Pledged Stock.
6. RIGHTS OF THE COMPANY. If an Event of Default shall occur and be
continuing and the Company shall give notice of its intent to exercise such
rights to the Executive the Company shall have the right to receive any and all
cash dividends paid in respect of the Pledged Stock and make application thereof
to the Obligations in such order as the Company may determine.
7. REMEDIES. (a) If an Event of Default shall have occurred and be
continuing, at any time at the Company's election, the Company may apply all or
any part of Proceeds held in any Collateral Account in payment of the
Obligations in such order as the Company may elect.
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(b) If an Event of Default shall have occurred and be continuing,
the Company may exercise, in addition to all other rights and remedies granted
in this Agreement and in any other instrument or agreement securing, evidencing
or relating to the obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, the Company, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Executive or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of Company or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Company shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in the
Executive, which right or equity is hereby waived or released. The Company shall
apply any Proceeds from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral or in
any way relating to the Collateral or the rights of the Company hereunder,
including, without limitation, reasonable attorneys' fees and disbursements of
counsel to the Company, to the payment in whole or in part of the Obligations,
in such order as the Company may elect, and only after such application and
after the payment by the Company of any other amount required by any provision
of law, including, without limitation, Section 9-504(l)(c) of the Code, need the
Company account for the surplus, if any, to the Executive. To the extent
permitted by applicable law, the Executive waives all claims, damages and
demands it may acquire against the Company arising out of the exercise by it of
any rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition. The
Executive shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Company to collect such
deficiency.
8. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the
Code, the Executive authorizes the Company to file financing statements with
respect
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to the Collateral without the signature of the Executive in such form and in
such filing offices as the Company reasonably determines appropriate to perfect
the security interests of the Company under this Agreement. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
9. NOTICES. All notices, requests and demands to or upon the Company or
the Executive to be effective shall be in writing (or by telex, facsimile or
similar electronic transfer confirmed in writing) and shall be deemed to have
been duly given or made (1) when delivered by hand or (2) if given by mail, when
deposited in the mails by certified mail, return receipt requested, or (3) if by
telex, facsimile or similar electronic transfer, when sent and receipt has been
confirmed, addressed to the Company or the Executive at its address or
transmission number for notices provided on the signature page hereto. The
Company and the Executive may change their addresses and transmission numbers
for notices by notice in the manner provided in this Section 9.
10. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
11. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of the
terms or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Executive and
the Company, PROVIDED that any provision of this Agreement may be waived by the
Company in a letter or agreement executed by the Company or by telex or
facsimile transmission from the Company.
(b) The Company shall not by any act (except by a written instrument
pursuant to paragraph 11(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default ot Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Company, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Company of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Company would otherwise have on any future occasion.
6
<PAGE>
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
12. SECTION HEADINGS. The section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Executive and shall inure to the benefit of the
Company and their successors and assigns.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered as of the date first above written.
By: /s/ MICHAEL V. RONCA
Michael V. Ronca
Spouse: /s/ DEBRA A. RONCA
Debra A. Ronca
Address for Notices:
17318 Chagal Lane
Spring, Texas 77379
Fax: (____) ____-______
Accepted this 21st day of February, 1997
DOMAIN ENERGY CORPORATION
By: /s/ RICK G. LESTER
Rick G. Lester
Vice President and Chief Financial Officer
Address for Notice:
Domain Energy Corporation
P.O. Box 2511
Houston, Texas 77252-2511
Fax: (713) 757-8314
8
<PAGE>
SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
1. Stock Certificate No. 0002, representing 237.9868 shares of Common Stock,
par value $.01 per share, of Domain Energy Corporation.
EMPLOYMENT AGREEMENT
AGREEMENT, made December 31, 1996, by and between
Domain Energy Corporation, a Delaware corporation (the "Company")
and Michael V. Ronca ("Executive").
RECITALS
In order to induce Executive to serve as the President and Chief
Executive Officer of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform
services for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as
follows:
1. EMPLOYMENT.
1.1 Subject to the terms and conditions of this Agreement, the
Company hereby employs Executive during the term hereof as its President and
Chief Executive Officer. In his capacity as the President and Chief Executive
Officer of the Company, Executive shall report to the Board of Directors of the
Company (the "Board") and shall have the customary powers, responsibilities and
authorities of chief executive officers of corporations of the size, type and
nature of the Company, as it exists from time to time, as are assigned by the
Board.
1.2 Subject to the terms and conditions of this
Agreement, Executive hereby accepts employment as the President
<PAGE>
and Chief Executive Officer of the Company and agrees to devote his full working
time and efforts, to the best of his ability, experience and talent, to the
performance of services, duties and responsibilities in connection therewith.
Executive shall perform such duties and exercise such powers, commensurate with
his position, as the President and Chief Executive Officer of the Company, as
the Board shall from time to time delegate to him on such terms and conditions
and subject to such restrictions as such Board may reasonably from time to time
impose. Executive also agrees to serve, if elected, as a member of the Board.
1.3 Nothing in this Agreement shall preclude Executive from
engaging, so long as, in the reasonable determination of such Board, such
activities do not interfere with his duties and responsibilities hereunder, in
charitable and community affairs, from managing any passive investment made by
him in equity securities or other assets (provided that no such investment may
exceed 5% of the equity of any entity, without the prior approval of such Board
of Directors and Executive shall give the Board of Directors prior written
notice of any investment in an entity that is not publicly traded) or from
serving, subject to the prior approval of such Board of Directors, as a member
of boards of directors or as a trustee of any other corporation, association or
entity. For purposes of the preceding sentence, any approval of the Board
required therein shall not be unreasonably withheld.
2. TERM OF EMPLOYMENT. Executive's term of employment
under this Agreement shall commence as of the date hereof and,
<PAGE>
subject to the terms hereof, shall terminate on the earlier of (i) December 31,
1999 (the "Termination Date") or (ii) termination of Executive's employment
pursuant to this Agreement; PROVIDED, HOWEVER, that any termination of
employment by Executive (other than for death, Permanent Disability or Good
Reason) may only be made upon 60 days prior written notice to the Company and
any termination of employment by Executive for Good Reason may only be made upon
30 days prior written notice to the Company.
3. COMPENSATION.
3.1 SALARY. The Company shall pay Executive a base salary ("Base
Salary") at the rate of $180,000 per annum for the period commencing on the
beginning of Executive's term of employment hereunder and ending on the
Termination Date. Base Salary shall be payable in accordance with the ordinary
payroll practices of the Company. Any increase in Base Salary shall be in the
discretion of the Board and, as so increased, shall constitute "Base Salary"
hereunder.
3.2 ANNUAL BONUS. In addition to his Base Salary, Executive shall
be paid an annual cash bonus (the "Bonus") during the term of his employment
hereunder with a target amount equal to 50% of Base Salary (the "Target Bonus")
and a maximum amount equal to 90% of Base Salary based on performance criteria
determined by the Company's Board of Directors in its sole discretion.
3.3 COMPENSATION PLANS AND PROGRAMS. Executive shall
be entitled to participate in any compensation plan or program
<PAGE>
maintained by the Company in which other senior executives of the Company
participate on terms comparable to those applicable to such other senior
executives.
4. EMPLOYEE BENEFITS.
4.1 EMPLOYEE BENEFIT PROGRAMS, PLANS AND PRACTICES. The
----------------------------------------------
Company shall provide Executive during the term of his employment
hereunder with coverage under all employee pension and welfare
benefit programs, plans and practices (commensurate with his
positions in the Company and to the extent permitted under any
employee benefit plan) in accordance with the terms thereof, which
the Company makes available to its senior executives (including,
without limitation, participation in health, dental, group life,
disability, retirement and all other plans and fringe benefits to
the extent generally provided to such senior executives).
4.2 VACATION AND FRINGE BENEFITS. Executive shall be entitled to
no less than twenty-five (25) business days paid vacation in each calendar year,
which shall be taken at such times as are consistent with Executive's
responsibilities hereunder. Such vacation time shall accrue at a rate of 2.08
vacation days for each calendar month worked. Unless otherwise approved by the
Board, any vacation days not taken in any calendar year shall be forfeited
without payment therefor. In addition, Executive shall be entitled to the
perquisites and other fringe benefits commensurate with his position with the
Company, which the parties agree shall be $20,000 annually (excluding such paid
vacation). Such annual amount shall be paid to the Executive on
<PAGE>
the same periodic basis as his Base Salary, and Executive shall have the right
to determine the utilization and apportionment thereof among such perquisites
and other fringe benefits. The Company shall furnish Executive with a private
office and a private secretary and all other reasonable assistance and
accommodations.
5. EXPENSES. Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement and
promoting the business of the Company, including, without limitation, expenses
for travel, lodgings, entertainment and similar items related to such duties and
responsibilities. The Company will reimburse Executive for all such expenses
upon presentation by Executive from time to time of appropriately itemized and
approved (consistent with the Company's policy) accounts of such expenditures.
6. TERMINATION OF EMPLOYMENT.
6.1 TERMINATION NOT FOR CAUSE OR TERMINATION FOR GOOD REASON. (a)
Subject to the terms and conditions of this Agreement, the Company may terminate
Executive's employment at any time for any reason. If Executive's employment is
terminated by the Company other than for Cause (as defined in Section 6.4(b)
hereof) or other than as a result of Executive's death, Retirement (as defined
below in this Section 6.1(a)) or Permanent Disability (as defined in Section 6.2
hereof) or if Executive terminates his employment for Good Reason (as defined in
Section 6.1 (c) hereof) prior to the Termination Date, Executive shall
<PAGE>
receive all such payments, if any, under applicable compensation and employee
benefit plans or programs, including but not limited to those referred to in
Section 3.3 hereof, to which he is entitled pursuant to the terms of such plans
or programs. In addition, Executive shall receive a lump sum cash payment (the
"Termination Amount") in lieu of any Bonus in respect of all or any portion of
the fiscal year in which such termination occurs and any other cash compensation
(other than the Vacation Payment and the Compensation Payment referred to
below). The Termination Amount shall consist of the greater of (i) an amount
equal to the Executive's Base Salary at its then current annual rate plus the
amount of Executive's Target Bonus for the entire year in which his termination
occurs (irrespective of whether the performance criteria have been met) or (ii)
the aggregate amount of Base Salary which Executive would have received for the
remaining term of this Agreement. In addition, Executive shall receive a cash
lump sum payment in respect of accrued but unused vacation days (the "Vacation
Payment") and all compensation earned but not yet paid (including any deferred
Bonus payments) (the "Compensation Payment"). "Retirement" means the termination
of Executive's employment with the Company and all of its affiliates as a result
of his reaching a retirement age (not less than 62 years of age) established by
the Board for his retirement.
(b) The Termination Amount, the Vacation Payment and the
Compensation Payment shall be paid by the Company to Executive within 30 days
after the termination of Executive's employment by check payable to the order of
Executive or by wire
<PAGE>
transfer to an account specified by Executive. Payments or amounts to which
Executive is entitled under applicable compensation and employee benefit plans
or programs will be paid to Executive pursuant to the terms of such plans or
programs.
(c) For purposes of this Agreement, "Good Reason" shall mean any
of the following (without Executive's express prior written consent):
(i) any removal of Executive as the President and Chief Executive
Officer of the Company or any material reduction by the Company of
Executive's authority, duties or responsibilities (except in connection
with the termination of Executive's employment for Cause, as a result of
Permanent Disability, or as a result of Executive's death or
Retirement);
(ii) any reduction by the Company in Executive's Base Salary, other
than a reduction which is part of a uniformly applied general salary
reduction program affecting senior executives of the Company;
(iii) the Company's moving Executive's place of
employment outside the Houston, Texas metropolitan area; or
(iv) Executive's election to terminate his employment for any
reason within 30 calendar days following a Change of Control (as defined
in the Non-Qualified Stock Option Agreement attached hereto as Exhibit A
(the "Option Agreement")).
6.2 PERMANENT DISABILITY. If the Executive becomes totally and
permanently disabled (as defined in the Company's Long-Term Disability Benefit
Plan applicable to senior executive officers as in effect on the date hereof)
("Permanent Disability"), the Company or Executive may terminate Executive's
employment on written notice thereof, and in any such case Executive shall
receive or commence receiving:
(i) as soon as possible under the terms thereof, all amounts
payable pursuant to the terms of any disability insurance policy or
similar arrangement which the Company maintains during the term hereof;
<PAGE>
(ii) within 30 days after the giving or receipt of such notice by
the Company, as the case may be, the Target Bonus in respect of the
fiscal year in which his termination occurs (irrespective of whether the
performance criteria have been met), prorated by a fraction, the
numerator of which is the number of days of the fiscal year until
termination and the denominator of which is 365;
(iii) within 30 days after the giving or receipt of such notice by
the Company, as the case may be, the Vacation Payment and the
Compensation Payment; and
(iv) as soon as possible under the terms thereof, all such payments
under applicable plans or programs, including but not limited to those
referred to in Sections 3.3 and 4.1 hereof, to which he is entitled
pursuant to the terms of such plans or programs, in accordance with
their terms.
6.3 DEATH. In the event of Executive's death during the term of
his employment hereunder, Executive's estate or designated beneficiaries shall
receive or commence receiving:
(i) within 30 days after the Company knows of Executive's death,
the Target Bonus in respect of the fiscal year in which his death occurs
(irrespective of whether the performance criteria have been met),
prorated by a fraction, the numerator of which is the number of days of
the fiscal year until his death and the denominator of which is 365;
(ii) within 30 days after the Company knows of
Executive's death, the Vacation Payment and the
Compensation Payment; and
(iii) as soon as possible under the terms thereof, all such payments
under applicable plans or programs, including but not limited to those
referred to in Sections 3.3 and 4.1 hereof, to which Executive's estate
or designated beneficiaries are entitled pursuant to the terms of such
plans or programs, in accordance with their terms.
6.4 VOLUNTARY TERMINATION BY EXECUTIVE; DISCHARGE FOR
CAUSE. (a) The Company shall have the right to terminate the
employment of Executive for Cause. In the event that Executive's
employment is terminated by the Company for Cause, as hereinafter
defined, or by Executive other than for Good Reason or other than
<PAGE>
as a result of the Executive's Permanent Disability, Retirement or death,
Executive shall only be entitled to receive, within 30 days after such
termination, the Compensation Payment and the Vacation Payment and any other
then-vested benefits under any compensation or employee benefit plans or
programs to which he is entitled pursuant to the terms of such plans or
programs. Executive shall not be entitled, among other things, to the payment of
any Bonus in respect of all or any portion of the fiscal year in which such
termination occurs. After the termination of Executive's employment under this
Section 6.4, the obligations of the Company under this Agreement to make any
further payments, or provide any benefits other than those specified herein, to
Executive shall thereupon cease and terminate.
(b) As used herein, the term "Cause" shall be limited to (i)
Executive's commission of any act of fraud or embezzlement against the Company
or any of its affiliates, irregardless of whether such act results in material
financial loss to the Company or any of its affiliates, or other willful
malfeasance or willful misconduct by Executive in connection with his employment
that results in material financial loss to the Company or any of its affiliates,
(ii) continuing refusal by Executive to perform his duties hereunder or any
lawful direction of the Board as required under Section 1.2, after written
notice of any such refusal to perform such duties or direction was given to
Executive by the Board and Executive has been given a 30-day cure period after
receipt of such notice to take reasonable corrective
<PAGE>
action, (iii) any material breach of the provisions of Section 13 of this
Agreement by Executive or any other material breach of this Agreement by
Executive after written notice of any such breach was given to Executive by the
Board and Executive has been given a 30-day cure period after receipt of such
notice to take reasonable corrective action or (iv) the conviction of Executive
for any felony. Termination of Executive pursuant to Section 6.4 shall be made
by delivery to Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire Board at a meeting of
the Board called and held for such purpose (after 30 days prior written notice
(which may include the 30 day period referred to in (ii) above) to Executive and
reasonable opportunity for Executive to be heard before the Board prior to such
vote), finding that in the reasonable judgment of such Board, Executive was
guilty of conduct set forth in any of clauses (i) through (iv) above and
specifying the particulars thereof.
7. STOCK ARRANGEMENTS. Executive and the Company shall enter into
the Common Stock Management Investor Subscription Agreement attached hereto as
Exhibit B (the "Subscription Agreement"). In addition, on the date of the
purchase of common stock under the Subscription Agreement, the Company shall
issue to the Executive an option to purchase up to 450 shares of the Company's
Common Stock, par value $.01 per share, pursuant to the Option Agreement.
8. MITIGATION OF DAMAGES. Executive shall not be
required to mitigate any damages or the amount of any payment
<PAGE>
provided for under this Agreement by seeking other employment or otherwise after
the termination of his employment hereunder, and any amounts earned by
Executive, whether from self-employment, as a common-law employee or otherwise,
shall not reduce the amount of any Termination Amount or other payments or
amounts otherwise payable to him.
9. NOTICES. All notices or communications hereunder
shall be in writing, addressed as follows:
To the Company:
Domain Energy Corporation
1100 Louisiana
15th Floor
Houston, TX 77002
Attention: Chief Financial Officer
with copies to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
James L. Rice III, Esq.
Weil, Gotshal & Manges LLP
700 Louisiana
Suite 1600
Houston, Texas 77002
To Executive:
Michael V. Ronca
17318 Chagal Lane
Spring, TX 77379
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after the
actual
<PAGE>
date of mailing (or, if earlier, the actual date of receipt) shall constitute
the time at which notice was given.
10. SEPARABILITY; LEGAL FEES. If any provision of this Agreement
shall be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in full force and effect. In any dispute between the
Executive and the Company pertaining to this Agreement, the non-prevailing party
shall pay the costs of any legal fees and other fees and expenses which may be
incurred by the prevailing party in such dispute. For these purposes, the
plaintiff shall be deemed to be the prevailing party if the plaintiff is awarded
in excess of 50% of the amount claimed in the complaint and the defendant shall
be deemed to be the prevailing party if the plaintiff is awarded 50% or less of
the amount claimed in the complaint.
11. ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the heirs and legal representatives of Executive and the
permitted assigns and successors of the Company, but neither this Agreement nor
any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign this
Agreement to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if such
successor expressly agrees to assume the obligations of the Company hereunder.
<PAGE>
12. AMENDMENT. This Agreement may only be amended by
written agreement of the parties hereto.
13. NONDISCLOSURE OF CONFIDENTIAL INFORMATION; NON- COMPETITION.
(a) Executive shall not, without the prior written consent of the Company, use,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Company or any of its affiliates, except (i) while employed by
the Company, in the business of and for the benefit of the Company, or (ii) when
required to do so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the Company, or by any
administrative body or legislative body (including a committee thereof) with
jurisdiction to order Executive to divulge, disclose or make accessible such
information. For purposes of this Section 13(a), "Confidential Information"
shall mean non-public information concerning the financial data, strategic
business plans, product development (or other proprietary product data),
customer lists, marketing plans and other non-public, proprietary and
confidential information of the Company, First Reserve Corporation or their
respective affiliates (the "Restricted Group") or customers, that, in any case,
is not otherwise available to the public (other than by Executive's breach of
the terms hereof).
(b) During the period of his employment hereunder and for six (6)
months thereafter, Executive agrees that, without the prior written consent of
the Company, (A) he will not, directly
<PAGE>
or indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other capacity,
carry on, be engaged in or have any financial interest in, any business or
entity which is in competition with the business of any member of the Restricted
Group engaged in the oil and gas exploration and production business and (B) he
shall not, on his own behalf or on behalf of any person, firm or company,
directly or indirectly, solicit or offer employment to any person who has been
employed by any member of the Restricted Group engaged in the oil and gas
exploration and production business at any time during the 12 months immediately
preceding such solicitation.
(c) For purposes of this Section 13, a business shall be deemed
to be in competition with a member of the Restricted Group engaged in the oil
and gas exploration and production business if it is also principally engaged in
the oil and gas exploration and production business within the same geographic
area in which such member of the Restricted Group is so engaged. Nothing in this
Section 13 shall be construed so as to preclude Executive from investing in any
publicly or privately held company, provided Executive's beneficial ownership of
any class of such company's securities does not exceed 5% of the outstanding
securities of such class.
(d) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any
<PAGE>
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of this covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant as so
amended. Executive agrees that any breach of the covenants contained in this
Section 13 would irreparably injure the Company. Accordingly, Executive agrees
that the Company may, in addition to pursuing any other remedies it may have in
law or in equity, cease making any payments otherwise required by this Agreement
(until any such breach is cured) and obtain an injunction against Executive from
any court having jurisdiction over the matter restraining any further violation
of this Agreement by Executive.
14. BENEFICIARIES; REFERENCES. Executive shall be entitled to
select (and change, to the extent permitted under any applicable law) a
beneficiary or beneficiaries to receive any compensation or benefit payable
hereunder following Executive's death, and may change such election, in either
case by giving the Company written notice thereof. In the event of Executive's
death or a judicial determination of his incompetence, reference in this
Agreement to Executive shall be deemed, where appropriate, to refer to his
beneficiary, estate or other legal representative. Any reference to the
masculine gender in this Agreement shall include, where appropriate, the
feminine.
15. SURVIVORSHIP. The respective rights and
obligations of the parties hereunder shall survive any
termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The
<PAGE>
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED,
INTERPRETED AND GOVERNED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE, WITHOUT REFERENCE TO RULES RELATING TO CONFLICTS OF
LAW.
17. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the
entire understanding between the parties hereto with respect to the subject
matter hereof and supersedes in all respects any prior or other agreement or
understanding between the Company or any affiliate of the Company and Executive
with respect to such subject matter, other than the Option Agreement.
18. WITHHOLDING. The Company shall be entitled to
withhold from payment any amount of withholding required by law.
19. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which will be deemed an
original.
Domain Energy Corporation
By /s/ RICK G. LESTER
Name: Rick G. Lester
Title: Vice President and Chief
Financial Officer
/s/ MICHAEL V. RONCA
Michael V. Ronca
EXHIBIT 10.10
================================================================================
DOMAIN ENERGY CORPORATION
AND
SUBSIDIARY GUARANTORS
----------------------
CREDIT AGREEMENT
Dated as of December 31, 1996
----------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
Page
----
Section 1. Definitions and Accounting Matters................. 2
1.01 Certain Defined Terms.............................. 2
1.02 Accounting Terms and Determinations................ 28
1.03 Types of Loans..................................... 29
1.04 Designation of Subsidiaries as Restricted or
Unrestricted Subsidiaries.......................... 29
Section 2. Commitments, Loans, Notes and Prepayments.......... 30
2.01 Loans.............................................. 30
2.02 Borrowings......................................... 30
2.03 Changes of Commitments............................. 30
2.04 Commitment Fee..................................... 31
2.05 Lending Offices.................................... 31
2.06 Several Obligations; Remedies Independent.......... 31
2.07 Notes.............................................. 31
2.08 Optional Prepayments and Conversions or
Continuations of Loans............................. 32
2.09 Mandatory Prepayments and Reductions of Commitments 32
2.10 Minimum Amount Outstanding......................... 33
2.11 Borrowing Base and Threshold Amount
Determinations and Computations.................... 34
Section 3. Payments of Principal and Interest................. 36
3.01 Repayment of Loans................................. 36
3.02 Interest........................................... 36
Section 4. Payments; Pro Rata Treatment; Computations; Etc.... 37
4.01 Payments........................................... 37
4.02 Pro Rata Treatment................................. 38
4.03 Computations....................................... 39
4.04 Minimum Amounts.................................... 39
i
<PAGE>
4.05 Certain Notices.................................... 39
4.06 Non-Receipt of Funds by the Administrative Agent... 40
4.07 Sharing of Payments, Etc........................... 42
Section 5. Yield Protection, Etc.............................. 43
5.01 Additional Costs................................... 43
5.02 Limitation on Types of Loans....................... 45
5.03 Illegality......................................... 46
5.04 Treatment of Affected Loans........................ 46
5.05 Compensation....................................... 47
5.06 U.S. Taxes......................................... 48
5.07 Replacement of Lenders............................. 49
Section 6. Guarantee.......................................... 50
6.01 The Guarantee...................................... 50
6.02 Obligations Unconditional.......................... 51
6.03 Reinstatement...................................... 52
6.04 Subrogation........................................ 52
6.05 Remedies........................................... 52
6.06 Instrument for the Payment of Money................ 53
6.07 Continuing Guarantee............................... 53
6.08 Rights of Contribution............................. 53
6.09 General Limitation on Guarantee Obligations........ 54
Section 7. Conditions Precedent............................... 54
7.01 Initial Loan....................................... 54
7.02 Initial and Subsequent Loans....................... 59
Section 8. Representations and Warranties..................... 60
8.01 Corporate Existence................................ 60
8.02 Financial Condition................................ 60
8.03 Litigation......................................... 61
8.04 No Breach.......................................... 61
8.05 Action............................................. 61
8.06 Approvals.......................................... 62
8.07 ERISA.............................................. 62
8.08 Taxes.............................................. 62
8.09 Investment Company Act............................. 63
8.10 Public Utility Holding Company Act................. 63
ii
<PAGE>
8.11 Material Agreements and Liens...................... 63
8.12 Environmental Matters.............................. 64
8.13 Capitalization..................................... 66
8.14 Subsidiaries, Etc.................................. 67
8.15 Title to Assets.................................... 67
8.16 True and Complete Disclosure....................... 68
8.17 Real Property...................................... 68
8.18 Licenses; Permits, Etc............................. 69
8.19 Certain Agreements, Documents, Contracts and
Licenses........................................... 69
8.20 Compliance with Laws............................... 69
8.21 Use of Credit...................................... 69
8.22 Solvency........................................... 70
Section 9. Covenants of the Company........................... 70
9.01 Financial Statements, Etc.......................... 70
9.02 Litigation......................................... 74
9.03 Existence, Etc..................................... 74
9.04 Insurance.......................................... 75
9.05 Prohibition of Fundamental Changes................. 76
9.06 Limitation on Liens................................ 78
9.07 Indebtedness....................................... 81
9.08 Investments........................................ 82
9.09 Dividend Payments.................................. 83
9.10 Certain Financial Covenants........................ 84
9.11 Lines of Business.................................. 85
9.12 Operating Leases................................... 85
9.13 Transactions with Affiliates....................... 85
9.14 Use of Proceeds.................................... 86
9.15 Certain Obligations Respecting Restricted
Subsidiaries....................................... 87
9.16 Modifications of Certain Documents................. 88
9.17 Operation of O&G Properties........................ 88
9.18 Voluntary Prepayments of Indebtedness.............. 88
9.19 Sale and Leaseback Transactions; Production
Payments........................................... 88
9.20 Release of Specified Indebtedness.................. 89
Section 10. Events of Default.................................. 89
Section 11. The Administrative Agent........................... 93
11.01 Appointment, Powers and Immunities................. 93
iii
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11.02 Reliance by Administrative Agent................... 94
11.03 Defaults........................................... 94
11.04 Rights as a Lender................................. 95
11.05 Indemnification.................................... 95
11.06 Non-Reliance on Administrative Agent and Other
Lenders............................................ 96
11.07 Failure to Act..................................... 96
11.08 Resignation or Removal of Administrative Agent..... 97
11.09 Consents under Other Loan Documents................ 97
11.10 Collateral Sub-Agents.............................. 98
Section 12. Miscellaneous...................................... 99
12.01 Waiver............................................. 99
12.02 Notices............................................ 99
12.03 Expenses, Etc...................................... 99
12.04 Amendments, Etc....................................101
12.05 Successors and Assigns.............................102
12.06 Assignments and Participations.....................102
12.07 Survival...........................................104
12.08 Captions...........................................104
12.09 Counterparts.......................................104
12.10 Governing Law; Submission to Jurisdiction..........105
12.11 Waiver of Jury Trial...............................105
12.12 Treatment of Certain Information; Confidentiality..105
12.13 Interest...........................................106
iv
<PAGE>
SCHEDULES
Schedule I - Material Agreements and Liens
Schedule II - Environmental Matters
Schedule III - Subsidiaries and Investments
Schedule IV - Real Property
Schedule V - Litigation
Schedule VI - Equity Rights
Schedule VII - Material Adverse Changes
Schedule VIII - Defaults under Contracts and Licenses
Schedule IX - Consents
Schedule X - Ownership of Company
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Pledge and Security Agreement
Exhibit C - Form of Mortgage
Exhibit D - Form of Opinion of Counsel to the Obligors
Exhibit E - Form of Opinion of Local Counsel
Exhibit F - Form of Opinion of Special New York Counsel to Chase
v
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CREDIT AGREEMENT dated as of December 31, 1996, between:
(1) DOMAIN ENERGY CORPORATION, a corporation duly organized and
validly existing under the laws of the State of Delaware (the "COMPANY");
(2) each of the Subsidiaries of the Company identified under the
caption "SUBSIDIARY GUARANTORS" on the signature pages hereto
(individually, a "SUBSIDIARY GUARANTOR" and, collectively, the "SUBSIDIARY
GUARANTORS" and, together with the Company, the "OBLIGORS");
(3) each of the lenders that is a signatory hereto identified under
the caption "LENDERS" on the signature pages hereto and each lender that
becomes a "Lender" after the date hereof pursuant to Section 12.06(b)
hereof (individually, a "LENDER" and, collectively, the "LENDERS"); and
(4) THE CHASE MANHATTAN BANK, a New York bank, as agent for the
Lenders (in such capacity, together with its successors in such capacity,
the "ADMINISTRATIVE AGENT").
Each of the Obligors has requested the Lenders to make loans to the
Company in an aggregate principal amount not exceeding $65,000,000 at any one
time outstanding to provide financing for the Acquisition (as hereinafter
defined), to provide working capital and for other general corporate purposes of
the Company and each of its Subsidiaries. The Company and the Subsidiary
Guarantors are engaged as an integrated group in the O&G Business (as
hereinafter defined) and in related businesses, and in furnishing the required
supplies, services, equipment, credit and other facilities for such integrated
operation. The integrated operation requires financing on such a basis that
credit supplied to the Company be made available from time to time to the
Subsidiary Guarantors, as required for the continued successful operation of the
Obligors, separately, and the integrated operation as a whole.
To induce the Lenders to make such loans, the Obligors, the Lenders
and the Administrative Agent propose to enter into this Agreement pursuant to
which the Lenders will make loans to the Company, and each Subsidiary Guarantor
will guarantee the loans so made to the Company and each of the Obligors will
agree to execute and deliver mortgages and security agreements providing for
security interests and liens to be granted by the Obligors on at least 80% of
their O&G Properties given value in determining the Borrowing Base and
substantially all of the balance of their respective properties as collateral
security for the obligations of the Obligors to the Lenders and the
Administrative Agent hereunder. Each of the Obligors expects to derive benefit,
directly or indirectly, from the loans so made to the Company, both in its
separate capacity and as a member of the integrated group, since
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the successful operation of each of the Obligors is dependent on the continued
successful performance of the functions of the integrated group as a whole.
Accordingly, the parties hereto agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and (vice versa):
"ABR LOANS" shall mean Loans which bear interest at a rate based
upon the Alternate Base Rate.
"ACQUISITION" shall mean the acquisition by the Company of all of
the capital stock of TVC and TGPC to be sold by El Paso under the Acquisition
Agreement.
"ACQUISITION AGREEMENT" shall mean the Stock Purchase Agreement
dated December 24, 1996 between El Paso and the Company.
"ACQUISITION DOCUMENTS" shall mean the Acquisition Agreement and all
agreements, instruments of transfer and other documents executed and delivered
in connection with the consummation of the Acquisition.
"ADMINISTRATIVE AGENT" shall have the meaning assigned to such term
in the recital of parties to this Agreement.
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an administrative
questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "CONTROL" (including, with its correlative meanings,
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether
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through ownership of securities or partnership or other ownership interests, by
contract or otherwise), PROVIDED that, in any event, any Person that owns
directly or indirectly securities having 5% or more of the voting power for the
election of directors or other governing body of a corporation or 5% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate solely by reason of his or her being a director, officer
or employee of the Company or any of its Subsidiaries and (b) none of the Wholly
Owned Subsidiaries of the Company shall be Affiliates.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day and (b) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in
the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"APPLICABLE LAW" shall mean, as to any Lender, the law in effect
from time to time and applicable to such Lender and the transactions
contemplated hereby and to the Note held by such Lender which lawfully permits
the charging and collection by such Lender of the highest permissible lawful,
non-usurious rate of interest in connection with the transactions contemplated
hereby and the Notes. To the extent the laws of the State of Texas are
applicable to any Lender, it is intended that Article 5069-1.04, Title 79,
Revised Civil Statutes of Texas, 1925, as amended, shall be included in such
laws in determining Applicable Law with respect to such Lender, except that if
at any time the laws of the United States of America permit such Lender to
contract for, take, reserve, charge or receive a higher rate of interest than is
allowed by the laws of the State of Texas (whether such federal laws directly so
provide or refer to the law of the state where such Lender is located), then
such federal laws shall to such extent govern as to the rate of interest which
such Lender is allowed to contract for, take, reserve, charge or receive under
its Note and this Agreement.
"APPLICABLE COMMITMENT FEE RATE" shall mean, during each Utilization
Level 1 Period, 0.375% per annum, and during each other Utilization Level
Period, 0.50% per annum.
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each
Type of Loan, the lending office of such Lender (or of an affiliate of such
Lender) designated for such Type of Loan in the Administrative Questionnaire of
such Lender or such other lending office of such Lender (or of an affiliate of
such Lender) as such Lender may from time to
<PAGE>
-4-
time specify to the Administrative Agent and the Company as the office by which
its Loans of such Type are to be made and maintained.
"APPLICABLE MARGIN" shall mean, with respect to each Type of Loan
during each Utilization Level Period set forth in the schedule below, the
percentage per annum set forth opposite such period under such Type of Loan in
such schedule:
APPLICABLE MARTIN (% P.A.)
Utilization Level
Period ABR Loans Eurodollar Loans
----------------- --------- ----------------
Utilization 0.50% 1.50%
Level 1 Period
Utilization 0.75% 1.75%
Level 2 Period
Utilization 1.00% 2.00%
Level 3 Period
Utilization 1.50% 2.50%
Level 4 Period
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"BASIC DOCUMENTS" shall mean, collectively, this Agreement, the
Notes, the Security Documents, the Equity Documents and the Acquisition
Documents.
"BASLE ACCORD" shall mean the proposals for risk-based capital
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
"BOARD" shall mean the Board of Governors of the Federal Reserve
System (or any successor).
<PAGE>
-5-
"BORROWING BASE" shall mean, on any date, the amount most recently
determined to be the "Borrowing Base" in accordance with Section 2.11 hereof.
"BUSINESS DAY" shall mean any day (a) on which commercial banks are
not authorized or required to close in New York City and (b) if such day relates
to a borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice
by the Company with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, that is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Company or any of its
Restricted Subsidiaries in connection with the acquisition and exploitation of,
or the exploration for or development or production of Hydrocarbon reserves or
to acquire or construct fixed assets, plant and equipment (including renewals,
improvements and replacements, and dry-hole and exploration expense but
excluding repairs and workovers) during such period computed in accordance with
GAAP.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CASH FLOW" shall mean, for any period, the sum, for the Company and
its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of cash flow from operating activities.
"CHANGE OF CONTROL" shall mean any Person, other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of more than 40% of the issued and outstanding common stock of the
Company.
"CHASE" shall mean The Chase Manhattan Bank.
"CHIEF FINANCIAL OFFICER" shall mean the senior executive officer of
the Company who is primarily responsible for the financial affairs of the
Company.
<PAGE>
-6-
"CLOSING DATE" shall mean the date upon which the initial Loan
hereunder is made.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMERCIAL OPERATION PERIOD" shall mean, for each well included in
the Mortgaged Properties, as of any date of determination, the period from and
including such date of determination to and including the last date as of which
Hydrocarbons may be economically produced from such well under economic and
operating conditions in effect on such date of determination.
"COMMITMENT" shall mean, as to each Lender, the obligation of such
Lender to make Loans in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount set opposite the name of such
Lender on the signature pages hereof under the caption "Commitment" or, in the
case of a Person that becomes a Lender pursuant to an assignment permitted under
Section 12.06(b) hereof, as specified in the respective instrument of assignment
pursuant to which such assignment is effected (as the same may be reduced at any
time or from time to time pursuant to Section 2.03 or 2.09 hereof).
"COMMITMENT TERMINATION DATE" shall mean the Quarterly Date falling
on or nearest to December 31, 1999.
"COMPANY" shall have the meaning assigned to such term in the
recital of parties to this Agreement.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 2.08 hereof of one Type of Loans into another Type of Loans,
which may be accompanied by the transfer by a Lender (at its sole discretion) of
a Loan from one Applicable Lending Office to another.
"DEBT SERVICE" shall mean, for any period, the sum, for the Company
and its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all regularly
scheduled payments of principal of Indebtedness (including, without limitation,
the principal component of any payments in respect of Capital Lease Obligations)
made during such period PLUS (b) all Interest Expense
<PAGE>
-7-
for such period. For the purposes of this definition, payments of principal made
pursuant to Section 2.09(b) hereof shall be deemed not to be regularly scheduled
payments of principal.
"DEFAULT" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"DISPOSITION" shall have the meaning assigned to such term in
Section 9.05 hereof.
"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or of any warrants, options or other rights to
acquire the same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market or equity value of the Company or any of its Subsidiaries), but excluding
dividends payable solely in shares of common stock of the Company.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"EL PASO" shall mean El Paso Natural Gas Company, a Delaware
corporation.
"ENVIRONMENTAL AFFILIATE" shall mean, as to any Person, any other
Person whose liability (contingent or otherwise) for any Environmental Claim
such Person may have retained, assumed or otherwise become liable (contingently
or otherwise), whether by contract, operation of law or otherwise; PROVIDED that
each Subsidiary of such Person, and each former Subsidiary or division of such
Person transferred to another Person, shall in any event be an "Environmental
Affiliate" of such Person.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"CLAIM") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any Government Authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution,
<PAGE>
-8-
indemnification, cost recovery, compensation or injunctive relief resulting from
the presence of Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment from Hazardous Materials.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
Federal, state, local and foreign statutes, codes, laws, regulations,
ordinances, rules, judgments, injunctions, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions (including, without limitation, CERCLA, the Resource Conservation
and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1984 and
as further amended and the Hazardous and Solid Waste Disposal Act Amendments of
1984) imposing liability or standards of conduct concerning or otherwise
relating to the regulation or protection of human health, safety or the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes
into the indoor or outdoor environment, including, without limitation, ambient
air, soil, surface water, ground water, wetlands, land or subsurface strata, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals
or toxic or hazardous substances or wastes.
"EQUITY DOCUMENTS" shall mean (i) the Subscription Agreement, dated
as of December 31, 1996, between the Fund and the Company; and (ii) the
Securityholders Agreement, dated as of December 31, 1996, among the Company and
the holders of the Company's common stock or options, warrants or other
securities convertible into the Company's common stock.
"EQUITY ISSUANCE" shall mean (a) any issuance or sale by the Company
or any of its Restricted Subsidiaries after the Closing Date of (i) any of its
capital stock, (ii) any warrants or options exercisable in respect of its
capital stock or (iii) any other security or instrument representing an equity
interest (or the right to obtain any equity interest) in the Company or any of
its Restricted Subsidiaries or (b) the receipt by the Company or any of its
Restricted Subsidiaries after the Closing Date of any capital contribution
(whether or not evidenced by any equity security issued by the recipient of such
contribution); PROVIDED that Equity Issuance shall not include (w) any such
issuance by the Company to Management in connection with investments made in the
Company by Management in furtherance of the Acquisition made within 60 days
after the Closing Date, (x) any such issuance or sale by any Restricted
Subsidiary of the Company to the Company or any other Wholly Owned Subsidiary of
the Company which is a Restricted Subsidiary, (y) any capital contribution by
the Company or any Wholly Owned Subsidiary of the Company which is a Restricted
Subsidiary to any other Restricted Subsidiary of the Company or (z) any warrants
or options issued to directors, officers or employees of the Company or any of
its Restricted
<PAGE>
-9-
Subsidiaries pursuant to employee benefit plans, incentive plans or similar
plans or programs established in the ordinary course of business and any capital
stock of the Company issued upon the exercise of such warrants or options.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which the Company is a member and (ii) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which the
Company is a member, excluding for all purposes El Paso and its Subsidiaries.
"EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar
Loan for any Interest Period therefor, the rate per annum quoted by Chase at
approximately 011:00 a.m. London time (or as soon thereafter as practicable) on
the date two Business Days prior to the first day of such Interest Period for
the offering by Chase to leading banks in the London interbank market of Dollar
deposits having a term comparable to such Interest Period and in an amount
comparable to the principal amount of the Eurodollar Loan to be made by Chase
for such Interest Period. If Chase is not participating in any Eurodollar Loans
during any Interest Period therefor, the Eurodollar Base Rate for such Loans for
such Interest Period shall be determined by reference to the amount of such
Loans that Chase would have made or had outstanding had it been participating in
such Loan during such Interest Period.
"EURODOLLAR LOANS" shall mean Loans that bear interest at rates
based on rates referred to in the definition of "Eurodollar Base Rate" in this
Section 1.01.
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to
the Eurodollar Base Rate for such
<PAGE>
-10-
Loan for such Interest Period divided by 1 minus the Reserve Requirement (if
any) for such Loan for such Interest Period.
"EVENTS OF DEFAULT" shall have the meaning assigned to such term in
Section 10 hereof.
"EXCESS CASH FLOW" shall mean, for any fiscal quarter, the excess
of:
(a) the sum of (i) Cash Flow for such period; (ii) proceeds from
Dispositions permitted pursuant to Section 9.05 hereof received during
such period to the extent not previously applied pursuant to the terms of
this Agreement to repay the Loans outstanding hereunder; (iii) dividends
from Unrestricted Subsidiaries to the extent received in cash received
during such period; (iv) Interest Expense; and (v) Net Available Proceeds
OVER
(b) the sum of (i) the greater of (x) one quarter of the scheduled
Capital Expenditures (excluding capitalized interest and general and
administrative expenses) for the current fiscal year as set forth in the
most recently delivered Reserve Report and (y) the amount of cash actually
expended by the Company and its Restricted Subsidiaries in such period
with respect to such Capital Expenditures; provided, however that the
total amount of Capital Expenditures deducted pursuant to this clause (i)
for any fiscal year of the Company and its Restricted Subsidiaries shall
not exceed the total amount of Capital Expenditures as set forth on such
Reserve Report; (ii) the greater of (x) $1,250,000 per each fiscal quarter
of the Company and its Restricted Subsidiaries elapsed since the Closing
Date and (y) the actual amount expended by the Company and its Restricted
Subsidiaries in cash since the Closing Date on Capital Expenditures
(excluding capitalized interest and general and administrative expenses)
in excess of those Capital Expenditures set forth in the most recently
delivered Reserve Report, provided however that the aggregate amount of
Capital Expenditures deducted pursuant to this clause (ii) shall not
exceed $5 million in any consecutive four fiscal quarters of the Company
and its Restricted Subsidiaries; and (iii) the aggregate amount of Debt
Service for such period.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such
<PAGE>
-11-
day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"FRC" shall mean First Reserve Corporation, a Delaware corporation.
"FUND" shall mean First Reserve Fund VII, Limited Partnership, a
Delaware limited partnership.
"FUNDED INDEBTEDNESS" shall mean, for any Person, as of the date of
determination, all Indebtedness of such Person (other than in respect of
performance or surety bonds and other obligations of a similar nature incurred
in the ordinary course of business of such Person) which by its terms matures
more than one year after such date of determination and any such Indebtedness
maturing within one year from the date of determination which is renewable or
extendable at the option of the obligor to a date more than one year from the
date of determination.
"GAAP" shall mean generally accepted accounting principles applied
on a basis consistent with those that, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with this Agreement.
"GOVERNMENT AUTHORITY" shall mean any federal, state, provincial,
municipal, local or territorial government or governmental subdivision,
department, court, commission, board, bureau, agency, regulatory authority,
instrumentality, judicial, taxing or administrative body, domestic or foreign,
and any officer or official of any of the foregoing.
"GUARANTEE" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations requiring the payment of money, net worth,
working capital or earnings of any Person, or a guarantee of the payment of
dividends or other distributions upon the stock or equity interests of any
Person, or an agreement to purchase, sell or lease (as lessee or lessor)
Property, products, materials, supplies or services primarily for the purpose of
enabling a debtor to make payment of such debtor's obligations or an agreement
to assure a creditor against loss, and including, without limitation, causing a
bank or other financial institution to issue a letter of credit or other similar
instrument for the benefit of another Person, but excluding endorsements for
collection or deposit in the ordinary course of business. The terms "GUARANTEE"
and "GUARANTEED" used as a verb shall have a correlative meaning.
<PAGE>
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"HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or
petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other equipment
that contain polychlorinated biphenyls ("PCB'S"), (b) any chemicals or other
materials or substances that are now or hereafter become 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" or words of
similar import under any Environmental Law and (c) any other chemical or other
material or substance, exposure to which is now or hereafter prohibited, limited
or regulated under any Environmental Law.
"HYDROCARBONS" shall mean, collectively, oil, gas, finished and
unfinished petroleum products and other liquid or gaseous hydrocarbons
(including, without limitation, all liquefiable hydrocarbons and other products
that may be extracted from gas and gas condensate by processing thereof in a gas
processing plant).
"INDEBTEDNESS" shall mean, for any Person:
(a) obligations created, issued or incurred by such Person for
borrowed money (whether by loan, the issuance and sale of debt securities
or the sale of Property to another Person subject to an understanding or
agreement, contingent or otherwise, to repurchase such Property from such
Person);
(b) obligations of such Person to pay the deferred purchase or
acquisition price of Property or services, other than trade accounts
payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective
goods are delivered or the respective services are rendered;
(c) Indebtedness of others secured by a Lien on the Property of such
Person, whether or not the respective indebtedness so secured has been
assumed by such Person;
(d) obligations of such Person in respect of letters of credit,
surety bonds or similar instruments issued or accepted by banks and other
financial institutions for account of such Person;
(e) Capital Lease Obligations of such Person;
<PAGE>
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(f) obligations of such Person in respect of obligations of the
types specified in other clauses of this definition as a partner or joint
venturer of any partnership or joint venture (other than in respect of
obligations incurred in the ordinary course of business); and
(g) Indebtedness of others Guaranteed by such Person.
"INDEPENDENT PETROLEUM ENGINEER" shall mean any firm of independent
petroleum engineers selected by the Company and acceptable to the Administrative
Agent.
"INITIAL RESERVE EVALUATION REPORT" shall mean those reports
prepared by De Golyer & MacNaughton and Netherland & Sewell and Associates Ltd.
each dated as of July 1, 1996 with respect to Proved Oil and Gas Reserves.
"INTEREST COVERAGE RATIO" shall mean, as at any date, the ratio of
(a) Cash Flow plus Interest Expense for the period of four consecutive fiscal
quarters ending on or most recently ended prior to such date to (b) Interest
Expense for such period.
"INTEREST EXPENSE" shall mean, for any period, the sum, for the
Company and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) all interest
in respect of Indebtedness (including, without limitation, the interest
component of any payments in respect of Capital Lease Obligations) accrued or
capitalized during such period (whether or not actually paid during such period)
PLUS (b) the net amount payable (or MINUS the net amount receivable) under
interest rate Swap Transactions during such period (whether or not actually paid
or received during such period).
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan,
each period commencing on the date such Eurodollar Loan is made or Converted
from an ABR Loan or (in the event of a Continuation) the last day of the next
preceding Interest Period for such Loan and (subject to the requirements of the
proviso set forth at the end of Section 2.01 hereof) ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as the Company may select as provided in Section 4.05 hereof, except
that each Interest Period that commences on the last Business Day of a calendar
month (or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
<PAGE>
-14-
Notwithstanding the foregoing:
(a) if any Interest Period would otherwise end after the Commitment
Termination Date, such Interest Period shall end on the Commitment
Termination Date;
(b) each Interest Period that would otherwise end on a day that is
not a Business Day shall end on the next succeeding Business Day (or, if
such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); and
(c) notwithstanding clauses (a) and (b) above, no Interest Period
shall have a duration of less than one month and, if the Interest Period
for any Eurodollar Loan would otherwise be a shorter period, such Loan
shall not be available hereunder for such period.
"INVESTMENT" shall mean, for any Person:
(a) the acquisition (whether for cash, Property, services or
securities or otherwise) of capital stock, bonds, notes, debentures,
partnership or other ownership interests or other securities of any other
Person or any agreement to make any such acquisition (including, without
limitation, any "short sale" or any sale of any securities at a time when
such securities are not owned by the Person entering into such sale):
(b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of
Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person), but
excluding any such advance, loan or extension of credit having a term not
exceeding 90 days arising in connection with the sale of inventory or
supplies by such Person in the ordinary course of business;
(c) the entering into of any Guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of any other
Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person: or
(d) the entering into of any Swap Transaction.
<PAGE>
-15-
"LAW" shall mean any present or future federal, state, local or
other constitution, charter, act, statute, law, ordinance, code, rule,
regulation, order, judgment of a court or standards contained in any applicable
permit or approval, or any other legislative, judicial or administrative action
of any Governmental Authority.
"LENDERS" shall have the meaning assigned to such term in the
recital of parties to this Agreement.
"LIEN" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Loan Documents, a Person
shall be deemed to own subject to a Lien any Property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Notes
and the Security Documents.
"LOANS" shall mean the loans provided for in Section 2.01 hereof,
which may be ABR Loans and/or Eurodollar Loans.
"MAJORITY LENDERS" shall mean Lenders having at least 66-2/3% of the
aggregate amount of the Commitments or, if the Commitments shall have
terminated, Lenders holding at least 66-2/3% of the aggregate unpaid principal
amount of the Loans.
"MANAGEMENT" shall mean, collectively, Michael V. Ronca, Herbert A.
Newhouse, Rick G. Lester, Catherine Sliva, Douglas Woodul, Steven Curran, Dean
Bouillion and Lucynda Herrin.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(a) the business, condition (financial or otherwise), results of operations,
Properties or liabilities of the Company and its Restricted Subsidiaries taken
as a whole, (b) the ability of any Obligor to perform its obligations under any
of the Loan Documents to which it is a party, (c) the validity or enforceability
of any of the Loan Documents, (d) the rights and remedies of the Lenders and the
Administrative Agent under any of the Loan Documents or (e) the timely payment
of the principal of or interest on the Loans or other amounts payable in
connection therewith.
"MATERIAL CONTRACTS" shall mean, as to any Person, any supply,
purchase, service, employment, tax, indemnity or other agreement for which the
aggregate amount or
<PAGE>
-16-
value of services performed or to be performed for or by, or Property
transferred or to be transferred to or by, such Person or any of its Restricted
Subsidiaries party to such agreement, or by which such Person or any of its
Restricted Subsidiaries or any of their respective Properties are otherwise
bound, during any fiscal year of the Company exceeds $500,000, as the same shall
be amended, modified and supplemented and in effect from time to time.
"MATERIAL LICENSES" shall have the meaning given to such term in
Section 8.18 hereof.
"MAXIMUM RATE" shall mean the maximum lawful non-usurious rate of
interest (if any) which, under any law in effect and applicable to any Lender,
is permitted to be charged by such Lender to the Obligors on the transactions
evidenced by this Agreement and the Notes from time to time in effect, including
changes in such Maximum Rate attributable to changes under such law which permit
a greater rate of interest to be contracted for, charged, collected, received or
taken as of the effective dates of such respective changes.
"MORTGAGE" shall mean a Mortgage, Deed of Trust, Security Agreement,
Assignment of Production, Financing Statement (Personal Properties Including
Hydrocarbons) and Fixture Filing, dated as of the Closing Date and in
substantially the form of Exhibit C hereto, as modified and supplemented and in
effect from time to time. The Mortgages shall collectively cover all of the
right, title and interest in and to not less than 80% of the aggregate Present
Value of Reserves attributable to the Proved Developed Oil and Gas Reserves and
Proved Oil and Gas Reserves owned by the Company and its Restricted Subsidiaries
on the date hereof and given value in determining the Borrowing Base.
"MORTGAGED PROPERTIES" shall mean the O&G Properties subject to the
Lien of the Mortgages.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NET AVAILABLE PROCEEDS" shall mean, in the case of any Equity
Issuance, the aggregate amount of all cash received by the Company and its
Restricted Subsidiaries in respect of such Equity Issuance net of expenses
incurred by the Company and its Restricted Subsidiaries in connection therewith.
<PAGE>
-17-
"NET INCOME" shall mean, for any period, net income of the Company
and its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) for such period.
"NON-RECOURSE DEBT" shall mean any Indebtedness of any Unrestricted
Subsidiary in respect of which the sole recourse of the holder or holders
thereof (except to the extent approved by the Majority Lenders) is to such
Unrestricted Subsidiary and/or one or more of its Subsidiaries (which is an
Unrestricted Subsidiary) and/or any other Person (other than the Company and/or
any Restricted Subsidiary) and the terms and conditions of the non-recourse
provisions of which are reasonably acceptable to the Majority Lenders; PROVIDED
that the existence in any document executed by any such Unrestricted Subsidiary
in connection with such Non-Recourse Debt (the "SUBJECT DEBT") of a provision
which provides for recourse to the Properties or assets of the Company, or any
Restricted Subsidiary generally by reason of gross negligence or willful
misconduct of such Unrestricted Subsidiary, will not cause the Subject Debt to
be excluded from the definition of "Non-Recourse Debt" prior to the time that a
claim is made against the Company or such Restricted Subsidiary, as the case may
be, alleging the gross negligence or willful misconduct of such Unrestricted
Subsidiary, as the case may be (it being understood that immediately upon any
such claim being made against the Company or such Restricted Subsidiary the
amount of such claim shall cease to be Non-Recourse Debt).
"NOTES" shall mean the promissory notes provided for by Section 2.07
hereof and all promissory notes delivered in substitution or exchange therefor,
in each case as the same shall be modified and supplemented and in effect from
time to time.
"O&G BUSINESS" shall mean the lines of business referred to in
Section 9.11 hereof.
"O&G PROPERTIES" shall mean all Property owned by the Company or any
of its Restricted Subsidiaries from which Hydrocarbons may be severed or
extracted in commercially feasible quantities.
"OBLIGORS" shall have the meaning assigned to such term in the
recital of parties to this Agreement.
"OPERATING EXPENSES" shall mean, for any period, the sum of the
following for the Company and its Restricted Subsidiaries (determined on an
aggregate basis in accordance with GAAP) to the extent accrued or paid during
such period (without duplication): (a) leasehold operating expenses, (b) Taxes
(other than Taxes of any Government Authority paid in respect of the net income
or net profit of the Company and its Restricted Subsidiaries); (c)
<PAGE>
-18-
general and administrative and other overhead expenditures; and (d) all other
operating expenses.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERMITTED HOLDERS" shall mean Management, the Fund and any other
investment fund the managing general partner of which is FRC.
"PERMITTED INVESTMENTS" shall mean (a) direct obligations of the
United States of America, or of any agency thereof, or obligations guaranteed as
to principal and interest by the United States of America, or by any agency
thereof, in either case maturing not more than 180 days from the date of
acquisition thereof; (b) certificates of deposit issued by or other overnight
deposits with any bank or trust company having capital, surplus and undivided
profits of at least $500,000,000 and having long term unsecured and unguaranteed
debt rated "A" or better or "A2" or better by Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc., or Moody's Investors Service, Inc., respectively,
maturing not more than 180 days from the date of acquisition thereof; (c)
commercial paper rated A-1 or better or P-1 or better by Standard & Poor's
Ratings Group, a division of McGraw Hill, Inc., or Moody's Investors Service,
Inc., respectively, maturing not more than 180 days from the date of acquisition
thereof, and (d) repurchase agreements and reverse repurchase agreements with
any bank having combined capital and surplus in an amount of not less than
$500,000,000, or any primary dealer of United States government securities, in
each case having long term unsecured and unguaranteed debt rated "A" or better
or "A2" or better by Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., or Moody's Investors Service, Inc., respectively, relating to marketable
direct obligations issued or unconditionally guaranteed or insured by the United
States of America or any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America, in each case maturing
within 90 days from the date of acquisition thereof; in each case so long as the
same (x) provide for the payment of principal and interest (and not principal
alone or interest alone) and (y) are not subject to any contingency regarding
the payment of principal or interest.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, limited liability company, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
<PAGE>
-19-
"PLEDGE AND SECURITY AGREEMENT" shall mean the Pledge and Security
Agreement substantially in the form of Exhibit B hereto, as modified and
supplemented and in effect from time to time.
"POST-DEFAULT RATE" shall mean a rate per annum equal to 2% PLUS the
Alternate Base Rate as in effect from time to time PLUS the Applicable Margin
for ABR Loans, PROVIDED that, with respect to principal of a Eurodollar Loan,
the "Post-Default Rate" shall be the greater of (i) 2% PLUS the interest rate
for such Loan as provided in Section 3.02 hereof and (ii) the rate provided for
above in this definition.
"PRESENT VALUE OF RESERVES" shall mean, as of any date, estimated
cash flow in respect of Proved Developed Oil and Gas Reserves and Proved Oil and
Gas Reserves attributable to O&G Properties (calculated in accordance with
Chase's customary risk factors and product pricing models for O&G Properties of
similar businesses and in similar locations in effect at the time such estimate
is made) and discounted to present value at a discount rate for Proved Developed
Oil and Gas Reserves and Proved Oil and Gas Reserves acceptable, in each case,
to the Required Lenders.
"PRIME RATE" shall mean the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"PROCEEDS PRODUCTION PAYMENTS" shall mean production payment
obligations of any Person payable in Dollars or other currencies representing a
specified share of proceeds received from specific hydrocarbon Properties,
together with all undertakings and obligations in connection therewith.
"PRODUCTION PAYMENTS" shall mean, collectively, Proceeds Production
Payments and Volumetric Production Payments.
"PROPERTY" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PROVED DEVELOPED OIL AND GAS RESERVES" has the meaning assigned to
that term in Regulation S-X promulgated by the SEC, as such Rule is in effect on
the date hereof.
"PROVED OIL AND GAS RESERVES" has the meaning assigned to that term
in Regulation S-X promulgated by the SEC, as such Rule is in effect on the date
hereof.
<PAGE>
-20-
"PROVED UNDEVELOPED RESERVES" has the meaning assigned to that term
in Regulation S-X promulgated by the SEC, as such Rule is in effect on the date
hereof.
"QUARTERLY DATES" shall mean the last Business Day of March, June,
September and December in each year, the first of which shall be the first such
day after the date hereof.
"REDETERMINATION EVENT" shall mean the occurrence of any of the
following:
(a) the giving by the Administrative Agent or the Required Lenders
of a notice to the Company indicating that the Borrowing Base and
Threshold Amount will be redetermined pursuant to Section 2.11(c) hereof;
(b) the giving by the Company of a notice to the Administrative
Agent and the Lenders requesting that the Borrowing Base and Threshold
Amount be determined pursuant to Section 2.11(c) hereof, PROVIDED that not
more than two such notices may be given by the Company during any fiscal
year of the Company;
(c) any representation or warranty made or deemed made by any
Obligor in this Agreement or in any Mortgage or in any certificate
delivered pursuant hereto or thereto with respect to any Mortgaged
Property, or made or deemed made by any Obligor in or pursuant to this
Agreement with respect to the enforceability of any Mortgage or the
creation, perfection or priority of the Lien of such Mortgage, shall prove
to have been false or misleading with respect to any material portion of
the Mortgaged Property as of the time made or any subsequent date (whether
or not the Company or any other Obligor shall have actual knowledge that
such representation or warranty is false or misleading); and
(d) the Company shall default in its obligation to deliver or cause
to be delivered any Reserve Report and such default shall continue
unremedied for a period of 30 or more days.
"REGULATIONS A, D, G, T, U AND X" shall mean, respectively,
Regulations A, D, G, T, U and X of the Board, as the same may be modified and
supplemented and in effect from time to time.
"REGULATORY CHANGE" shall mean, with respect to any Lender, any
change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Lender of or under any Federal, state or
<PAGE>
-21-
foreign law or regulations (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Materials through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
"REQUIRED LENDERS" shall mean Lenders having at least 75% of the
aggregate amount of the Commitments or, if the Commitments have been terminated,
Lenders holding at least 75% of the aggregate unpaid principal amount of the
Loans.
"RESERVE REPORT" shall mean a report or reports addressed to, among
any other Persons, the Administrative Agent and the Lenders, that is prepared on
a basis reasonably consistent with the Initial Reserve Evaluation Report and is
otherwise in form and substance reasonably satisfactory to the Administrative
Agent, prepared by:
(a) with respect to any report required to be delivered as of the
first day of April of any calendar year, one or more Independent Petroleum
Engineers; and
(b) with respect to any report required to be delivered as of the
first day of October of any calendar year, the Company's senior petroleum
engineer.
Each such report shall contain:
(i) for each well included in the Mortgaged Properties, (x)
Proved Oil and Gas Reserves, (y) Proved Developed Oil and Gas Reserves and
(z) Proved Undeveloped Reserves (each, a "CATEGORY OF RESERVES"), in each
case, to the extent properly allocable to such well;
(ii) for each well included in the Mortgaged Properties for each
year during the remaining Commercial Operation Period for such well, (x)
the projected volume of production attributable to each category of
reserves, (y) projected gross cash operating revenues to be received from
production attributable to each category of reserves and (z) projected net
operating income to be earned from production attributable to each
category of reserves, in each case, to the extent properly allocable to
such well;
<PAGE>
-22-
(iii) for the Mortgaged Properties taken together, the
information described in clauses (i) and (ii) above; and
(iv) for all O&G Properties other dm Mortgaged Properties, the
information, on an aggregate basis for all such O&G Properties, described
in clauses (i) and (ii) above.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including, without
limitation, any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Base Rate is to be
determined as provided in the definition of "Eurodollar Base Rate" in this
Section 1.01 or (ii) any category of extensions of credit or other assets that
includes Eurodollar Loans.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"SEC" shall mean the Securities and Exchange Commission (or any
governmental agency substituted therefor).
"SECURITY DOCUMENTS" shall mean, collectively, the Pledge and
Security Agreement, the Mortgages and all Uniform Commercial Code financing
statements required by this Agreement, the Pledge and Security Agreement or the
Mortgages to be filed with respect to the security interests in personal
Property created pursuant to the Pledge and Security Agreement or the Mortgages.
"SOLVENT" as to any Person shall mean that (i) the sum of the assets
of such Person, both at a fair valuation and at present fair salable value, will
exceed its liabilities, including contingent liabilities, (ii) such Person will
have sufficient capital with which to conduct its business as presently
conducted and as proposed to be conducted and (iii) such Person has not incurred
debts, and does not intend to incur debts, beyond its ability to pay such debts
as they mature. For purposes of this definition, "debt" means any liability on a
claim, and "claim" means (x) a right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y)
a right to an equitable remedy for
<PAGE>
-23-
breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to
any such contingent liabilities, such liabilities shall be computed at the
amount which, in light of all the facts and circumstances existing at the time,
represents the amount which can reasonably be expected to become an actual or
matured liability.
"STATUTORY RESERVE RATE" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one MINUS the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which Chase is subject for new
negotiable nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months. The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any
reserve percentage.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"SUBSIDIARY GUARANTORS" shall have the meaning assigned to such term
in the recital of parties to this Agreement.
"SWAP TRANSACTION" shall mean (a) any rate, basis, commodity,
currency, debt or equity swap, (b) any cap, collar or floor agreement, (c) any
rate, basis, commodity, currency, debt or equity exchange or forward agreement,
(d) any rate, basis, commodity, currency, debt or equity option, (e) any other
similar agreement, (f) any option to enter into any of the foregoing, (g) any
investment management, master or other agreement providing for any of the
foregoing and (h) any combination of any of the foregoing.
"TANGIBLE NET WORTH" shall mean, as at any date for any Person, the
sum for such Person and its Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following:
<PAGE>
-24-
(a) the amount of capital stock; PLUS
(b) the amount of surplus and retained earnings (or, in the case of
a surplus or retained earnings deficit, MINUS the amount of such deficit);
MINUS
(c) the sum of the following: cost of treasury shares and the book
value of all assets that should be classified as intangibles (without
duplication of deductions in respect of items already deducted in arriving
at surplus and retained earnings) but in any event including goodwill,
minority interests, research and development costs, trademarks, trade
names, copyrights, patents and franchises, unamortized debt discount and
expense, all reserves and any write-up in the book value of assets
resulting from a revaluation thereof subsequent to December 31, 1995.
"TAXES" shall mean all taxes, levies, imposts, stamp taxes, duties,
charges to tax, fees, deductions, withholdings or other charges which are
imposed, levied, collected, withheld or assessed by any political subdivision or
taxing authority as of the date of this Agreement or at any time in the future
together with interest thereon and penalties with respect thereto, if any, and
any payments of principal, interest, charges, fees or other amounts made on or
in respect thereof, including without limitation production and severance taxes
and windfall profit taxes, and "Tax" and "Taxation" shall be construed
accordingly.
"TGPC" shall mean Tenneco Gas Production Corporation, a Delaware
corporation.
"THRESHOLD AMOUNT" shall mean, on any date, the amount most recently
determined to be the "Threshold Amount" in accordance with Section 2.11 hereof.
"TOTAL CAPITALIZATION" shall mean, as at any date, the sum, for the
Company and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following:
(a) all Funded Indebtedness; PLUS
(b) the amount of capital stock; PLUS
(c) the amount of surplus and retained earnings (or, in the case of
a surplus or retained earnings deficit, MINUS the amount of such deficit).
<PAGE>
-25-
"TOTAL INDEBTEDNESS" shall mean, as at any date, the sum of all
Funded Indebtedness of the Company and its Restricted Subsidiaries (determined
on a consolidated basis without duplication in accordance with GAAP).
"TRANSFER" shall mean the conveyance, sale, lease, assignment,
granting of any Lien (other than Liens permitted under Section 9.06 hereof) on
or other transfer or disposition of any Property. The terms "Transfer",
"Transferred" and "Transferring" shall have correlative meanings.
"TVC" shall mean Tenneco Ventures Corporation, a Delaware
corporation.
"TYPE" shall have the meaning assigned to such term in Section 1.03
hereof.
"UNRESTRICTED SUBSIDIARY" shall mean such Subsidiaries of the
Company (other than Subsidiary Guarantors) as may be designated by the Company
as "Unrestricted Subsidiaries" as provided in Section 1.04 hereof.
"UTILIZATION LEVEL PERIOD" shall mean a Utilization Level 1 Period,
a Utilization Level 2 Period, a Utilization Level 3 Period or a Utilization
Level 4 Period.
"UTILIZATION LEVEL 1 PERIOD" shall mean each period during which the
aggregate principal amount of Loans outstanding hereunder is less than or equal
to 50% of the Threshold Amount at such time.
"UTILIZATION LEVEL 2 PERIOD" shall mean each period during which the
aggregate principal amount of Loans outstanding hereunder is greater than 50%
but less than or equal to 75% of the Threshold Amount at such time.
"UTILIZATION LEVEL 3 PERIOD" shall mean each period during which the
aggregate principal amount of Loans outstanding hereunder is greater than 75%
but less than or equal to 100% of the Threshold Amount at such time.
"UTILIZATION LEVEL 4 PERIOD" shall mean each period during which the
aggregate principal amount of Loans outstanding hereunder is greater than 100%
of the Threshold Amount at such time.
"VOLUMETRIC PRODUCTION PAYMENTS" shall mean production payment
obligations payable in the form of hydrocarbons constituting a specified share
of production from specific hydrocarbon Properties, together with all
undertakings and obligations in connection therewith.
<PAGE>
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"VOTING CONTROL" shall mean, at any time, the ownership,
beneficially and of record, by one Person of outstanding shares of capital stock
of another Person that, at such time and at all times thereafter (including,
without limitation, following the occurrence of a contingency), have by the
terms thereof voting power to elect a majority of the members of the board of
directors (or Persons performing similar functions) of such other Person.
"WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at
the time of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Lenders hereunder (which, prior to the delivery of
the first financial statements under Section 9.01 hereof, shall mean the
financial statements as at September 30, 1996 referred to in Section 8.02
hereof). All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
financial statements furnished to the Lenders pursuant to Section 9.01 hereof
(or, prior to the delivery of the first financial statements under Section 9.01
hereof, used in the preparation of the financial statements as at September 30,
1996 referred to in Section 8.02 hereof) unless (i) the Company shall have
objected to determining such compliance on such basis at the time of delivery of
such financial statements or (ii) the Majority Lenders shall so object in
writing within 30 days after delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to which such
objection shall not have been made (which, if objection is made in respect of
the first financial statements delivered under Section 9.01 hereof, shall mean
the financial statements as of September 30, 1996 referred to in Section 8.02
hereof). In calculating compliance with financial covenants (and related
definitions) hereunder based on the financial condition or performance of the
Company and
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its Subsidiaries, such calculations shall exclude the financial condition and
performance of all Unrestricted Subsidiaries.
(b) The Company shall deliver to the Lenders at the same time as the
delivery of any annual or quarterly financial statement under Section 9.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (a) above and (ii) reasonable estimates of the difference between
such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in Section 9 hereof, the Company will not change
the last day of its fiscal year from December 31, or the last days of the first
three fiscal quarters in each of its fiscal years from March 31, June 30 and
September 30 of each year, respectively.
1.03 TYPES OF LOANS. Loans hereunder are distinguished by "Type".
The "Type" of a Loan refers to whether such Loan is an ABR Loan or a Eurodollar
Loan, each of which constitutes a Type.
1.04 DESIGNATION OF SUBSIDIARIES AS RESTRICTED OR UNRESTRICTED
SUBSIDIARIES. The Company may, but only with the approval of the Majority
Lenders, designate (by notice to the Administrative Agent which shall promptly
notify the Lenders) a Restricted Subsidiary (as designated in Schedule III
hereto) (other than a Subsidiary Guarantor) to be an Unrestricted Subsidiary or
an Unrestricted Subsidiary (as designated in Schedule III hereto) to be a
Restricted Subsidiary; provided that the Company may, without such approval,
designate (by notice to the Administrative Agent which shall promptly notify the
Lenders) a corporation or other entity that is formed or acquired as a direct or
indirect Subsidiary of the Company after the date hereof (no part of the
business or assets of which was owned by the Company or a Restricted Subsidiary
prior to the date of such formation or acquisition) to be an Unrestricted
Subsidiary on or prior to the date of such formation or acquisition if, after
giving effect thereto, no Default shall have occurred and be continuing.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS. Each Lender severally agrees, on the terms and
conditions of this Agreement, to make loans to the Company in Dollars during the
period from and including the Closing Date to but not including the Commitment
Termination Date in an
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aggregate principal amount at any one time outstanding up to but not exceeding
the amount of the Commitment of such Lender as in effect from time to time.
Subject to the terms and conditions of this Agreement, during such period the
Company may borrow, repay and reborrow the amount of the Commitments by means of
ABR Loans and Eurodollar Loans and may Convert Loans of one Type into Loans of
another Type (as provided in Section 2.08 hereof) or Continue Loans of one Type
as Loans of the same Type (as provided in Section 2.08 hereof); PROVIDED that no
more than six separate Interest Periods in respect of Eurodollar Loans from each
Lender may be outstanding at any one time.
2.02 BORROWINGS. The Company shall give the Administrative Agent
notice of each borrowing hereunder as provided in Section 4.05 hereof. Not later
than 1:00 p.m. New York time on the date specified for each borrowing hereunder,
each Lender shall make available the amount of the Loan or Loans to be made by
it on such date to the Administrative Agent, at an account in New York, New York
specified by the Administrative Agent, in immediately available funds, for
account of the Company. The amount so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made available
to the Company by depositing the same, in immediately available funds, in an
account of the Company designated by the Company and maintained with Chase in
New York, New York.
2.03 CHANGES OF COMMITMENTS.
(a) The aggregate amount of the Commitments shall be automatically
reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time to
time (i) so long as no Loans are outstanding, to terminate the Commitments and
(ii) to reduce the aggregate unused amount of the Commitments; PROVIDED that (x)
the Company shall give notice of each such termination or reduction as provided
in Section 4.05 hereof and (y) each partial reduction shall be in an aggregate
amount at least equal to $5,000,000 (or a larger multiple of $1,000,000).
(c) The Commitments once terminated or reduced may not be
reinstated.
2.04 COMMITMENT FEE. The Company shall pay to the Administrative
Agent for account of each Lender a commitment fee on the daily average unused
amount of such Lender's Commitment, for the period from and including the date
hereof to but not including the earlier of the date such Commitment is
terminated and the Commitment Termination Date, at a rate per annum equal to the
Applicable Commitment Fee Rate as in effect from
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time to time. Accrued commitment fee shall be payable on each Quarterly Date and
on the earlier of the date the Commitments are terminated and the Commitment
Termination Date.
2.05 LENDING OFFICES. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.06 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any
Lender to make any Loan to be made by it on the date specified therefor shall
not relieve any other Lender of its obligation to make its Loan on such date,
but neither any Lender nor the Administrative Agent shall be responsible for the
failure of any other Lender to make a Loan to be made by such other Lender, and
(except as otherwise provided in Section 4.06 hereof) no Lender shall have any
obligation to the Administrative Agent or any other Lender for the failure by
such Lender to make any Loan required to be made by such Lender. The amounts
payable by the Company at any time hereunder and under the Notes to each Lender
shall be a separate and independent debt and each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement and the Notes, and
it shall not be necessary for any other Lender or the Administrative Agent to
consent to, or be joined as an additional party in, any proceedings for such
purposes.
2.07 NOTES.
(a) The Loans made by each Lender shall be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A hereto,
dated the date hereof, payable to such Lender in a principal amount equal to the
amount of its Commitment as originally in effect and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by each Lender to the Company, and each
payment made on account of the principal thereof, shall be recorded by such
Lender on its books and, prior to any transfer of the Note held by it, endorsed
by such Lender on the schedule attached to such Note or any continuation
thereof; PROVIDED that the failure of such Lender to make any such recordation
or endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing hereunder or under such Note in respect of the
Loans.
(c) No Lender shall be entitled to have its Note substituted or
exchanged for any reason, or subdivided for promissory notes of lesser
denominations, except in connection with a permitted assignment of all or any
portion of such Lender's Commitment, Loans and Note pursuant to Section 12.06
hereof (and, if requested by any Lender, the Company agrees to so exchange any
Note).
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2.08 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS.
Subject to Sections 2.10, 4.04 and 5.05 hereof, the Company shall have the right
to prepay Loans, or to Convert Loans of one Type into Loans of another Type or
Continue Loans of one Type as Loans of the same Type, at any time or from time
to time, PROVIDED that:
(a) the Company shall give the Administrative Agent notice of each
such prepayment, Conversion or Continuation as provided in Section 4.05
hereof (and, upon the date specified in any such notice of prepayment, the
amount to be prepaid shall become due and payable hereunder); and
(b) any Conversion or Continuation of Eurodollar Loans shall be
subject to the proviso set forth at the end of Section 2.01 hereof.
Notwithstanding the foregoing, and without limiting the rights and remedies of
the Lenders under Section 10 hereof, in the event that any Event of Default
shall have occurred and be continuing, the Administrative Agent may (and at the
request of the Majority Lenders shall) suspend the right of the Company to
Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar
Loan, in which event all Eurodollar Loans shall be Converted (on the last day(s)
of the respective Interest Periods therefor) into ABR Loans.
2.09 MANDATORY PREPAYMENTS AND REDUCTIONS OF COMMITMENTS.
(a) BORROWING BASE. If the aggregate principal amount of the Loans
shall at any time exceed the lesser of (i) the aggregate amount of the
Commitments in effect at such time and (ii) the Borrowing Base at such time
(such condition being herein called an "OVERAGE"), the Company shall (subject to
Sections 2.10 and 5.05 hereof) prepay Loans in an amount equal to the amount of
such overage. Such prepayment shall be made no later than the date 30 days
following the date on which such overage first occurred unless the Company shall
theretofore have eliminated such overage (through a redetermination of the
Borrowing Base as provided in Section 2.11 hereof) in a manner acceptable to the
Administrative Agent and the Required Lenders, PROVIDED that if the Borrowing
Base has decreased by reason of a sale, lease, transfer or other disposition of
any Property of the Company or any of its Restricted Subsidiaries or any other
voluntary action taken by an Obligor, such prepayment shall be made on such
earlier date or dates as the Required Lenders (through the Administrative Agent)
may specify to the Company.
(b) THRESHOLD AMOUNT. If the aggregate principal amount of the Loans
shall at any time after the first anniversary of the Closing Date exceed the
Threshold Amount at such time, the Company shall (subject to Sections 2.10 and
5.05 hereof) immediately prepay Loans in an amount equal to such excess.
Notwithstanding any provision of this Agreement
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to the contrary, on any date after the first anniversary of the Closing Date,
any reference in this Agreement or any of the other Basic Documents to the
"Threshold Amount" shall be deemed to be a reference to the "Borrowing Base."
(c) EXCESS CASH FLOW. If at the end of any fiscal quarter of the
Company the aggregate principal amount of the Loans shall exceed the Threshold
Amount (each such fiscal quarter, a "SPECIFIED QUARTER"), then the Company shall
(subject to Sections 2.10 and 5.05 hereof) prepay a principal amount of the
Loans and accrued interest thereon in an aggregate amount equal to 100% of
Excess Cash Flow for such Specified Quarter. Such prepayment shall be made no
later than the date 30 days after the end of such Specified Quarter.
(d) Any prepayment of principal of the Loans made pursuant to clause
(b) or (c) of this Section 2.09 shall automatically reduce the Borrowing Base
and the Threshold Amount, if applicable, by the amount of such prepayment.
2.10 MINIMUM AMOUNT OUTSTANDING. Notwithstanding anything in
Sections 2.08 and 2.09 to the contrary (but without limiting Section 3.01
hereof), following the making of the initial Loan hereunder, the Company shall
not, nor shall the Company be obligated to, prepay any Loan or Loans if, after
giving effect to such prepayment, the aggregate principal amount of Loans
outstanding would be less than $100.
2.11 BORROWING BASE AND THRESHOLD AMOUNT DETERMINATIONS AND
COMPUTATIONS.
(a) INITIAL AMOUNTS. The Borrowing Base in effect on the date of
this Agreement is hereby determined to be $65,000,000 (as such amount may be
reduced pursuant to Section 2.09(d) hereof), and the Threshold Amount in effect
on the date of this Agreement is hereby determined to be $45,000,000. The
Borrowing Base and the Threshold Amount shall remain at the respective amounts
determined pursuant to the first sentence of this Section 2.11(a) until the date
on which the Administrative Agent shall next establish the Borrowing Base and
Threshold Amount (prior to the first anniversary of the Closing Date) as
provided in Section 2.11(b) hereof or Section 2.11(c) hereof.
(b) SCHEDULED REDETERMINATIONS. (i) As promptly as practicable, but
in any event within 30 days, following the receipt of any Reserve Report
required to be delivered under Section 9.01(e), the Administrative Agent
(in consultation with the Lenders) shall (A) redetermine the Borrowing
Base and the Threshold Amount on the basis of such Reserve Report in the
manner provided in clause (ii) of this Section 2.11(b), (B) notify the
Lenders of such redetermination and (C) if such redetermination is
approved by the Required Lenders (provided that if any Lender
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fails to respond to the notification from the Administrative Agent
delivered pursuant to clause (B) within 15 days of the delivery thereof,
such Lender shall be deemed to have approved the proposed
redetermination), notify the Lenders of the Borrowing Base and, if prior
to the first anniversary of the Closing Date, the Threshold Amount as so
redetermined. Such redetermined Borrowing Base and the Threshold Amount
shall become effective on the date on which the Company receives written
notice of the redetermined Borrowing Base or Threshold Amount, as
applicable (or such later date as notified by the Administrative Agent to
the Company and the Lenders) and shall remain effective until again
redetermined pursuant to this Section 2.11. Each date on which a
redetermination of the Borrowing Base or, if prior to the first
anniversary of the Closing Date, the Threshold Amount becomes effective as
provided in the preceding sentence is herein called a "REDETERMINATION
DATE".
(ii) Each redetermination by the Administrative Agent of
the Borrowing Base (and the Required Lenders' approval thereof)
shall be made on the basis of parameters which may include the
Present Value of Reserves attributable to O&G Properties as set
forth in the related Reserve Report, as adjusted by the
Administrative Agent with the approval of the Required Lenders, in
its and their reasonable discretion, using the rates, factors,
values, estimates, assumptions and computations set forth in such
Reserve Report and any other relevant information or factors (such
adjustments being herein called "BORROWING BASE ASSUMPTIONS").
(c) UNSCHEDULED REDETERMINATIONS. Not later than the date 45 days
after any Redetermination Event, the Administrative Agent may (and (i) if
requested by the Required Lenders or (ii) if such Redetermination Event is an
event referred to in paragraph (b) of the definition of such term in Section
1.01 hereof, shall), by notice to the Company and the Lenders, re-establish the
Borrowing Base and, if prior to the first anniversary of the Closing Date, the
Threshold Amount with the approval of the Required Lenders. In determining the
Borrowing Base and, if prior to the first anniversary of the Closing Date, the
Threshold Amount pursuant to this Section 2.11(c), the Administrative Agent
shall (with the approval of the Required Lenders) be entitled to give effect to
the occurrence of any events or circumstances giving rise to or constituting the
relevant Redetermination Event. Any determination of the Borrowing Base
following a Redetermination Event referred to in paragraph (d) of the definition
of such term in Section 1.01 hereof shall be made by the Administrative Agent
and the Required Lenders in their sole discretion based on such factors as they
deem relevant. The effective date of the redetermined Borrowing Base and
Threshold Amount, if applicable, shall be established in accordance with Section
2.11(b) hereof, provided that no Reserve Report shall be required for a
determination of the Borrowing Base following a Redetermination Event referred
to in paragraph (d) of the definition of such term in Section 1.01 hereof.
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(d) DETERMINATIONS. Each determination of the Borrowing Base
pursuant to Sections 2.11(b) and (c) hereof shall be the Administrative Agent's
determination of the aggregate value of the Obligor's interest in the O&G
Properties, and shall be the Borrowing Base until the date on which the
Administrative Agent, with the approval of the Required Lenders, shall next
establish the Borrowing Base as provided in Section 2.11(b) or 2.11(c) hereof.
Each determination of the Threshold Amount pursuant to Sections 2.11(b) and (c)
hereof shall be the Administrative Agent's, with the approval of the Required
Lenders, determination of the aggregate value of the Obligor's interest in the
O&G Properties, and shall be the Threshold Amount until the date on which the
Administrative Agent, with the approval of the Required Lenders, shall next
establish the Threshold Amount as provided in Section 2.11(b) or 2.11(c) hereof.
In determining the Borrowing Base and the Threshold Amount pursuant to Sections
2.11(b) and (c) hereof or the definition of "Present Value of Reserves" in
Section 1.01 hereof, the Administrative Agent shall (in consultation with the
Lenders), (x) employ the oil and gas lending criteria generally employed by
Chase on the date of such determination with respect to borrowers similar to the
Company, and (y) be entitled to take into account such rates, factors, values,
estimates and assumptions as the Administrative Agent shall, in its reasonable
discretion, deem relevant for the purpose of such determination, together with
the report most recently delivered under Section 9.01(e) hereof.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01 REPAYMENT OF LOANS. The Company hereby promises to pay to the
Administrative Agent for account of each Lender the entire outstanding principal
amount of such Lender's Loans, and each Loan shall mature, on the Commitment
Termination Date.
3.02 INTEREST. The Company hereby promises to pay to the
Administrative Agent for account of each Lender interest on the unpaid principal
amount of each Loan made by such Lender for the period from and including the
date of such Loan to but excluding the date such Loan shall be paid in full, at
the following rates per annum:
(a) during such periods as such Loan is an ABR Loan, the Alternate
Base Rate (as in effect from time to time) PLUS the Applicable Margin; and
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period PLUS the Applicable Margin.
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Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Lender interest at the applicable
Post-Default Rate:
(x) on any principal of any Loan made by such Lender and on any
other amount payable by the Company hereunder or under the Note held by
such Lender to or for account of such Lender, that shall not be paid in
full when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), for the period from and including the due date
thereof to but excluding the date the same is paid in full and
(y) on any principal of any Loan made by such Lender during any
period when an Event of Default shall have occurred under Section 10(a)
hereof and for so long as such Event of Default shall be continuing.
Accrued interest on each Loan shall be payable (i) in the case of an ABR Loan,
on the last Business Day of each month, (ii) in the case of a Eurodollar Loan,
on the last day of each Interest Period therefor and, if such Interest Period is
longer than three months, at three-month intervals following the first day of
such Interest Period, and (iii) in the case of any Loan, upon the payment or
prepayment thereof or the Conversion of such Loan to a Loan of another Type (but
only on the principal amount so paid, prepaid or Converted), except that
interest payable at the Post-Default Rate shall be payable from time to time on
demand. Promptly after the determination of any interest rate provided for
herein or any change therein, the Administrative Agent shall give notice thereof
to the Lenders to which such interest is payable and to the Company.
Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Company under this
Agreement and the Notes, and, except to the extent otherwise provided therein,
all payments to be made by the Obligors under any other Loan Document, shall be
made in Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Administrative Agent at an account in New York, New York
specified by the Administrative Agent not later than 2:00 p.m. New York time on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day).
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(b) Any Lender for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that is not
made by such time to any ordinary deposit account of the Company with such
Lender (with notice to the Company and the Administrative Agent), PROVIDED that
such Lender's failure to give such notice shall not affect the validity thereof.
(c) The Company shall, at the time of making each payment under this
Agreement or any Note for account of any Lender, specify to the Administrative
Agent (which shall so notify the intended recipient(s) thereof) the Loans or
other amounts payable by the Company hereunder to which such payment is to be
applied (and in the event that the Company fails to so specify, or if an Event
of Default has occurred and is continuing, the Administrative Agent may
distribute such payment to the Lenders for application in such manner as it or
the Majority Lenders, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Each payment received by the Administrative Agent under this
Agreement or any Note for account of any Lender shall be paid by the
Administrative Agent promptly to such Lender, in immediately available funds,
for account of such Lender's Applicable Lending Office for the Loan or other
obligation in respect of which such payment is made.
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each borrowing from the Lenders under Section 2.01 hereof shall be
made from the Lenders, each payment of commitment fee under Section 2.04 hereof
shall be made for account of the Lenders, and each termination or reduction of
the amount of the Commitments under Section 2.03 hereof shall be applied to the
respective Commitments of the Lenders, pro rata according to the amounts of
their respective Commitments; (b) except as otherwise provided in Section 5.04
hereof, Eurodollar Loans having the same Interest Period shall be allocated pro
rata among the Lenders according to the amounts of their respective Commitments
(in the case of the making of Loans) or their respective Loans (in the case of
Conversions and Continuations of Loans); (c) each payment or prepayment of
principal of Loans by the Company shall be made for account of the Lenders pro
rata in accordance with the respective unpaid principal amounts of the Loans
held by them; and (d) each payment of interest on Loans by the Company shall be
made for account of the Lenders pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Lenders.
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4.03 COMPUTATIONS. Interest on Loans and commitment fee shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable. Notwithstanding the foregoing, for each day that the Alternate Base
Rate is calculated by reference to the Prime Rate, interest on ABR Loans shall
be computed on the basis of a year of 365 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable.
4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant
to Section 2.09 hereof and Conversions or prepayments made pursuant to Section
5.04 hereof, each borrowing, Conversion and partial prepayment of principal of
Loans shall be in an aggregate amount at least equal to $1,000,000 or a larger
multiple of $500,000 (borrowings, Conversions or prepayments of or into Loans of
different Types or, in the case of Eurodollar Loans, having different Interest
Periods at the same time hereunder to be deemed separate borrowings, Conversions
and prepayments for purposes of the foregoing, one for each Type or Interest
Period), PROVIDED that the aggregate principal amount of Eurodollar Loans having
the same Interest Period shall be in an amount at least equal to $5,000,000 or a
larger multiple of $1,000,000 and, if any Eurodollar Loans would otherwise be in
a lesser principal amount for any period, such Loans shall be ABR Loans during
such period.
4.05 CERTAIN NOTICES. Notices by the Company to the Administrative
Agent of determinations or reductions of the Commitments and of borrowings,
Conversions, Continuations and optional prepayments of Loans, of Types of Loans
and of the duration of Interest Periods shall be irrevocable and shall be
effective only if received by the Administrative Agent not later than 11:00 a.m.
New York time on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or prepayment or the
first day of such Interest Period specified below:
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Number of
Business
Notice Days Prior
------ ----------
Termination or reduction of Commitments 3
Borrowing or prepayment of, or Conversions
into, ABR Loans 1
Borrowing or prepayment of, Conversions
into, Continuations as, or duration of
Interest Period for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to Section
4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or
prepaid and the date of borrowing, Conversion, Continuation or optional
prepayment (which shall be a Business Day). Each such notice of the duration of
an Interest Period shall specify the Loans to which such Interest Period is to
relate. The Administrative Agent shall promptly notify the Lenders of the
contents of each such notice. In the event that the Company fails to select the
Type of Loan, or the duration of any Interest Period for any Eurodollar Loan,
within the time period and otherwise as provided in this Section 4.05, such Loan
(if outstanding as a Eurodollar Loan) will be automatically Converted into an
ABR Loan on the last day of the then current Interest Period for such Loan or
(if outstanding as an ABR Loan) will remain as, or (if not then outstanding)
will be made as, an ABR Loan.
4.06 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless the
Administrative Agent shall have been notified by a Lender or the Company (the
"PAYOR") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Lenders hereunder (such
payment being herein called the "REQUIRED PAYMENT"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not
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be required to), make the amount thereof available to the intended recipient(s)
on such date; and, if the Payor has not in fact made the Required Payment to the
Administrative Agent, the recipient(s) of such payment shall, on demand, repay
to the Administrative Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date (the
"ADVANCE DATE") such amount was so made available by the Administrative Agent
until the date the Administrative Agent recovers such amount at a rate per annum
equal to the Federal Funds Rate for such day and, if such recipient(s) shall
fail promptly to make such payment, the Administrative Agent shall be entitled
to recover such amount, on demand, from the Payor, together with interest as
aforesaid, PROVIDED that if neither the recipient(s) nor the Payor shall return
the Required Payment to the Administrative Agent within three Business Days of
the Advance Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) shall each be obligated to pay interest on the Required Payment as
follows:
(i) if the Required Payment shall represent a payment to
be made by the Company to the Lenders, the Company and the
recipient(s) shall each be obligated retroactively to the Advance
Date to pay interest in respect of the Required Payment at the
Post-Default Rate (without duplication of the obligation of the
Company under Section 3.02 hereof to pay interest on the Required
Payment at the Post-Default Rate), it being understood that the
return by the recipient(s) of the Required Payment to the
Administrative Agent shall not limit such obligation of the Company
under said Section 3.02 to pay interest at the Post-Default Rate in
respect of the Required Payment; and
(ii) if the Required Payment shall represent proceeds of a
Loan to be made by the Lenders to the Company, the Payor and the
Company shall each be obligated retroactively to the Advance Date to
pay interest in respect of the Required Payment pursuant to
whichever of the rates specified in Section 3.02 hereof is
applicable to the Type of such Loan, it being understood that the
return by the Company of the Required Payment to the Administrative
Agent shall not limit any claim the Company may have against the
Payor in respect of such Required Payment.
4.07 SHARING OF PAYMENTS, ETC.
(a) Each Obligor agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Lender may otherwise
have, each Lender shall be entitled, at its option (to the fullest extent
permitted by law), to set off and apply any deposit (general or special, time or
demand, provisional or final), or other indebtedness, held by it for the credit
or account of such Obligor at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Lender's Loans or
any other
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amount payable to such Lender hereunder, that is not paid when due (regardless
of whether such deposit or other indebtedness are then due to such Obligor), in
which case it shall promptly notify such Obligor and the Administrative Agent
thereof, PROVIDED that such Lender's failure to give such notice shall not
affect the validity thereof.
(b) If any Lender shall obtain from any Obligor payment of any
principal of or interest on any Loan owing to it or payment of any other amount
under this Agreement or any other Loan Document through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise
(other than from the Administrative Agent as provided herein), and, as a result
of such payment, such Lender shall have received a greater percentage of the
principal of or interest on the Loans or such other amounts then due hereunder
or thereunder by such Obligor to such Lender than the percentage received by any
other Lender, it shall promptly purchase from such other Lenders participations
in (or, if and to the extent specified by such Lender, direct interests in) the
Loans or such other amounts, respectively, owing to such other Lenders (or in
interest due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Lenders shall share the benefit of such excess payment (net of any expenses that
may be incurred by such Lender in obtaining or preserving such excess payment)
pro rata in accordance with the unpaid principal of and/or interest on the Loans
or such other amounts, respectively, owing to each of the Lenders. To such end
all the Lenders shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored.
(c) The Company agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of Loans or other amounts (as the case
may be) owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lander to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a set-off to which this Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
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Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Lender from time to time
such amounts as such Lender may reasonably determine to be necessary to
compensate such Lender for any costs that such Lender determines are
attributable to its making or maintaining of any Eurodollar Loans or its
obligation to make any Eurodollar Loans hereunder, or any reduction in any
amount receivable by such Lender hereunder in respect of any of such Loans or
such obligation (such increases in costs and reductions in amounts receivable
being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change
that:
(i) shall subject any Lender (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in
respect of such Loans or its Note or changes the basis of taxation
of any amounts payable to such Lender under this Agreement or its
Note in respect of any of such Loans (excluding changes in the rate
of tax on the overall net income of such Lender or of such
Applicable Lending Office by the jurisdiction in which such Lender
has its principal office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in
the determination of the Eurodollar Rate for such Loan) relating to
any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Lender (including, without limitation,
any of such Loans or any deposits referred to in the definition of
"Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of
such Lender (including, without limitation, the Commitment of such
Lender hereunder); or
(iii) imposes any other condition affecting this Agreement
or its Note (or any of such extensions of credit or liabilities) or
its Commitment.
If any Lender requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Lender (with a copy to the Administrative
Agent), suspend the obligation of such Lender thereafter to make or Continue
Eurodollar Loans, or to Convert ABR Loans into Eurodollar Loans, until the
Regulatory Change giving rise to such request ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable), PROVIDED that
such suspension shall not affect the right of such Lender to receive the
compensation so requested.
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(b) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to each
Lender from time to time on request such amounts as such Lender may reasonably
determine to be necessary to compensate such Lender (or, without duplication,
the bank holding company of which such Lender is a subsidiary) for any costs
that it determines are attributable to the maintenance by such Lender (or any
Applicable Lending Office or such bank holding company), pursuant to any law or
regulation or any interpretation, directive or request (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or other
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) hereafter issued by any
government or governmental or supervisory authority implementing at the national
level the Basle Accord, of capital in respect of its Commitment or Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of such Lender (or any Applicable Lending
Office or such bank holding company) to a level below that which such Lender (or
any Applicable Lending Office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request).
(c) Each Lender shall notify the Company of any event occurring
after the date hereof entitling such Lender to compensation under paragraph (a)
or (b) of this Section 5.01 as promptly as practicable, but in any event within
45 days, after such Lender obtains actual knowledge thereof; PROVIDED that (i)
if any Lender fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such Lender shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Lender does
give such notice and (ii) each Lender will designate a different Applicable
Lending Office for the Loans of such Lender affected by such event if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole opinion of such Lender, be disadvantageous to such
Lender, except that such Lender shall have no obligation to designate an
Applicable Lending Office located in the United States of America. Each Lender
will furnish to the Company a certificate setting forth in reasonable detail the
basis and amount of each request by such Lender for compensation under paragraph
(a) or (b) of this Section 5.01. Determinations and allocations by any Lender
for purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to paragraph (a) of this Section 5.01, or of the effect of capital
maintained pursuant to paragraph (b) of this Section 5.01, on its costs or rate
of return of maintaining Loans or its obligation to make Loans, or on amounts
receivable by it in respect of Loans, and of the amounts required to
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compensate such Lender under this Section 5.01, shall be conclusive, PROVIDED
that such determinations and allocations are made in good faith and on a
reasonable basis.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Eurodollar Base
Rate for any Interest Period:
(a) the Administrative Agent determines in good faith, which
determination shall be conclusive, that quotations of interest rates for
the relevant deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof are not being provided in the relevant
amounts or for the relevant maturities for purposes of determining rates
of interest for Eurodollar Loans as provided herein; or
(b) the Majority Lenders determine in good faith, which
determination shall be conclusive, and notify the Administrative Agent
that the relevant rates of interest referred to in the definition of
"Eurodollar Base Rate" in Section 1.01 hereof upon the basis of which the
rate of interest for Eurodollar Loans for such Interest Period is to be
determined are not likely adequately to cover the cost to such Lenders of
making or maintaining Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Company and each Lender prompt
notice thereof and, so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans, to Continue
Eurodollar Loans or to Convert ABR Loans into Eurodollar Loans, and the Company
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into ABR Loans in accordance with Section 2.08 hereof.
5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder (and, in the sole opinion of such Lender, the designation of a
different Applicable Lending Office would either not avoid such unlawfulness or
would be disadvantageous to such Lender), then such Lender shall promptly notify
the Company thereof (with a copy to the Administrative Agent) and such Lender's
obligation to make or Continue, or to Convert Loans of any other Type into,
Eurodollar Loans shall be suspended until such time as such Lender may again
make and maintain Eurodollar Loans (in which case the provisions of Section 5.04
hereof shall be applicable).
5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to
make Eurodollar Loans or to Continue, or to Convert ABR Loans into, Eurodollar
Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Lender's
Eurodollar Loans shall be
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automatically Converted into ABR Loans on the last day(s) of the then current
Interest Period(s) for Eurodollar Loans (or, in the case of a Conversion
resulting from a circumstance described in Section 5.03 hereof, on such earlier
date as such Lender may specify to the Company with a copy to the Administrative
Agent) and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such
Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Eurodollar Loans shall be applied instead to
its ABR Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as ABR
Loans, and all ABR Loans of such Lender that would otherwise be Converted
into Eurodollar Loans shall remain as ABR Loans.
If such Lender gives notice to the Company with a copy to the Administrative
Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to the Conversion of such Lender's Eurodollar Loans pursuant to this
Section 5.04 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans made by other
Lenders are outstanding, such Lender's ABR Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Loans, to the extent necessary so that, after giving
effect thereto, all Loans are allocated among the Lenders ratably (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
5.05 COMPENSATION. The Company shall pay to the Administrative Agent
for account of each Lender, upon the written request of such Lender through the
Administrative Agent (which request shall set forth in reasonable detail the
basis therefor), such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense (including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds required by
such Lender to fund its Eurodollar Loans but excluding in any event the loss of
anticipated profits) that such Lender determines is attributable to:
(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan made by such Lender for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10 hereof)
on a date other than the last day of the Interest Period for such Loan; or
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(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such
Lender on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof (other than as a result of
a default by such Lender of its obligations pursuant to Section 2.01 or
2.02 hereof or by the Administrative Agent of its obligations pursuant to
Section 2.02 hereof).
5.06 U.S. TAXES.
(a) The Company agrees to pay to each Lender that is not a U.S.
Person such additional amounts as are necessary in order that the net payment of
any amount due to such non-U.S. Person hereunder after deduction for or
withholding in respect of any U.S. Taxes (other than U.S. Taxes attributable to
payments that are effectively connected with the conduct of a trade or business
within the United States of America, within the meaning of Section 864 of the
Code as in effect on the date hereof) imposed with respect to such payment (or
in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will not
be less than the amount stated herein to be then due and payable, PROVIDED that
the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Lender hereunder unless such
Lender is, on the date hereof (or on the date it becomes a Lender
hereunder as provided in Section 12.06(b) hereof), on the date of
each payment hereunder and on the date of any change in the
Applicable Lending Office of such Lender, either entitled to submit
a Form 1001 (relating to such Lender and entitling it to a complete
exemption from withholding on all interest to be received by it
hereunder in respect of the Loans) or Form 4224 (relating to all
interest to be received by such Lender hereunder in respect of the
Loans), or
(ii) to any U.S. Taxes imposed solely by reason of the
failure by such non-U.S. Person (or, if such non-U.S. Person is not
the beneficial owner of the relevant Loan, such beneficial owner)
to comply with applicable certification, information, documentation
or other reporting requirements concerning the nationality,
residence, identity or connections with the United States of
America of such non- U.S. Person (or such beneficial owner, as the
case may be) if such compliance is required by statute or
regulation of the United States of America as a precondition to
relief or exemption from such U.S. Taxes.
For the purposes of this Section 5.06(a), (A) "U.S. PERSON" shall mean a
citizen, national or resident of the United States of America, a corporation,
partnership or other entity created or
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organized in or under any laws of the United States of America or any State
thereof, or any estate or trust that is subject to Federal income taxation
regardless of the source of its income, (B) "U.S. TAXES" shall mean any present
or future tax, assessment or other charge or levy imposed by or on behalf of the
United States of America or any taxing authority thereof or therein, (C) "FORM
1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate Certificate)
of the Department of the Treasury of the United States of America and (D) "FORM
4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States) of the Department of the Treasury of the United States of America. Each
of the Forms referred to in the foregoing clauses (C) and (D) shall include such
successor and related forms as may from time to time be adopted by the relevant
taxing authorities of the United States of America to document a claim to which
such Form relates.
(b) Within 30 days after paying any amount to the Administrative
Agent or any Lender from which it is required by law to make any deduction or
withholding, and within 30 days after it is required by law to remit such
deduction or withholding to any relevant taxing or other authority, the Company
shall deliver to the Administrative Agent for delivery to such non-U.S. Person
evidence satisfactory to such Person of such deduction, withholding or payment
(as the case may be).
(c) If any Lender shall be entitled to compensation under this
Section 5.06, such Lender, within a reasonable time after becoming entitled to
such compensation, shall (unless otherwise required by a Government Authority or
a result of any law, rule, regulation, order or similar directive applicable to
such Lender) designate a different Applicable Lending Office from that initially
selected by such Lender to which payments are to be made under the Basic
Documents, if such designation would avoid the need for (or reduce the amount
of) such compensation and would not, in the sole opinion of such Lender, be
otherwise disadvantageous to such Lender.
5.07 REPLACEMENT OF LENDERS. If any Lender defaults in its
obligation to make Loans under Section 2.01 hereof or requests compensation
pursuant to Section 5.01 or 5.06 hereof, or any Lender's obligation to make or
Continue, or to Convert Loans of any Type into, any other Type of Loan shall be
suspended pursuant to Section 5.01 or 5.03 hereof (any such Lender so defaulting
or requesting such compensation or whose obligations are so suspended, being
herein called a "RELEVANT LENDER"), the Company, upon three Business Days notice
given when no Default shall have occurred and be continuing, may require that
such Relevant Lender transfer all of its right, title and interest under this
Agreement and such Relevant Lender's Notes to any bank or other financial
institution identified by the Company that is satisfactory to the Agent, in its
discretion reasonably exercised (a "PROPOSED LENDER"), provided that (i) such
Proposed Lender agrees to assume
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all of the obligations of such Relevant Lender hereunder, and to purchase all of
such Relevant Lender's Loans hereunder for consideration equal to the aggregate
outstanding principal amount of such Relevant Lender's Loans, together with
interest thereon to the date of such purchase, and arrangements satisfactory to
such Relevant Lender are made for payment to such Relevant Lender of all other
amounts payable hereunder to such Relevant Lender on or prior to the date of
such transfer (including any fees accrued hereunder and any amounts that would
be payable under Section 5.05 hereof as if all of such Relevant Lender's Loans
were being prepaid in full on such date) and (ii) if such Relevant Lender has
requested compensation pursuant to Section 5.01 or 5.06 hereof, such Proposed
Lender's aggregate requested compensation, if any, paid pursuant to Section 5.01
or 5.06 hereof with respect to such Relevant Lender's Loans is lower than that
of the Relevant Lender. Subject to the provisions of Section 12.06(b) hereof,
such Proposed Lender shall be a "Lender" for all purposes hereunder. Without
prejudice to the survival of any other agreement of the Company hereunder, the
agreements of the Company contained in Sections 5.01, 5.06 and 12 hereof
(without duplication of any payments made to such Relevant Lender by the Company
or the Proposed Lender) shall survive for the benefit of such Relevant Lender
under this Section 5.07 with respect to the time prior to such replacement.
Section 6. GUARANTEE.
6.01 THE GUARANTEE. The Subsidiary Guarantors hereby jointly and
severally guarantee to each Lender and the Administrative Agent and their
respective successors and assigns the prompt payment in full when due (whether
at stated maturity, by acceleration or otherwise) of the principal of and
interest on the Loans made by the Lenders to, and the Note held by each Lender
of, the Company and all other amounts from time to time owing to the Lenders or
the Administrative Agent by the Company under this Agreement and under the Notes
and by any Obligor under any of the other Loan Documents, and all obligations of
the Company or any of its Restricted Subsidiaries to any Lender in respect of
any Swap Transactions, in each case strictly in accordance with the terms
thereof (such obligations being herein collectively called the" GUARANTEED
OBLIGATIONS"). The Subsidiary Guarantors hereby further jointly and severally
agree that if the Company shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Subsidiary Guarantors will promptly pay the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
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6.02 OBLIGATIONS UNCONDITIONAL. The obligations of the Subsidiary
Guarantors under Section 6.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Company under this Agreement, the Notes
or any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 6.02 that the obligations of the
Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and
several, under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Subsidiary Guarantors hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to
the Subsidiary Guarantors, the time for any performance of or
compliance with any of the Guaranteed Obligations shall be extended,
or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
this Agreement or the Notes or any other agreement or instrument
referred to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right under
this Agreement or the Notes or any other agreement or instrument
referred to herein or therein shall be waived or any other guarantee
of any of the Guaranteed Obligations or any security therefor shall
be released or exchanged in whole or in part or otherwise dealt
with; or
(iv) any lien or security interest granted to, or in favor
of, the Administrative Agent or any Lender or Lenders as security
for any of the Guaranteed Obligations shall fail to be perfected.
The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Administrative Agent or any Lender exhaust any right, power or remedy or proceed
against the Company under this Agreement or the Notes or any other agreement or
instrument referred to herein or therein, or against any other Person under any
other guarantee of, or security for, any of the Guaranteed Obligations. Each
Subsidiary Guarantor agrees that its obligations pursuant
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to this Section 6 shall not be affected by any assignment or participation
entered into by any Lender pursuant to Section 12.06 hereof.
6.03 REINSTATEMENT. The obligations of the Subsidiary Guarantors
under this Section 6 shall be automatically reinstated if and to the extent that
for any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly
and severally agree that they will indemnify the Administrative Agent and each
Lender on demand for all reasonable costs and expenses (including, without
limitation, fees of counsel) incurred by the Administrative Agent or such Lender
in connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.
6.04 SUBROGATION. Each Subsidiary Guarantor hereby waives all rights
of subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Bankruptcy
Code) or otherwise by reason of any payment by it pursuant to the provisions of
this Section 6 and further agrees with the Company for the benefit of each of
its creditors (including, without limitation, each Lender and the Administrative
Agent) that any such payment by it shall constitute a contribution of capital by
such Subsidiary Guarantor to the Company (or an investment in the equity capital
of the Company by such Subsidiary Guarantor).
6.05 REMEDIES. The Subsidiary Guarantors jointly and severally agree
that, as between the Subsidiary Guarantors and the Lenders, the obligations of
the Company under this Agreement and the Notes may be declared to be forthwith
due and payable as provided in Section 10 hereof (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Section 10) for purposes of Section 6.01 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such obligations
from becoming automatically due and payable) as against the Company and that, in
the event of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and payable
by the Company) shall forthwith become due and payable by the Subsidiary
Guarantors for purposes of said Section 6.01.
6.06 INSTRUMENT FOR THE PAYMENT OF MONEY. Each Subsidiary Guarantor
hereby acknowledges that the guarantee in this Section 6 constitutes an
instrument for the payment of money, and consents and agrees that any Lender or
the Administrative Agent, at its sole option, in the event of a dispute by such
Subsidiary Guarantor in the payment of any
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moneys due hereunder, shall have the right to bring motion-action under New York
CPLR Section 3213.
6.07 CONTINUING GUARANTEE. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.08 RIGHTS OF CONTRIBUTION. The Subsidiary Guarantors hereby agree,
as between themselves, that if any Subsidiary Guarantor shall become an Excess
Funding Guarantor (as defined below) by reason of the payment by such Subsidiary
Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall,
on demand of such Excess Funding Guarantor (but subject to the next sentence),
pay to such Excess Funding Guarantor an amount equal to such Subsidiary
Guarantor's Pro Rata Share (as defined below and determined, for this purpose,
without reference to the Properties, debts and liabilities of such Excess
Funding Guarantor) of the Excess Payment (as defined below) in respect of such
Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any
Excess Funding Guarantor under this Section 6.08 shall be subordinate and
subject in right of payment to the prior payment in full of the obligations of
such Subsidiary Guarantor under the other provisions of this Section 6 and such
Excess Funding Guarantor shall not exercise any right or remedy with respect to
such excess until payment and satisfaction in full of all of such obligations.
For purposes of this Section 6.08, (i) "EXCESS FUNDING GUARANTOR"
shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor
that has paid an amount in excess of its Pro Rata Share of such Guaranteed
Obligations, (ii) "EXCESS PAYMENT" shall mean, in respect of any Guaranteed
Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro
Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" shall mean,
for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the
amount by which the aggregate present fair saleable value of all Properties of
such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary
Guarantor) exceeds the amount of all the debts and liabilities of such
Subsidiary Guarantor (including contingent, subordinated, unmatured and
unliquidated liabilities, but excluding the obligations of such Subsidiary
Guarantor hereunder and any obligations of any other Subsidiary Guarantor that
have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which
the aggregate fair saleable value of all Properties of all of the Subsidiary
Guarantors exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of the Company and the Subsidiary Guarantors hereunder and under
the other Loan Documents) of all of the Subsidiary Guarantors, determined (A)
with respect to any Subsidiary Guarantor that is a party hereto on the Closing
Date, as of the Closing Date, and (B) with respect to any other
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Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes a
Subsidiary Guarantor hereunder.
6.09 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of any Subsidiary Guarantor under
Section 6.01 hereof would otherwise, taking into account the provisions of
Section 6.08 hereof, be held or determined to be void, invalid or unenforceable,
or subordinated to the claims of any other creditors, on account of the amount
of its liability under said Section 6.01, then, notwithstanding any other
provision hereof to the contrary, the amount of such liability shall, without
any further action by such Subsidiary Guarantor, any Lender, the Administrative
Agent or any other Person, be automatically limited and reduced to the highest
amount that is valid and enforceable and not subordinated to the claims of other
creditors as determined in such action or proceeding.
Section 7. CONDITIONS PRECEDENT.
7.01 INITIAL LOAN. The obligation of any Lender to make its initial
Loan hereunder is subject to the conditions precedent that (i) such Loan shall
be made on or before December 31, 1996 and (ii) the Administrative Agent shall
have received the following (with, in the case of the documents referred to in
clauses (a), (b), (c), (d), (k) and (o) below, sufficient copies for each
Lender), each of which shall be satisfactory to the Administrative Agent (and to
the extent specified below, to each Lender) in form and substance:
(a) CORPORATE DOCUMENTS.
(i) For each Obligor, a copy of the charter, as amended
and in effect, of such Obligor certified as of a date reasonably
close to the Closing Date by the appropriate Secretary of State and
a certificate from such Secretary of State dated as of a date
reasonably close to the Closing Date as to the good standing of and
listing the charter documents filed by such Obligor.
(ii) For each Obligor, a certificate of the Secretary or an
Assistant Secretary of such Obligor, dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of
the by-laws of such Obligor as amended and in effect at all times
from the date on which the resolutions referred to in clause (B)
were adopted to and including the date of such certificate, (B) that
attached thereto is a true and complete copy of resolutions duly
adopted by the board of directors of such Obligor authorizing
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the execution, delivery and performance of such of the Basic
Documents to which such Obligor is or is intended to be a party and
the extensions of credit hereunder, and that such resolutions have
not been modified, rescinded or amended and are in full force and
effect, (C) that the charter of such Obligor has not been amended
since the date of the certification thereto furnished pursuant to
clause (i) above, and (D) as to the incumbency and specimen
signature of each officer of such Obligor executing such of the
Basic Documents to which such Obligor is intended to be a party and
each other document to be delivered by such Obligor from time to
time in connection therewith (and the Administrative Agent and each
Lender may conclusively rely on such certificate until it receives
notice in writing from such Obligor).
(iii) For each such Obligor, a certificate of another
officer of such Obligor, dated the Closing Date, as to the
incumbency and specimen signature of the Secretary or Assistant
Secretary, as the case may be, of such Obligor.
(iv) Certificates of the appropriate official of the States
of Louisiana, Texas and Mississippi, each dated a date reasonably
close to the Closing Date, as to the good standing of, and authority
to transact business of each of the Obligors, as applicable.
(b) OFFICER'S CERTIFICATE. A certificate of a Senior Officer of the
Company, dated the Closing Date, to the effect set forth in the first sentence
of Section 7.02 hereof.
(c) OPINION OF COUNSEL TO THE OBLIGORS. An opinion, dated the
Closing Date, of Weil, Gotshal & Manges LLP, counsel to the Obligors,
substantially in the form of Exhibit D hereto (and each Obligor hereby instructs
such counsel to deliver such opinion to the Lenders and the Administrative
Agent).
(d) OPINION OF SPECIAL NEW YORK COUNSEL TO CHASE. An opinion, dated
the Closing Date, of Milbank, Tweed, Hadley & McCloy, special New York counsel
to Chase, substantially in the form of Exhibit F hereto (and Chase hereby
instructs such counsel to deliver such opinion to the Lenders).
(e) NOTES. The Notes, duly completed and executed for each Lender.
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(f) ACQUISITION; EQUITY DOCUMENTS.
(i) Evidence that the Acquisition shall have been, or
substantially simultaneously with the initial borrowing hereunder
shall be, consummated in accordance with the terms and conditions
set forth in the Acquisition Agreement and (unless the Majority
Lenders shall have consented thereto) without giving effect to any
waiver of any conditions precedent to such consummation set forth in
the Acquisition Agreement which would have a materially adverse
effect on (i) the Mortgaged Properties or any other material portion
of the Property securing the obligations of the Obligors under the
Loan Documents or (ii) the financial condition of the Company and
the Subsidiaries taken as a whole.
(ii) Evidence that the Company shall have received net cash
consideration (prior to the payment of any transaction expenses) of
not less than $30,000,000 representing proceeds of an aggregate of
9519.4717 shares of common stock of the Company, all of which shares
shall have been duly authorized, executed, issued and delivered by
the Company to the Fund and containing terms in form and substance
satisfactory to each Lender.
(iii) Copies of all Acquisition Documents and all Equity
Documents (including all exhibits and schedules thereto and all
supplements and modifications thereof) certified by the Chief
Financial Officer as true and complete.
(iv) Evidence of all approvals necessary in connection with
the Acquisition and the transactions contemplated by the Equity
Documents having been obtained and in full force and effect.
(v) Letters addressed to the Administrative Agent and the
Lenders from all counsel that have rendered opinions to any of the
Obligors in connection with the Acquisition or the Equity Documents
stating that the Administrative Agent and the Lenders may rely on
such opinions as fully as if such opinions were addressed to them.
(vi) Evidence that the Company shall have received a net
cash dividend of not less than $6,000,000 from Tenneco Ventures
Finance Corporation and evidence that such dividend has been applied
by the Company to the Acquisition.
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(g) SECURITY DOCUMENTS.
(i) PLEDGE AND SECURITY AGREEMENT. The Pledge and Security
Agreement, duly executed and delivered by the Obligors and the
Administrative Agent and the certificates identified under the name
of such Obligor in Annex 1 thereto, in each case accompanied by
undated stock powers executed in blank.
(ii) MORTGAGES. One or more Mortgages, each duly executed
and delivered by the applicable Obligor and in recordable form in
each of the jurisdictions where Mortgaged Properties covered by such
Mortgage are located and having attached thereto property
descriptions that are in form and substance satisfactory to the
Lenders.
In addition, the Obligors shall have taken such other action (including, without
limitation, delivering to the Administrative Agent, for filing, appropriately
completed and duly executed copies of Uniform Commercial Code financing
statements) as the Administrative Agent shall have requested in order to perfect
the security interests created pursuant to the Pledge and Security Agreement and
the Mortgages.
(h) PROPERTY INFORMATION. Such information regarding the title of
the Obligors to the Mortgaged Properties and the priority of the Lien of the
Mortgages as the Administrative Agent or any Lender may reasonably request.
(i) OPINIONS OF LOCAL COUNSEL. An opinion, dated the initial
Borrowing Date, of counsel licensed to practice law in each of the States of
Texas and Louisiana substantially in the form of Exhibit E hereto and covering
such other matters as the Administrative Agent may reasonably request (and each
Obligor hereby instructs such counsel to deliver such opinion to the Lenders and
the Administrative Agent).
(j) UCC, TAX LIEN, JUDGMENT AND LITIGATION SEARCHES. Reports
satisfactory to the Lenders listing the results of Uniform Commercial Code
filing, tax lien, judgment and litigations searches prepared by one or more
firms satisfactory to the Administrative Agent with respect to the Obligors in
each jurisdiction in which such Obligor maintains its principal place of
business or in which any of the Mortgaged Properties are located.
(k) INITIAL RESERVE EVALUATION REPORT. A certified copy of the
Initial Reserve Evaluation Report in form and substance satisfactory to the
Lenders, together with a
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letter authorizing the Administrative Agent and the Lenders to rely on the
information contained in such report.
(l) INSURANCE. Certificates of insurance evidencing the existence of
all insurance required to be maintained by the Company pursuant to Section 9.04
hereof, such certificates to be in such form and contain such information as is
specified in said Section 9.04. In addition, the Company shall have delivered a
certificate of a Senior Financial Officer setting forth the insurance obtained
by it in accordance with the requirements of Section 9.04 and stating that such
insurance is in full force and effect and that all premiums then due and payable
thereon have been paid.
(m) ENVIRONMENTAL DUE DILIGENCE. A copy of the report dated December
16, 1996 prepared by Pilko and Associates, the results of which report shall be
in form and substance satisfactory to the Majority Lenders.
(n) FINANCIAL CONDITION, ETC. Financial projections of the Company
reflecting the forecasted financial condition, sales, Capital Expenditures,
income and expenses of the Company and its Subsidiaries after giving effect to
this Agreement, the Acquisition and the other transactions contemplated to occur
on or prior to the Closing Date hereunder and under the other Basic Documents
(and all such projections shall be in form and content satisfactory to the
Lenders).
(o) ARRANGEMENTS RELATING TO CERTAIN EXISTING INDEBTEDNESS. Evidence
satisfactory to the Administrative Agent that the rights of the holders of
Indebtedness of TGPC indicated on Schedule I hereto as "Specified TGPC
Indebtedness" shall have been, or simultaneously herewith shall be, converted to
a "net profits" interest in TGPC's O&G Properties.
(p) OTHER DOCUMENTS. Such other documents as the Administrative
Agent or any Lender or special New York counsel to Chase may reasonably request.
The obligation of any Lender to make its initial Loan hereunder is also subject
to the payment by the Company of such fees as the Company shall have agreed to
pay or deliver to any Lender or the Administrative Agent in connection herewith,
including, without limitation, the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase, and Pilko and
Associates in connection with the negotiation, preparation, execution and
delivery of this Agreement and the Notes and the other Loan Documents and the
making of the Loans hereunder (to the extent that statements for such fees and
expenses have been delivered to the Company).
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7.02 INITIAL AND SUBSEQUENT LOANS. The obligation of the Lenders to
make any Loan to the Company upon the occasion of each borrowing hereunder
(including the initial borrowing) is subject to the further conditions precedent
that, both immediately prior to the making of such Loan and also after giving
effect thereto and to the intended use thereof:
(a) no Default shall have occurred and be continuing;
(b) the representations and warranties made by the Company in
Section 8 hereof, and by each Obligor in each of the other Loan Documents
to which it is a party, shall be true and complete on and as of the date
of the making of such Loan with the same force and effect as if made on
and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date); and
(c) the aggregate principal amount of the Loans shall not exceed the
Borrowing Base then in effect.
Each notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such borrowing, as of the date of
such borrowing).
Section 8. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to the Administrative Agent and the Lenders that:
8.01 CORPORATE EXISTENCE. Each of the Company and its Restricted
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could (either
individually or in the aggregate) have a Material Adverse Effect.
8.02 FINANCIAL CONDITION. The Company has heretofore furnished to
each of the Lenders consolidated and consolidating balance sheets of TGPC and
TVC, as predecessors in interest of the Company and its consolidated
Subsidiaries (in such capacity,
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the "PREDECESSORS") as at December 31, 1995 and the related consolidated and
consolidating statements of income, retained earnings and cash flows of the
Predecessors for the fiscal year ended on said date, and the consolidated and
consolidating balance sheets of the Predecessors as at September 30, 1996 and
the related consolidated and consolidating statements of income, retained
earnings and cash flows of the Predecessors for the nine-month period ended on
such date. All such financial statements are complete and correct and fairly
present the consolidated financial condition of the Predecessors and (in the
case of said consolidating financial statements) the respective unconsolidated
financial condition of the Predecessors, as at said dates and the consolidated
and unconsolidated results of their operations for the fiscal year and
nine-month period ended on said dates (subject, in the case of such financial
statements as at September 30, 1996, to normal year-end audit adjustments), all
in accordance with generally accepted accounting principles and practices
applied on a consistent basis. None of the Company nor any of its consolidated
Subsidiaries has on the date hereof any material contingent liabilities,
liabilities for taxes or royalties, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in said balance sheets as at said
dates. Since December 31, 1995, except as contemplated by the Basic Documents,
there has been no material adverse change in the business, consolidated
condition (financial or otherwise), results of operations, Properties or
liabilities taken as a whole of the Predecessors (or the Company and its
Subsidiaries) from that set forth in said financial statements as at said date
except as disclosed on Schedule VII hereto (and on the Closing Date the Company
shall deliver a certificate of its Chief Financial Officer to the effect set
forth in this sentence).
8.03 LITIGATION. Except as disclosed on Schedule V hereto, there are
no legal or arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or (to the knowledge
of the Company) threatened against the Company or any of its Subsidiaries that,
if adversely determined could (either individually or in the aggregate) have a
Material Adverse Effect.
8.04 NO BREACH. None of the execution and delivery of this Agreement
and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein contemplated or compliance with the terms and
provisions hereof and thereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company or any of its Restricted Subsidiaries is a party or by which
any of them or any of their Property is bound or to which any of them is
subject, or constitute a default under any such agreement or instrument, or
(except for the Liens created pursuant to the Security Documents) result in the
creation or imposition of any Lien upon any Property of the
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Company or any of its Restricted Subsidiaries pursuant to the terms of any such
agreement or instrument.
8.05 ACTION. Other than the Notification and Report Form in respect
of the Acquisition and the Equity Documents furnished to the Department of
Justice and the Federal Trade Commission pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, each Obligor has all necessary corporate
power, authority and legal right to execute, deliver and perform its obligations
under each of the Basic Documents to which it is a party; the execution,
delivery and performance by each Obligor of each of the Basic Documents to which
it is a party have been duly authorized by all necessary corporate action on its
part (including, without limitation, any required shareholder approvals); and
this Agreement has been duly and validly executed and delivered by each Obligor
and constitutes, and each of the Notes and the other Basic Documents to which it
is a party when executed and delivered by such Obligor (in the case of the
Notes, for value) will constitute, its legal, valid and binding obligation,
enforceable against each Obligor in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights and (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
8.06 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by any Obligor of this Agreement or any of the other Basic Documents
or any Acquisition Document or Equity Document to which it is a party or for the
legality, validity or enforceability hereof or thereof, except for filings and
recordings in respect of the Liens created pursuant to the Security Documents.
8.07 ERISA. Each Plan, and, to the knowledge of the Company, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which the Company would be
under an obligation to furnish a report to the Lenders under Section 9.01(d)
hereof. The Company has no ERISA Affiliates other than its Subsidiaries.
8.08 TAXES. The Company and its corporate Subsidiaries are members
of an affiliated group of corporations filing consolidated returns for Federal
income tax purposes, of which (prior to giving effect to the Acquisition) El
Paso is the "common parent" (within the meaning of Section 1504 of the Code) of
such group. Immediately following the Acquisition, the Company and its corporate
Subsidiaries will be members of an affiliated
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group of corporations filing consolidated returns for Federal income tax
purposes, of which the Company will be the "common parent" (within the meaning
of said Section 1504) of such group. Immediately following the Acquisition,
there will be no tax sharing, tax allocation or similar agreement in effect
providing for the manner in which tax payments owing by the members of such
affiliated group (whether in respect of Federal or state income or other taxes)
are allocated among the members of the group except as permitted by Section
9.13. Except for Federal income tax returns and other tax returns, the failure
of either of which to file or pay could not reasonably be expected to have a
Material Adverse Effect, the Company and its corporate Subsidiaries have filed
(either directly, or indirectly through El Paso (which term includes, for
purposes of this Section 8.08, El Paso's predecessors in interest)) all Federal
income tax returns and all other material tax returns that are required to be
filed by them and have paid (either directly, or indirectly through El Paso) all
taxes due pursuant to such returns or pursuant to any assessment received by El
Paso or by the Company or any of its Subsidiaries. The charges, accruals and
reserves on the books of the Company and its Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Company, at all times
immediately following the Closing Date adequate.
8.09 INVESTMENT COMPANY ACT. Neither the Company nor any of its
Restricted Subsidiaries is an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
8.10 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any
of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
8.11 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule I hereto is a complete and correct list of
each credit agreement, loan agreement, indenture, purchase agreement, guarantee,
letter of credit or other arrangement providing for or otherwise relating to any
Indebtedness or any extension of credit (or commitment for any extension of
credit) to, or guarantee by, (x) the Company or any of its Restricted
Subsidiaries, outstanding on the date hereof the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $250,000, and (y) any
of the Company's Unrestricted Subsidiaries, outstanding on the date hereof the
aggregate principal or face amount of which equals or exceeds $1,000,000 and in
each such case the aggregate principal or face amount outstanding or that may
become outstanding under each such arrangement is correctly described in Part A
of said Schedule I.
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(b) Part B of Schedule I hereto is a complete and correct list of
each Lien securing Indebtedness of any Person outstanding on the date hereof the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $250,000 and covering any Property of the Company or any of its
Restricted Subsidiaries, and the aggregate Indebtedness secured (or that may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B of said Schedule I.
8.12 ENVIRONMENTAL MATTERS. Each of the Company and its Subsidiaries
has obtained all environmental, health and safety permits, licenses and other
authorizations required under all Environmental Laws to carry on its business as
now being or as proposed to be conducted, except to the extent failure to have
any such permit, license or authorization would not (either individually or in
the aggregate) have a Material Adverse Effect. Each of such permits, licenses
and authorizations is in full force and effect and each of the Company and its
Subsidiaries is in compliance with the terms and conditions thereof, and is also
in compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply
therewith would not (either individually or in the aggregate) have a Material
Adverse Effect.
In addition, except as set forth in Schedule II hereto:
(a) To the Company's knowledge no notice, notification, demand,
request for information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or threatened by any governmental or other entity with respect
to any alleged failure by the Company or any of its Subsidiaries to have any
environmental, health or safety permit, license or other authorization required
under any Environmental Law in connection with the conduct of the business of
the Company or any of its Subsidiaries or with respect to any generation,
treatment, storage, recycling, transportation, discharge or disposal, or any
Release of any Hazardous Materials generated by the Company or any of its
Subsidiaries that could reasonably be expected to result in a liability in
excess of $25,000.
(b) To the Company's knowledge neither the Company nor any of its
Subsidiaries owns, operates or leases a treatment, storage or disposal facility
requiring a permit under the Resource Conservation and Recovery Act of 1976, as
amended, or under any comparable state or local statute; and
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(i) no polychlorinated biphenyls (PCB's) is or has been
present at any site or facility now or previously owned, operated or
leased by the Company or any of its Subsidiaries;
(ii) no asbestos or asbestos-containing materials is or
has been present at any site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries;
(iii) there are no underground storage tanks or surface
impoundments for Hazardous Materials, active or abandoned, at any
site or facility now or previously owned, operated or leased by the
Company or any of its Subsidiaries which requires any investigation,
notification or remediation under any Environmental Laws;
(iv) no Hazardous Materials have been Released at, on or
under any site or facility now or previously owned, operated or
leased by the Company or any of its Subsidiaries in a reportable
quantity established by statute, ordinance, rule, regulation or
order; and
(v) no Hazardous Materials have been otherwise Released
at, on or under any site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries that
would (either individually or in the aggregate) have a Material
Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Material to any location
that is listed on the National Priorities List ("NPL") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), listed for possible inclusion on the NPL by the Environmental
Protection Agency in the Comprehensive Environmental Response and Liability
Information System, as provided for by 40 C.F.R. ss. 300.5 ("CERCLIS"), or on
any similar state or local list or that is the subject of Federal, state or
local enforcement actions or other investigations that may lead to Environmental
Claims against the Company or any of its Subsidiaries.
(d) No Hazardous Material generated by the Company or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released by the
Company or any of its Subsidiaries at any location other than those listed in
Schedule II hereto.
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(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Company or any of its
Subsidiaries and no site or facility now or previously owned, operated or leased
by the Company or any of its Subsidiaries is listed or proposed for listing on
the NPL, CERCLIS or any similar state list of sites requiring investigation or
clean-up.
(f) No Liens have arisen under or pursuant to any Environmental Laws
on any site or facility owned, operated or leased by the Company or any of its
Subsidiaries, and no government action has been taken or is in process that
could subject any such site or facility to such Liens and neither the Company
nor any of its Subsidiaries would be required to place any notice or restriction
relating to the presence of Hazardous Materials at any site or facility owned by
it in any deed to the real property on which such site or facility is located.
(g) All environmental investigations, studies, audits, tests,
reviews or other analyses conducted by or that are in the possession of the
Company or any of its Subsidiaries in relation to facts, circumstances or
conditions at or affecting any site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries and that could
result in a Material Adverse Effect have been made available to the Lenders.
8.13 CAPITALIZATION. The authorized capital stock of the Company
consists, on the date hereof (after giving effect to any capital stock to be
issued to Management or the Fund on or prior to the date hereof), of an
aggregate of 20,000 shares consisting of 20,000 shares of common stock, par
value $.01 per share, of which 9519.4717 shares are duly and validly issued and
outstanding each of which shares is fully paid and nonassessable; and
Schedule X hereto sets forth, as of the date hereof, the beneficial and record
ownership of the issued and outstanding shares of common stock of the Company.
As of the date hereof, except as described on Schedule VI hereto (x) there are
no outstanding Equity Rights with respect to the Company and (y) there are no
outstanding obligations of the Company or any of its Restricted Subsidiaries to
repurchase, redeem, or otherwise acquire any shares of capital stock of the
Company nor are there any outstanding obligations of the Company or any of its
Restricted Subsidiaries to make payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market value or equity value of the Company or any of its Restricted
Subsidiaries.
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8.14 SUBSIDIARIES, ETC.
(a) Set forth in Part A of Schedule III hereto is a complete and
correct list of all of the Subsidiaries of the Company after giving effect to
the Acquisition as of the date hereof together with, for each such Subsidiary,
(i) the jurisdiction of organization of such Subsidiary, (ii) each Person
holding ownership interests in such Subsidiary and (iii) the nature of the
ownership interests held by each such Person and the percentage of ownership of
such Subsidiary represented by such ownership interests. Except as disclosed in
Part A of Schedule III hereto, (x) each of the Company and its Subsidiaries
owns, free and clear of Liens (other than Liens created pursuant to the Security
Documents), and has the unencumbered right to vote, all outstanding ownership
interests in each Person shown to be held by it in Part A of Schedule III
hereto, (y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
(b) Set forth in Part B of Schedule III hereto is a complete and
correct list of all Investments (other than Investments disclosed in Part A of
said Schedule III hereto) held by the Company or any of its Subsidiaries in any
Person on the date hereof and, for each such Investment, (x) the identity of the
Person or Persons holding such Investment and (y) the nature of such Investment.
Except as disclosed in Part B of Schedule III hereto, each of the Company and
its Subsidiaries owns, free and clear of all Liens (other than Liens created
pursuant to the Security Documents), all such Investments.
(c) None of the Restricted Subsidiaries of the Company is, on the
date hereof, subject to any indenture, agreement, instrument or other
arrangement of the type described in Section 9.15(c) hereof.
8.15 TITLE TO ASSETS. On the Closing Date the Company and its
Subsidiaries own and have (and following the Closing Date the Company and its
Restructured Subsidiaries will own and have) good and legal title (subject only
to Liens permitted by Section 9.06 hereof) to the Properties shown to be owned
in the most recent financial statements referred to in Section 8.02 hereof
(other than Properties disposed of in the ordinary course of business or
otherwise permitted to be disposed of pursuant to Section 9.05 hereof). The
Company and its Restricted Subsidiaries own and have on the date hereof good and
legal title to, and enjoy on the date hereof peaceful and undisturbed possession
of, all Properties (subject only to Liens permitted by Section 9.06 hereof) that
are necessary for the operation and conduct of their respective businesses. The
Company and its Restricted Subsidiaries have the right to, and do, enjoy
peaceful and undisturbed possession under all leases to which any of them is a
party or under which any of them is operating, all such leases are valid,
subsisting and in full force and effect, none of such leases is in default and
no event has occurred and is
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continuing, and no condition exists that, after notice or the passage of time or
both could reasonably be expected to become a default under any such lease,
except for any failure to have such right or enjoy such possession, for any such
invalidity or failure to subsist or be in full force and effect and for any such
default, event or condition that could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.16 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Obligors to the Administrative Agent or any Lender in connection
with the negotiation, preparation or delivery of this Agreement and the other
Loan Documents or included herein or therein or delivered pursuant hereto or
thereto, when taken as a whole do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by the
Company and its Subsidiaries to the Administrative Agent and the Lenders in
connection with this Agreement and the other Loan Documents and the transactions
contemplated hereby and thereby will be true, complete and accurate in every
material respect, or (in the case of projections) based on reasonable estimates,
on the date as of which such information is stated or certified. There is no
fact known to the Company that could reasonably be expected to have a Material
Adverse Effect that has not been disclosed herein, in the other Loan Documents
or in a report, financial statement, exhibit, schedule, disclosure letter or
other writing furnished to the Lenders for use in connection with the
transactions contemplated hereby or thereby.
8.17 REAL PROPERTY. Other than the O&G Properties, set forth on
Schedule IV attached hereto is a list, as of the date hereof, of all of the real
property interests held by the Company and its Restricted Subsidiaries,
indicating in each case whether the respective Property is owned or leased, the
identity of the owner or lessee and the location of the respective Property.
8.18 LICENSES; PERMITS, ETC. Each of the Company and its Restricted
Subsidiaries possesses all licenses, permits, franchises, certificates of
convenience and necessity, rights-of-way, easements, authorizations, patents,
copyrights, trademarks, service marks and trade names or rights thereto
("MATERIAL LICENSES") required to conduct its business as now conducted or as
now proposed to be conducted, in each case without conflict with the rights of
others, except in any such case for such Material Licenses if the failure to
possess the same would not have a Material Adverse Effect.
8.19 CERTAIN AGREEMENTS, DOCUMENTS, CONTRACTS AND LICENSES. Except
as set forth in Schedule VIII hereto, none of the Company or any of its
Restricted Subsidiaries is, or (with the giving of notice or the lapse of time
or both) would be, in default under any
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Material Contract to which the Company or any of its Restricted Subsidiaries is
a party or any Material License that the Company or any of its Restricted
Subsidiaries possesses.
8.20 COMPLIANCE WITH LAWS. Except as set forth on Schedule IX
hereto, the Company and its Subsidiaries have prepared and submitted all reports
and have obtained all permits, consents, licenses and other authorizations
required under all Laws to carry on its business as now being or as proposed to
be conducted, except to the extent failure to have any such permit, license or
authorization could not reasonably be expected to (either individually or in the
aggregate) have a Material Adverse Effect. Each of such permits, licenses and
authorizations is in full force and effect and each Obligor and its Subsidiaries
is in compliance with (i) the terms and conditions thereof, and (ii) all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Law, except,
in each case, to the extent failure to comply therewith could not reasonably be
expected to (either individually or in the aggregate) have a Material Adverse
Effect.
8.21 USE OF CREDIT. Neither the Company nor any of its Subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying margin stock (as such term is defined in Regulation U),
and no part of the proceeds of the Loans hereunder will be used to buy or carry
any margin stock.
8.22 SOLVENCY. On the Closing Date and after giving effect to the
transactions contemplated hereby and by the Acquisition Documents (including,
without limitation, the borrowing of the Loan hereunder contemplated to be
borrowed to consummate the Acquisition), the Company and its Subsidiaries, taken
as a whole, will be Solvent.
Section 9. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Lenders and the
Administrative Agent that, so long as any Commitment or Loan is outstanding and
until payment in full of all amounts payable by the Company hereunder:
9.01 FINANCIAL STATEMENTS, ETC. The Company shall deliver to each
of the Lenders:
(a) as soon as available and in any event within 50 days after the
end of the first three quarterly fiscal periods of each fiscal year of the
Company, consolidated and consolidating statements of income, retained
earnings and cash flows of the Company and its consolidated Subsidiaries
for such period and for the period from the beginning of the respective
fiscal year to the end of such period, and the related
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consolidated and consolidating balance sheets of the Company and its
consolidated Subsidiaries as at the end of such period, setting forth in
each case in comparative form the corresponding consolidated and
consolidating figures for the corresponding periods in the preceding
fiscal year (except that, in the case of balance sheets, such comparison
shall be to the last day of the prior fiscal year), accompanied by a
certificate of a Senior Financial Officer of the Company, which
certificate shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations of
the Company and its consolidated Subsidiaries, and said consolidating
financial statements fairly present the respective individual
unconsolidated financial condition and results of operations of the
Company and of each of its consolidated Subsidiaries, in each case in
accordance with generally accepted accounting principles, consistently
applied, as at the end of, and for, such period (subject to normal
year-end audit adjustments);
(b) as soon as available and in any event within 100 days after the
end of each fiscal year of the Company, consolidated and consolidating
statements of income, retained earnings and cash flows of the Company and
its consolidated Subsidiaries for such fiscal year and the related
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year, setting forth in each case
in comparative form the corresponding consolidated and consolidating
figures for the preceding fiscal year, and accompanied (i) in the case of
said consolidated statements and balance sheet of the Company, by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that said consolidated
financial statements fairly present the consolidated financial condition
and results of operations of the Company and its consolidated Subsidiaries
as at the end of, and for, such fiscal year in accordance with generally
accepted accounting principles, and a statement of such accountants to the
effect that, in making the examination necessary for their opinion,
nothing came to their attention that caused them to believe that the
Company was not in compliance with Sections 9.07, 9.09 and 9.10 hereof,
insofar as such Sections relate to accounting matters, and (ii) in the
case of said consolidating statements and balance sheets, by a certificate
of a senior financial officer of the Company, which certificate shall
state that said consolidating financial statements fairly present the
respective individual unconsolidated financial condition and results of
operations of the Company and of each of its consolidated Subsidiaries, in
each case in accordance with generally accepted accounting principles,
consistently applied, as at the end of, and for, such fiscal year;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with
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the Securities and Exchange Commission (or any governmental agency
substituted therefor) or any national securities exchange;
(d) as soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan
has occurred or exists, a statement signed by a senior financial officer
of the Company setting forth details respecting such event or condition
and the action, if any, that the Company or its ERISA Affiliate proposes
to take with respect thereto (and a copy of any report or notice required
to be filed with or given to the PBGC by the Company or an ERISA Affiliate
with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(c) of
ERISA and the regulations issued thereunder, with respect to a Plan,
as to which the PBGC has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30 days of the
occurrence of such event (PROVIDED that a failure to meet the
minimum funding standard of Section 412 of the Code or Section 302
of ERISA, including, without limitation, the failure to make on or
before its due date a required installment under Section 412(m) of
the Code or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with Section
412(d) of the Code); and any request for a waiver under Section
412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a
notice of intent to terminate any Plan or any action taken by the
Company or an ERISA Affiliate to terminate any Plan;
(iii) the institution by the PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer
Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA (including
the obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by the Company or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA;
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(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed
within 30 days; and
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA,
would result in the loss of tax-exempt status of the trust of which
such Plan is a part if the Company or an ERISA Affiliate fails to
timely provide security to the Plan in accordance with the
provisions of said Sections;
(e) on or before April 1, 1997 and October 1, 1997 and on or before
each March lst and September Ist of each year commencing March 1, 1998, a
Reserve Report as of the January 1st and July 1st preceding such April 1st or
March 1st and October 1st or September 1st, respectively, together with a
certificate of a senior officer of the Company setting forth a statement of
whether the Company has, during the semi-annual period ending on the date of
such Reserve Report, materially altered its drilling practices (including,
without limitation, whether the rate at which new wells were drilled has
increased);
(f) promptly after the Company knows or has reason to know that any
Redetermination Event described in clause (c) or (d) of the definition thereof
has occurred, notice of such Redetermination Event describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Company has taken or proposed to
be taken with respect thereto;
(g) promptly after the Company knows or has reason to believe that
any Default has occurred, a notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Company has taken or proposes to
take with respect thereto;
(h) promptly following the delivery thereof to the Company or to the
Board of Directors or management of the Company, a copy of any management letter
or similar written report by independent public accountants with respect to the
financial condition, operations, business or prospects of the Company;
(i) within 30 days after the beginning of each fiscal year of the
Company, a copy of the consolidated operating budget (including, without
limitation, projection of the anticipated cash flow and capital expenditure
budgets) of the Company and its Restricted Subsidiaries for such fiscal year and
an updated business plan for the Company and its Restricted Subsidiaries for
such fiscal year, such budget and
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business plan to be accompanied by a certificate of the Chief Financial Officer
specifying the assumptions on which said budget and business plan were prepared,
stating that such officer has no reason to question the reasonableness of any
material assumptions on which said budget and business plan were prepared and
providing such other details as the Administrative Agent may reasonably request;
and
(j) from time to time such other information regarding the financial
condition, operations, business or prospects of the Company or any of its
Restricted Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be filed
under ERISA) as any Lender or the Administrative Agent may reasonably request.
The Company will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
Senior Financial Officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto), (ii) to the effect
that no Redetermination Event of the type described in clause (c) or (d) of the
definition thereof has occurred and is continuing (or, if any such
Redetermination Event has occurred and is continuing, describing the same in
reasonable detail and describing the action that the Company has taken and
proposes to take with respect thereto) and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Company is in
compliance with Sections 9.07, 9.09 and 9.10 hereof as of the end of the
respective quarterly fiscal period or fiscal year.
9.02 LITIGATION. The Company will promptly give to each Lender
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company or any of
its Restricted Subsidiaries, except proceedings that, if adversely determined,
would not (either individually or in the aggregate) have a Material Adverse
Effect. Without limiting the generality of the foregoing, the Company will give
to each Lender notice of the assertion of any Environmental Claim by any Person
against, or with respect to the activities of, the Company or any of its
Subsidiaries and notice of any alleged violation of or non-compliance with any
Environmental Laws or any permits, licenses or authorizations, other than any
Environmental Claim or alleged violation that, if adversely determined, could
not (either individually or in the aggregate) reasonably be expected to have a
Material Adverse Effect.
9.03 EXISTENCE, ETC. The Company will, and will cause each of its
Restricted Subsidiaries to:
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(a) preserve and maintain its legal existence and all of its
Material Licenses and material rights, privileges and franchises (PROVIDED
that nothing in this Section 9.03 shall prohibit any transaction expressly
permitted under Section 9.05 hereof);
(b) comply with the requirements of all applicable Laws of
Governmental Authorities if failure to comply with such requirements could
(either individually or in the aggregate) reasonably be expected to have a
Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of
its Property prior to the date on which penalties attach thereto, except
for any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted;
(e) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP; and
(f) permit representatives of any Lender or the Administrative
Agent, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect any of its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Administrative Agent (as the
case may be).
9.04 INSURANCE. The Company will, and will cause each of its
Restricted Subsidiaries to, keep insured by financially sound and reputable
insurers all Property of a character usually insured by corporations engaged in
the same or similar business similarly situated against loss or damage of the
kinds and in the amounts customarily insured against by such corporations and
carry such other insurance as is usually carried by such corporations. The
Company will advise the Administrative Agent promptly of any policy
cancellation, reduction or amendment. On or before the Closing Date, the Company
will deliver to the Administrative Agent certificates of insurance satisfactory
to the Administrative Agent evidencing the existence of all insurance required
to be maintained by the Company hereunder setting forth the respective
coverages, limits of liability, carrier, policy number and period of coverage
and showing that such insurance will remain in effect through the December 31
falling at least six months after the date hereof, subject only to the payment
of premiums as they become due. Thereafter, on each November 15 in each year
(commencing
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with the first November 15 after the date hereof), the Company will deliver to
the Administrative Agent certificates of insurance evidencing that all insurance
required to be maintained by the Company hereunder will be in effect through the
December 31 of the calendar year following the calendar year of the current
November 15, subject only to the payment of premiums as they become due.
9.05 PROHIBITION OF FUNDAMENTAL CHANGES. (a) The Company will not,
nor will it permit any of its Restricted Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution).
(b) The Company will not, nor will it permit any of its Restricted
Subsidiaries to, acquire any business or Property from, or capital stock of, or
be a party to any acquisition of, any Person except for (1) the Acquisition; (2)
purchases of inventory and other Property to be sold or used in the ordinary
course of business; (3) Investments permitted under Section 9.08 hereof; and (4)
Capital Expenditures.
(c) The Company will not, nor will it permit any of its Restricted
Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of (each, a
"Disposition"), in one transaction or a series of transactions, any part of its
business or Property, whether now owned or hereafter acquired, including,
without limitation, receivables and leasehold interests, but excluding (i)
obsolete or worn-out Property, tools or equipment no longer used or useful in
its business so long as the amount thereof sold in any single fiscal year by the
Company and its Restricted Subsidiaries shall not have a fair market value in
excess of $500,000, (ii) any inventory or other Property sold or disposed of in
the ordinary course of business and on ordinary business terms and (iii) without
duplication of clause (i) above, O&G Properties as long as the amount thereof
sold in any single fiscal year by the Company and its Restricted Subsidiaries
shall not have a fair market value in excess of $2,000,000.
Notwithstanding the foregoing provisions of this Section 9.05:
(i) any Restricted Subsidiary of the Company may be merged
or consolidated with or into: (i) the Company if the Company shall
be the continuing or surviving corporation or (ii) any other such
Restricted Subsidiary; PROVIDED that (x) if any such transaction
shall be between a Restricted Subsidiary and a Wholly Owned
Subsidiary which is a Restricted Subsidiary, the Wholly Owned
Subsidiary which is a Restricted Subsidiary shall be the continuing
or surviving corporation and (y) that if any such transaction shall
be between a Subsidiary Guarantor and a Restricted Subsidiary not a
Subsidiary Guarantor, and such Subsidiary Guarantor is not the
continuing or surviving corporation, then the continuing or
surviving corporation shall have
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assumed all of the obligations of such Subsidiary Guarantor
hereunder and under the other Loan Documents;
(ii) any Person (other than the Company or a Restricted
Subsidiary) may be merged or consolidated with or into the Company
or a Restricted Subsidiary; PROVIDED that (x) the Company or such
Restricted Subsidiary, as the case may be, shall be the continuing
or surviving corporation and (y) the Company obtains the prior
written consent of the Majority Lenders, such consent not to be
unreasonably withheld;
(iii) any Restricted Subsidiary of the Company may sell,
lease, transfer or otherwise dispose of any or all of its Property
(upon voluntary liquidation or otherwise) to the Company or a Wholly
Owned Subsidiary which is a Restricted Subsidiary of the Company;
PROVIDED that if any such sale is by a Restricted Subsidiary
Guarantor to a Restricted Subsidiary of the Company not a Subsidiary
Guarantor, then such Restricted Subsidiary shall have assumed all of
the obligations of such Subsidiary Guarantor hereunder and under the
other Loan Documents;
(iv) the Company or any Restricted Subsidiary of the
Company may enter into any farmout, farm in, joint operating, area
of mutual interest agreements and/or similar arrangements that the
Company determines in good faith to be necessary for the economic
development of an O&G Property;
(v) the Company and its Restricted Subsidiaries may
transfer condemned Property to the respective governmental authority
or agency that has condemned the same (whether by deed in lieu or
condemnation or otherwise), and may transfer Properties that have
been subject to a casualty to the respective insurer (or its
designee) of such Property as part of an insurance settlement; and
(vi) the Company and its Restricted Subsidiaries may engage
in Dispositions of O&G Properties in addition to those set forth in
clause (c) above, provided (x) the aggregate amount of such
Dispositions in any fiscal year by the Company and its Restricted
Subsidiaries shall not have a fair market value in excess of
$2,000,000, (y) the Company shall or shall cause its Restricted
Subsidiary to promptly apply 100% of the net proceeds of such
Disposition to the prepayment of the Loans and (z) the Borrowing
Base and, if applicable, the Threshold Amount, shall automatically
be reduced by 100% of the net proceeds of such Dispositions.
9.06 LIMITATION ON LIENS. The Company will not, nor will it permit
any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its Property, whether now owned or hereafter acquired,
except:
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(a) Liens created pursuant to the Security Documents;
(b) Liens in existence on the date hereof and listed in Part B of
Schedule I hereto (excluding, however, following the making of the initial
Loans hereunder, Liens securing Indebtedness to be repaid with the
proceeds of such Loans, as indicated on said Schedule I);
(c) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or the affected
Restricted Subsidiaries, as the case may be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
that are not overdue for a period of more than 30 days or that are being
contested in good faith and by appropriate proceedings and Liens securing
judgments but only to the extent for an amount and for a period not
resulting in an Event of Default under Section 10(h) hereof;
(e) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(f) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on
the use of Property or minor imperfections in title thereto that, in the
aggregate, are not material in amount, and that do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries;
(h) Liens on Property of any corporation that becomes a Restricted
Subsidiary of the Company after the date hereof, PROVIDED that such Liens
are in existence at the time such corporation becomes a Restricted
Subsidiary of the Company and were not created in anticipation thereof;
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(i) Liens upon real and/or tangible personal Property acquired after
the date hereof (by purchase, construction or otherwise) by the Company or
any of its Restricted Subsidiaries, each of which Liens either (A) existed
on such Property before the time of its acquisition and was not created in
anticipation thereof or (B) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund,
the cost (including the cost of construction) of such Property; PROVIDED
that (i) no such Lien shall extend to or cover any Property of the Company
or such Restricted Subsidiary other than the Property so acquired and
improvements thereon, (ii) the principal amount of Indebtedness secured by
any such Lien shall at no time exceed 70% of the fair market value (as
determined in good faith by a senior financial officer of the Company) of
such Property at the time it was acquired (by purchase, construction or
otherwise), (iii) no Lien shall be incurred in connection with a
Production Payment and (iv) the terms and conditions of any such
Indebtedness secured by any such Lien, including without limitation the
non-recourse provisions of such Indebtedness, shall be reasonably
acceptable to the Majority Lenders;
(j) with respect to any O&G Property, (i) Liens for farmout, farm
in, joint operating, area of mutual interest agreements and/or similar
arrangements that the Company determines in good faith to be necessary for
the economic development of such O&G Property; PROVIDED that no such Lien
(other than Liens under joint operating agreements, which arise in the
ordinary course of business) shall be granted upon O&G Properties which
are given any value in determining the Borrowing Base and (ii) other Liens
expressly permitted by the Mortgage covering such O&G Property;
(k) statutory and contractual landlords' and lessors' liens under
leases to which the Company or its Restricted Subsidiaries is a party;
(l) any interest or title of a lessor, sublessor, licensee or
licensor under any lease or license agreement permitted by this Agreement;
(m) Liens in favor of a banking institution arising as a matter of
law encumbering deposits (including the right of set-off) held by such
banking institutions incurred in the ordinary course of business and which
are within the general parameters customary in the banking industry;
(n) royalties, overriding royalties, revenue interests, net revenue
interests, advance payment obligations and other similar burdens incurred
in the ordinary course of business; PROVIDED that no such royalties,
interests, obligations or burdens shall be
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granted on or after the date of this Agreement on or with respect to
Property which is given any value in determining the Borrowing Base;
(o) Liens created pursuant to any Swap Transactions permitted under
Section 9.08(e) hereof with any Lender that are pari passu or subordinated
to the Liens created pursuant to the Security Documents;
(p) additional Liens upon real and/or personal Property created
after the date hereof, PROVIDED that the aggregate Indebtedness secured
thereby and incurred on and after the date hereof shall not exceed
$1,000,000 in the aggregate at any one time outstanding;
(q) Liens arising in the ordinary course pursuant to Section 9.319
of the Texas Business & Commerce Code and comparable statutes under the
laws of other States where the Company or its Restricted Subsidiaries have
interest in O&G Properties;
(r) minor irregularities in or deficiencies of title which do not
materially interfere with the occupation, use or enjoyment by the owner of
such Properties in the normal course of business as presently conducted or
materially impair the value thereof for such business;
(s) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially adversely
interfere with the occupation, use and enjoyment of the Property
encumbered thereby;
(t) any obligations or duties, affecting any of the Property, to any
municipality or public authority with respect to any franchise, grant,
license or permit which do not materially impair the use of such Property
or the purposes for which it is held;
(u) zoning laws or ordinances and municipal regulations which do not
operate to materially interfere with the current operations on the
Property; and
(v) defects or irregularities in the titles to any Property which
defects or irregularities have been cured by possession under applicable
statutes of limitation.
9.07 INDEBTEDNESS.
(a) The Company will not, nor will it permit any of its Restricted
Subsidiaries to, create, incur or suffer to exist any Indebtedness except:
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(i) Indebtedness to the Lenders hereunder;
(ii) Indebtedness outstanding on the date hereof and
listed in Part A of Schedule I hereto (excluding, however, following
the making of the initial Loans hereunder, the Indebtedness to be
repaid with the proceeds of such Loans, as indicated on said
Schedule I);
(iii) Indebtedness of Restricted Subsidiaries of the
Company to the Company or to other Restricted Subsidiaries of the
Company;
(iv) Guarantees by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business;
(v) Guarantees of performance bonds and other obligations
of a similar nature up to but not exceeding $20,000,000 at any one
time outstanding; and
(vi) additional Indebtedness of the Company and its
Restricted Subsidiaries (including, without limitation, Capital
Lease Obligations and other Indebtedness secured by Liens permitted
under Sections 9.06(i) or 9.06(p) hereof) up to but not exceeding
$1,000,000 at any one time outstanding.
(b) The Company will not permit any of its Unrestricted Subsidiaries
to create, incur or suffer to exist any Indebtedness except Non-Recourse Debt.
9.08 INVESTMENTS. The Company will not, nor will it permit any of
its Restricted Subsidiaries to, make or permit to remain outstanding any
Investments except:
(a) Investments outstanding on the date hereof and identified in
Part B of Schedule III hereto;
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) Investments by the Company and its Restricted Subsidiaries in
the Company and its Subsidiaries existing on the date hereof (other than
in connection with investments pursuant to clause (g) below);
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(e) Swap Transactions entered into by the Company and its Restricted
Subsidiaries in the ordinary course of business substantially as conducted
on the date hereof and not for speculative purposes;
(f) Investments in Persons engaged solely in one or more of the
construction, exploration, drilling and production activities necessary to
retrieve Hydrocarbons from natural reservoirs, the lifting of Hydrocarbons
to the surface, the gathering and storage of Hydrocarbons, the
acquisition, construction, installation and maintenance of field gathering
and storage systems, the acquisition of property rights and properties
containing Proved Developed Oil and Gas Reserves for the purpose of
retrieving Hydrocarbons and the transportation of Hydrocarbons retrieved
by such Person or any of its Restricted Subsidiaries to refineries;
(g) additional Investments, including additional Investments in
Unrestricted Subsidiaries up to but not exceeding $1,000,000 in the
aggregate PLUS, following the earlier to occur of (x) the first
anniversary of the Closing Date or (y) the date on which the Borrowing
Base equals the Threshold Amount, 75% of the cash dividends received from
Unrestricted Subsidiaries; and
(h) Investments in Domain Energy Guarantor Corporation, consisting
of the $8,000,000 Subordinated Promissory Note issued by Domain Energy
Guarantor Corporation to the Fund on the Closing Date, following surrender
of such note by the Fund to the Company in consideration of an Equity
Issuance by the Company.
provided that the aggregate amount of Investments that the Obligors may make
after the date hereof in Restricted Subsidiaries of the Company that are not
Subsidiary Guarantors shall not in any event exceed $2,750,000 PLUS the net
proceeds of any issuance or sale by the Company of any of its capital stock or
any warrants or options exercisable in respect of its capital stock to
Management in connection with investments made in the Company by Management in
furtherance of the Acquisition PLUS, following the earlier to occur of (x) the
first anniversary of the Closing Date or (y) the date on which the Borrowing
Base equals the Threshold Amount, 75% of the cash dividends received from
Unrestricted Subsidiaries minus the amount of Investments made pursuant to
clause (g) above.
9.09 DIVIDEND PAYMENTS. The Company will not, nor will it permit any
of its Restricted Subsidiaries to, declare or make any Dividend Payment at any
time. Nothing herein shall be deemed to prohibit the payment of dividends by any
Subsidiary of the Company to the Company or to any other Restricted Subsidiary
of the Company. Notwithstanding the foregoing, Oceana Exploration Company, L.C.
and Matrix Energy-T Limited Partnership may declare or make Dividend Payments to
the Company or any other
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Restricted Subsidiary which is a Wholly-Owned Subsidiary of the Company provided
that each such Dividend Payment is made pro rata to the Company or such
Restricted Subsidiary which is a Wholly-Owned Subsidiary of the Company as
applicable, and the other holders of the membership interests or partnership
interests, as applicable, of Oceana Exploration Company, L.C. and Matrix
Energy-T Limited Partnership, respectively.
9.10 CERTAIN FINANCIAL COVENANTS.
(a) NET TANGIBLE WORTH. The Company will not at any time permit
Tangible Net Worth to be less than the sum of (i) $25,000,000 PLUS (ii) 75% of
Net Available Proceeds of all Equity Issuances from and after January 1, 1997
PLUS (if positive) (iii) 75 % of Net Income for the period commencing on January
1, 1997 and ending on the last day of the fiscal quarter ending on or most
immediately prior to the date of determination.
(b) INTEREST COVERAGE RATIO. The Company will not permit the
Interest Coverage Ratio to be less than the following respective ratios at any
time during the following respective periods:
Period Ratio
------ -----
From the Closing Date
through December 31, 1997 2.5 to 1
From December 31, 1997
and at all times thereafter 3.0 to 1
(c) TOTAL INDEBTEDNESS TO TOTAL CAPITALIZATION. The Company will not
permit the ratio of Total Indebtedness to Total Capitalization to be greater
than the following respective ratios at any time during the following respective
periods:
Period Ratio
------ -----
From the Closing Date
through December 31, 1997 0.70 to 1
From December 31, 1997
and at all times thereafter 0.65 to 1
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(d) CURRENT RATIO. The Company will not permit the ratio of current
assets of the Company and its Restricted Subsidiaries to current liabilities of
the Company and its Restricted Subsidiaries to be less than 1.0 to 1 at any
time.
For purposes hereof, the terms "CURRENT ASSETS" and "CURRENT LIABILITIES" shall
have the respective meanings assigned to them by GAAP, PROVIDED that in any
event there shall be excluded from current liabilities the current portion of
all Indebtedness hereunder.
9.11 LINES OF BUSINESS. The Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in any line or lines of business
activity other than (i) the construction, drilling and production activities
necessary to retrieve Hydrocarbons from natural reservoirs, the lifting of
Hydrocarbons to the surface, the gathering and storage of Hydrocarbons, the
acquisition, construction, installation and maintenance of field gathering and
storage systems, the acquisition of property rights and properties for the
purpose of exploring for, developing and retrieving Hydrocarbons and the
transportation of Hydrocarbons retrieved by the Company or any of its Restricted
Subsidiaries to end markets and (ii) the making of Investments in other Persons
engaged in the activities described in clause (i) of this Section, provided the
aggregate of all such Investments shall not exceed the limitations set forth in
Section 9.08(f) hereof.
9.12 OPERATING LEASES. The Company shall not, and shall not permit
any of its Restricted Subsidiaries to, create or suffer to exist, any
obligations for the payment of rental for any Property under leases or
agreements to lease having a term of one year or more which would cause the
direct or contingent liabilities of the Company and its Restricted Subsidiaries,
on a consolidated basis, in respect of all such obligations to exceed $500,000
payable in any period of 12 consecutive calendar months.
9.13 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by
this Agreement, the Company will not, nor will it permit any of its Restricted
Subsidiaries to, directly or indirectly:
(a) make any Investment in an Affiliate;
(b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate;
(c) merge into or consolidate with or purchase or acquire Property
from an Affiliate; or
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(d) enter into any other transaction directly or indirectly with or
for the benefit of an Affiliate (including, without limitation, Guarantees
and assumptions of obligations of an Affiliate);
PROVIDED that (x) any Affiliate who is an individual may serve as a director,
officer or employee of the Company or any of its Subsidiaries and receive
reasonable compensation for his or her services in such capacity and (y) the
Company and its Subsidiaries may enter into transactions (other than extensions
of credit by the Company or any of its Subsidiaries to an Affiliate) providing
for the leasing of Property, the rendering or receipt of services or the
purchase or sale of inventory and other Property in the ordinary course of
business if the monetary or business consideration arising therefrom would be
substantially as advantageous to the Company and its Subsidiaries as the
monetary or business consideration that would obtain in a comparable transaction
with a Person not an Affiliate.
Without limiting the generality of the foregoing, the Company and
its Subsidiaries will not be party to any tax sharing or similar arrangement
with El Paso or any other Subsidiaries of El Paso (or make payments to El Paso
or any other Subsidiaries of El Paso of amounts intended to reimburse El Paso or
such other Subsidiaries for having paid any such Federal or state income taxes)
if the effect thereof would be to require the Company and its Subsidiaries to
make payments in respect of income taxes (or in respect of reimbursement for
such taxes) to El Paso or any of such other Subsidiaries in amounts the
cumulative sum of which exceeds the cumulative sum of income taxes that the
Company and its Subsidiaries would have paid in respect of Federal and state
income taxes if the Company and its Subsidiaries had at all times (including at
all times prior to the date hereof) filed a separate consolidated Federal income
tax return, with the Company as the "common parent" (with the meaning of Section
1504 of the Code), and taking into account all net operating loss carryforwards
pursuant to Section 172 of the Code that would have been available to the
Company and its Subsidiaries had they filed such a separate return.
9.14 USE OF PROCEEDS. The Company will use the proceeds of the Loans
hereunder solely to finance the Acquisition, to provide working capital and for
other general corporate purposes of the Company and each of its Restricted
Subsidiaries (in each case in compliance with all applicable legal and
regulatory requirements); PROVIDED that neither the Administrative Agent nor any
Lender shall have any responsibility as to the use of any of such proceeds.
9.15 CERTAIN OBLIGATIONS RESPECTING RESTRICTED SUBSIDIARIES.
(a) SUBSIDIARY GUARANTORS. In the event that the Company or any of
the Subsidiary Guarantors shall form or acquire any new Restricted Subsidiary
that is a Wholly
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Owned Subsidiary, the Company will cause such new Restricted Subsidiary that is
a Wholly Owned Subsidiary to become a "Subsidiary Guarantor" (and, thereby, an
"Obligor") hereunder, to pledge and grant a security interest in its Property
pursuant to the Security Documents to the Administrative Agent for the benefit
of the Lenders, pursuant to one or more written instruments in form and
substance satisfactory to the Administrative Agent and to deliver such proof of
corporate action, incumbency of officers, opinions of counsel and other
documents as is consistent with those delivered by each "'Obligor" pursuant to
Section 7.01 hereof upon the Closing Date or as the Administrative Agent shall
have requested.
(b) OWNERSHIP OF SUBSIDIARIES. The Company will, and will cause each
of its Restricted Subsidiaries, other than Oceana Exploration Company, L.C. and
Matrix Energy-T Limited Partnership (together the "Exempted Restricted
Subsidiaries"), to, take such action from time to time as shall be necessary to
ensure that each of its Restricted Subsidiaries, other than the Exempted
Restricted Subsidiaries, is a Wholly Owned Subsidiary. In the event that any
additional shares of stock shall be issued by any Restricted Subsidiary, the
respective Obligor agrees forthwith to deliver to the Administrative Agent
pursuant to the Pledge and Security Agreement the certificates evidencing such
shares of stock, accompanied by undated stock powers executed in blank and to
take such other action as the Administrative Agent shall request to perfect the
security interest created therein pursuant to the Pledge and Security Agreement.
(c) CERTAIN RESTRICTIONS. The Company will not permit any of its
Restricted Subsidiaries to enter into, after the date hereof, any indenture,
agreement, instrument or other arrangement that, directly or indirectly,
prohibits or restrains, or has the effect of prohibiting or restraining, or
imposes materially adverse conditions upon, the incurrence or payment of
Indebtedness, the granting of Liens, the declaration or payment of dividends,
the making of loans, advances or Investments or the sale, assignment, transfer
or other disposition of Property.
(d) INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The Company and its
Restricted Subsidiaries may only make Investments in Unrestricted Subsidiaries
to the extent permitted by Section 9.08(d) or 9.08(g) hereof.
9.16 MODIFICATIONS OF CERTAIN DOCUMENTS. The Company will not
consent to any modification, supplement or waiver of any of the Acquisition
Documents or any of the Equity Documents without the prior consent of the
Administrative Agent (with the approval of the Majority Lenders); PROVIDED (i)
the Company may modify the Equity Documents in any manner that will not result
in either (x) a reduction in the amount of equity to be contributed to the
Company or (y) the distribution of any Dividend Payments except as
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provided in Section 9.09(g) hereof and (ii) the Company may consent to a
modification, supplement or waiver of any Acquisition Document if such
modification, supplement or waiver could not reasonably be expected to result in
a Material Adverse Effect.
9.17 OPERATION OF O&G PROPERTIES. The Company shall, and shall cause
its Restricted Subsidiaries to, continuously maintain, develop and operate the
O&G Properties to their full economic limit in accordance with prudent industry
standards.
9.18 VOLUNTARY PREPAYMENTS OF INDEBTEDNESS. Neither the Company nor
any of its Restricted Subsidiaries shall purchase, redeem, retire or otherwise
acquire for value, or set apart any money for a sinking, defeasance or other
analogous fund for the purchase, redemption, retirement or other acquisition of,
or make any voluntary payment or prepayment of the principal of or interest on,
or any other amount owing in respect of any Indebtedness (other than
Indebtedness created under the Loan Documents), except for regularly scheduled
payments of principal and interest in respect thereof required pursuant to the
instruments evidencing or governing the same.
9.19 SALE AND LEASEBACK TRANSACTIONS; PRODUCTION PAYMENTS. (a) The
Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any arrangements directly or indirectly whereby the Company or such
Restricted Subsidiary shall sell or transfer any property and then or thereafter
rent or lease as lessee such property or any part thereof, or other property
which the Company or such Restricted Subsidiary intends to use for substantially
the same purpose or purposes as the property sold or transferred; PROVIDED that
this Section 9.19 shall not prohibit a sale and leaseback transaction in respect
of any Property of the Company or any such Restricted Subsidiary, if and to the
extent the Company or such Restricted Subsidiary would be entitled to mortgage,
pledge, encumber, or create a lien, charge or security interest upon, such
Property pursuant to Section 9.06 hereof.
(b) The Company will not, nor will it permit its Restricted
Subsidiaries to, voluntarily agree or consent to enter into any Production
Payment transaction or similar agreement without the prior written consent of
the Majority Lenders.
9.20 RELEASE OF SPECIFIED INDEBTEDNESS. Not later than ninety days
following the Closing Date, the Company shall or shall cause the Liens securing
the Indebtedness indicated on Schedule I hereto as the "Specified TGPC
Indebtedness" to be released.
Section 10. EVENTS OF DEFAULT. If one or more of the following
events (herein called "EVENTS OF DEFAULT") shall occur and be continuing:
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(a) The Company shall: (i) default in the payment of any principal
of any Loan when due (whether at stated maturity or at mandatory or optional
prepayment); or (ii) default in the payment of any interest on any Loan, any fee
or any other amount payable by it hereunder or under any other Loan Document
when due and such default shall have continued unremedied for three or more
Business Days; or
(b) The Company or any of its Restricted Subsidiaries shall default
in the payment when due of any principal of or interest on any of its other
Indebtedness aggregating $1,000,000 or more; or any event specified in any note,
agreement, indenture or other document evidencing or relating to any such
Indebtedness shall occur if the effect of such event is to cause, or (with the
giving of any notice or the lapse of time or both) to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in full
(whether by redemption, purchase, offer to purchase or otherwise), prior to its
stated maturity or to have the interest rate thereon reset to a level so that
securities evidencing such Indebtedness trade at a level specified in relation
to the par value thereof; or any Obligor shall default in the payment when due
of any amount under any Swap Transaction pursuant to which, at the time of such
default or at any time thereafter, such Obligor has an aggregate exposure,
calculated on a "marked to market basis" of $250,000 or more; or any event
specified in any Swap Transaction shall occur if the effect of such event is to
cause, or (with the giving of any notice or the lapse of time or both) to
permit, termination or liquidation payment or payments to become due; or
(c) Any representation, warranty or certification made or deemed
made herein or in any other Loan Document (or in any modification or supplement
hereto or thereto) by any Obligor, or any certificate furnished to any Lender or
the Administrative Agent pursuant to the provisions hereof or thereof, shall
prove to have been false or misleading as of the time made or furnished in any
material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 9.01(e), 9.01(g), 9.05, 9.07, 9.08, 9.09,
9.10, 9.13, 9.15, 9.16 or 9.20 hereof or Section 4.02 or 5.02 of the Pledge
Agreement or any Obligor shall default in the performance of any of its
obligations under Section 4.02 or 5.02 of the Pledge and Security Agreement or
any provisions of any Mortgage; or any Obligor shall default in the performance
of any of its obligations under Section 9.06 hereof and such default shall
continue unremedied for thirty or more days after such Obligor obtains knowledge
of such default; or any Obligor shall default in the performance of any of its
other obligations in this Agreement or any other Loan Document and such default
shall continue unremedied for a period of thirty or more days after written
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notice thereof to the Company by the Administrative Agent or any Lender (through
the Administrative Agent); or
(e) The Company or any of its Restricted Subsidiaries shall admit in
writing its inability to, or be generally unable to, pay its debts as such debts
become due; or
(f) The Company or any of its Restricted Subsidiaries shall (i)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all or a
substantial part of its Property, (ii) make a general assignment for the benefit
of its creditors, (iii) commence a voluntary case under the Bankruptcy Code,
(iv) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code or (vi) take any
corporate action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Company or any of its Restricted Subsidiaries, in any court of
competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of a receiver, custodian, trustee, examiner,
liquidator or the like of the Company or such Restricted Subsidiary or of all or
any substantial part of its Property or (iii) similar relief in respect of the
Company or such Restricted Subsidiary under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts,
and such proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 or more days; or an order for relief
against the Company or such Restricted Subsidiary shall be entered in an
involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money of
$1,000,000 or more in the aggregate (exclusive of judgment amounts fully covered
by insurance where the insurer has admitted liability in respect of such
judgment) or of $10,000,000 or more in the aggregate (regardless of insurance
coverage) shall be rendered by one or more courts, administrative tribunals or
other bodies having jurisdiction against the Company or any of its Restricted
Subsidiaries and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be procured,
within 30 days from the date of entry
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thereof and the Company or the relevant Restricted Subsidiary shall not, within
said period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or
(i) An event or condition specified in Section 9.01(d) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
the Company or any ERISA Affiliate shall incur or in the opinion of the Majority
Lenders shall be reasonably likely to incur a liability to a Plan, a
Multiemployer Plan or the PBGC (or any combination of the foregoing) that, in
the determination of the Majority Lenders, would (either individually or in the
aggregate) have a Material Adverse Effect; or
(j) A reasonable basis shall exist for the assertion against the
Company or any of its Subsidiaries, or any predecessor in interest of the
Company or any of its Subsidiaries or Environmental Affiliates, of (or there
shall have been asserted against the Company or any of its Subsidiaries) an
Environmental Claim that, in the judgment of the Majority Lenders is reasonably
likely to be determined adversely to the Company or any of its Subsidiaries, and
the amount thereof (either individually or in the aggregate) is in excess of
$5,000,000 (insofar as such amount is payable by the Company or any of its
Subsidiaries but after deducting any portion thereof that is reasonably expected
to be paid by other creditworthy Persons jointly and severally liable therefor);
or
(k) A Change of Control shall occur; or
(l) Except for expiration in accordance with its terms or a
voluntary release by the Administrative Agent, the Liens created by the Security
Documents shall at any time not constitute a valid and perfected Lien on the
collateral intended to be covered thereby (to the extent perfection by filing,
registration, recordation or possession is required herein or therein) in favor
of the Administrative Agent, free and clear of all other Liens (other than Liens
permitted under Section 9.06 hereof or under the respective Security Documents),
or, except for expiration in accordance with its terms, any of the Security
Documents shall for whatever reason be terminated or cease to be in full force
and effect, or the enforceability thereof shall be contested by any Obligor;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10 with respect to any Obligor, the
Administrative Agent may and, upon request of the Majority Lenders, will, by
notice to the Company, terminate the
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Commitments and/or declare the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Obligors
hereunder and under the Notes (including, without limitation, any amounts
payable under Section 5.05 hereof) to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by each Obligor; and (2) in the case of the occurrence of an Event of
Default referred to in clause (f) or (g) of this Section 10 with respect to any
Obligor, the Commitments shall automatically be terminated and the principal
amount then outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Obligors hereunder and under the Notes (including,
without limitation, any amounts payable under Section 5.05 hereof) shall
automatically become immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by each Obligor.
Section 11. THE ADMINISTRATIVE AGENT.
11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
appoints and authorizes the Administrative Agent to act as its agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to the Administrative Agent by the terms of this Agreement and of the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 11.05 and the first sentence of Section 11.06 hereof
shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those expressly
set forth in this Agreement and in the other Loan Documents, and shall not
by reason of this Agreement or any other Loan Document be a trustee for
any Lender;
(b) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement or
in any other Loan Document, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Loan Document or any other document
referred to or provided for herein or therein or for any failure by the
Company or any other Person to perform any of its obligations hereunder or
thereunder;
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(c) shall not, except to the extent expressly instructed by the
Majority Lenders with respect to collateral security under the Security
Documents, be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document;
(d) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other Loan Document or under any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or
willful misconduct; and
(e) shall have no liability or other obligation to the Company or
any Lender in respect of any determination made or to be made by the
Administrative Agent relating to the method used or to be used, any
assumption made or to be made or any other matter relating to the
computation of the Borrowing Base, the Threshold Amount or any component
of any thereof, other than (i) to the extent practicable, to consult with
the Lenders as to any such determination and (ii) to make any such
determination in good faith and in a manner consistent with the express
requirements of this Agreement.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of a Note as the holder thereof for all purposes hereof
unless and until a notice of the assignment or transfer thereof shall have been
filed with the Administrative Agent, together with the consent of the Company to
such assignment or transfer (to the extent required by Section 12.06(b) hereof).
11.02 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telegram or
cable) reasonably believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Administrative Agent. As to any matters not expressly provided
for by this Agreement or any other Loan Document, the Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by the Majority
Lenders, and such instructions of the Majority Lenders and any action taken or
failure to act pursuant thereto shall be binding on all of the Lenders.
11.03 DEFAULTS. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless the Administrative
Agent has
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received notice from a Lender or the Company specifying such Default and stating
that such notice is a "Notice of Default". In the event that the Administrative
Agent receives such a notice of the occurrence of a Default, the Administrative
Agent shall give prompt notice thereof to the Lenders. The Administrative Agent
shall (subject to Section 11.07 hereof) take such action with respect to such
Default as shall be directed by the Majority Lenders, PROVIDED that, unless and
until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Lenders except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Lenders or all of the
Lenders.
11.04 RIGHTS AS A LENDER. With respect to its Commitment and the
Loans made by it, Chase (and any successor acting as Administrative Agent) in
its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as the Administrative Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Agent in its
individual capacity. Chase (and any successor acting as Administrative Agent)
and its affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as the Administrative
Agent, and Chase (and any such successor) and its affiliates may accept fees and
other consideration from the Obligors for services in connection with this
Agreement or otherwise without having to account for the same to the Lenders.
11.05 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 12.03 hereof,
but without limiting the obligations of the Company under said Section 12.03,
and including in any event any payments under any indemnity that the
Administrative Agent is required to issue to any bank referred to in Section
4.02 of the Pledge and Security Agreement to which remittances in respect of
Accounts, as defined therein, are to be made) ratably in accordance with the
aggregate principal amount of the Loans held by the Lenders (or, if no Loans are
at the time outstanding, ratably in accordance with their respective
Commitments), for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever that may be imposed on, incurred by or asserted
against the Administrative Agent (including by any Lender) arising out of or by
reason of any investigation in or in any way relating to or arising out of this
Agreement or any other Loan Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the
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costs and expenses that the Company is obligated to pay under Section 12.03
hereof, and including also any payments under any indemnity that the
Administrative Agent is required to issue to any bank referred to in Section
4.02 of the Pledge and Security Agreement to which remittances in respect of
Accounts, as defined therein, are to be made, but excluding, unless a Default
has occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or of any such other documents, PROVIDED
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
11.06 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each
Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and its Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or under any other Loan
Document. The Administrative Agent shall not be required to keep itself informed
as to the performance or observance by any Obligor of this Agreement or any of
the other Loan Documents or any other document referred to or provided for
herein or therein or to inspect the Properties or books of the Company or any of
its Subsidiaries. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by the
Administrative Agent hereunder or under the Security Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition or business of the Company or any of its Subsidiaries (or any of their
affiliates) that may come into the possession of the Administrative Agent or any
of its affiliates.
11.07 FAILURE TO ACT. Except for action expressly required of the
Administrative Agent hereunder and under the other Loan Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
11.08 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Company, and the Administrative Agent may be removed at
any time with or without cause
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by the Majority Lenders. Upon any such resignation or removal, the Majority
Lenders shall have the right to appoint a successor Administrative Agent. If no
successor Administrative Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, that shall be a bank that has an office in New York, New
York with a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 11 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
11.09 CONSENTS UNDER OTHER LOAN DOCUMENTS.
(a) Except as otherwise provided in Section 12.04 hereof with
respect to this Agreement, the Administrative Agent may, with the prior consent
of the Majority Lenders (but not otherwise), consent to any modification,
supplement or waiver under any of the Loan Documents, PROVIDED that,
notwithstanding any provision of Section 12.04, without the prior consent of
each Lender, the Administrative Agent shall not (except as provided herein or in
the Security Documents) release any collateral or otherwise terminate any Lien
under any Security Document providing for collateral security, agree to
additional obligations being secured by such collateral security (unless the
Lien for such additional obligations shall be junior to the Lien in favor of the
other obligations secured by such Security Document, in which event the
Administrative Agent may consent to such junior Lien provided that it obtains
the consent of the Majority Lenders thereto), alter the relative priorities of
the obligations entitled to the benefits of the Liens created under the Security
Documents.
(b) Notwithstanding anything in Section 11.09(a) hereof to the
contrary, no consent of the Lenders or the Majority Lenders, as applicable,
shall be required, and the Administrative Agent is hereby authorized, to release
any Lien covering Property which is the subject of a disposition of Property
permitted hereunder or to which the Lenders or the Majority Lenders, as
applicable, have consented.
(c) Notwithstanding anything in Section 11.09(a) hereof to the
contrary, no consent of the Majority Lenders shall be required, and the
Administrative Agent is hereby
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authorized, to release any Lien covering any portion of the Mortgaged Properties
that the Company, by notice to the Administrative Agent and the Lenders, has
requested to be released so long as (i) no Event of Default shall have occurred
and be continuing on the date of such release and (ii) the portion of the
Mortgaged Properties to be released consists entirely of (x) O&G Properties
(other than O&G Properties constituting or classified in the latest report
delivered pursuant to Section 7.01(k) or 9.01(e) hereof as Proved Oil and Gas
Reserves) to which the Administrative Agent has attributed no value in its most
recent determination of the Borrowing Base or Threshold Amount pursuant to
Section 2.11 hereof prior to the date of such request and (y) Properties
permitted to be sold, transferred or otherwise disposed of pursuant to Section
9.05 hereof. Upon the request and at the expense of the Company, the
Administrative Agent shall, not later than 30 days after the later of the date
(x) of such request and (y) on which the Administrative Agent receives all
documents and other evidence that the Administrative Agent may reasonably
request to determine whether such release is authorized under this Section
11.09(c), execute and deliver to the Company such documents as the Company shall
have delivered to the Administrative Agent to the extent the same are necessary
to effect the release of Property authorized to be released under this
paragraph.
11.10 COLLATERAL SUB-AGENTS. Each Lender by its execution and
delivery of this Agreement agrees, as contemplated by Section 4.03 of the Pledge
and Security Agreement, that, in the event it shall hold any Permitted
Investments referred to therein, such Permitted Investments shall be held in the
name and under the control of such Lender, and such Lender shall hold such
Permitted Investments as a collateral sub-agent for the Administrative Agent
thereunder. The Company by its execution and delivery of this Agreement hereby
consents to the foregoing.
Section 12. MISCELLANEOUS.
12.01 WAIVER. No failure on the part of the Administrative Agent or
any Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement or any Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
12.02 NOTICES. All notices and other communications provided for
herein and under the Security Documents (including, without limitation, any
modifications of, or
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waivers or consents under, this Agreement) shall be given or made by telecopy or
other writing and telecopied, mailed or delivered to the intended recipient:
(a) in the case of the Company or any Subsidiary Guarantor, at the
"Address for Notices" specified below the name of the Company on the
signature pages hereof;
(b) in the case of the Administrative Agent, at the "Address for
Notices" specified below its name on the signature pages hereof; and
(c) in the case of any Lender, at its address (or telecopy number)
set forth in its Administrative Questionnaire;
or, as to any party, at such other address as shall be designated by such party
in a notice to the Company and the Administrative Agent given in accordance with
this Section 12.02. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier (and receipt is electronically confirmed), personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
12.03 EXPENSES, ETC. The Company agrees to pay or reimburse each of
the Lenders and the Administrative Agent for: (a) all reasonable out-of-pocket
costs and expenses of the Administrative Agent (including, without limitation,
the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New
York counsel to Chase) in connection with (i) the negotiation, preparation,
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans hereunder and (ii) the negotiation or preparation of any
modification, supplement or waiver of any of the terms of this Agreement or any
of the other Loan Documents (whether or not consummated); (b) all reasonable
out-of-pocket costs and expenses of the Lenders and the Administrative Agent
(including, without limitation, the reasonable fees and expenses of legal
counsel for the Administrative Agent and one legal counsel for the Lenders) in
connection with (i) any Default and any enforcement or collection proceedings
resulting therefrom, including, without limitation, all manner of participation
in or other involvement with (x) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory
proceedings and (z) workout, restructuring or other negotiations or proceedings
(whether or not the workout, restructuring or transaction contemplated thereby
is consummated) and (ii) the enforcement of this Section 12.03; (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Loan Documents or any other document referred to herein or
therein and all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security
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interest contemplated by any Security Document or any other document referred to
therein; and (d) all costs, expenses and other charges in respect of title
insurance procured with respect to the Liens created pursuant to the Mortgage.
The Company hereby agrees to indemnify the Administrative Agent and
each Lender and their respective directors, officers, employees, attorneys and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages or expenses incurred by any of them (including,
without limitation, any and all losses, liabilities, claims, damages or expenses
incurred by the Administrative Agent to any Lender, whether or not the
Administrative Agent or any Lender is a party thereto) arising out of or by
reason of any investigation or litigation or other proceedings (including any
threatened investigation or litigation or other proceedings) relating to the
Loans hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans hereunder, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified) or solely by reason of a material breach of any of the Loan
Documents by such Person. Without limiting the generality of the foregoing, the
Company will (x) indemnify the Administrative Agent for any payments that the
Administrative Agent is required to make under any indemnity issued to any bank
referred to in Section 4.02 of the Pledge and Security Agreement to which
remittances in respect of Accounts, as defined therein, are to be made and (y)
indemnify the Administrative Agent and each Lender from, and hold the
Administrative Agent and each Lender harmless against, any losses, liabilities,
claims, damages or expenses described in the preceding sentence (including any
Lien filed against any Property covered by a Mortgages or any part of the
mortgage estate thereunder in favor of any governmental entity, but excluding,
as provided in the preceding sentence, any loss, liability, claim, damage or
expense incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified) arising under any Environmental Law as a result of the
past, present or future operations of the Company or any of its Subsidiaries (or
any predecessor in interest to the Company or any of its Subsidiaries), or the
past, present or future condition of any site or facility owned, operated or
leased at any time by the Company or any of its Subsidiaries (or any such
predecessor in interest), or any Release or threatened Release of any Hazardous
Materials at or from any such site or facility, excluding any such Release or
threatened Release that shall occur during any period when the Administrative
Agent or any Lender shall be in possession of any such site or facility
following the exercise by the Administrative Agent or any Lender of any of its
rights and remedies hereunder or under any of the Security Documents, but
including any such Release or threatened Release occurring during such period
that is a continuation of conditions previously in existence, or of practices
employed by the Company and its Subsidiaries, at such site or facility.
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12.04 AMENDMENTS, ETC. Except as otherwise expressly provided in
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by the Company and the Subsidiary
Guarantors and the Majority Lenders, or by the Company and the Subsidiary
Guarantors and the Administrative Agent acting with the consent of the Majority
Lenders, and any provision of this Agreement may be waived by the Majority
Lenders or by the Administrative Agent acting with the consent of the Majority
Lenders; PROVIDED that: (a) no modification, supplement or waiver shall, unless
by an instrument signed by all of the Lenders or by the Administrative Agent
acting with the consent of all of the Lenders: (i) increase, or extend the term
of the Commitments, or extend the time to waive any requirement for the
reduction or termination of the Commitments, (ii) extend the date fixed for the
payment of principal of or interest on any Loan or any fee hereunder, (iii)
reduce the amount of any such payment of principal, (iv) reduce the rate at
which interest is payable thereon or any fee is payable hereunder, (v) alter the
rights or obligations of the Company to prepay Loans, (vi) alter the manner in
which payments or prepayments of principal, interest or other amounts hereunder
shall be applied as between the Lenders or Types of Loans, (vii) alter the terms
of this Section 12.04, (viii) modify the definition of the term "Majority
Lenders" or modify in any other manner the number or percentage of the Lenders
required to make any determinations or waive any rights hereunder or to modify
any provision hereof; (ix) release any Subsidiary Guarantor from any of its
guarantee obligations under Section 6 hereof, or (x) waive any of the conditions
precedent set forth in Section 7.01 hereof, (b) any modification or supplement
of Section 11 hereof, or of any of the rights or duties of the Administrative
Agent hereunder, shall require the consent of the Administrative Agent.
12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) No Obligor may assign any of its rights or obligations hereunder
or under the Notes without the prior consent of all of the Lenders and the
Administrative Agent.
(b) Each Lender may assign any of its Loans, its Note, and its
Commitment (but only with the consent of the Company and the Administrative
Agent, such consents not to be unreasonably withheld); PROVIDED that
(i) no such consent by the Company or the Administrative
Agent shall be required in the case of any assignment to another
Lender or any assignment to an affiliate of the assigning Lender;
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(ii) except to the extent the Company and the
Administrative Agent shall otherwise consent, any such partial
assignment (other than to another Lender) shall be in an amount at
least equal to $5,000,000; and
(iii) each such assignment by a Lender of its Loans, Note or
Commitment shall be made in such manner so that the same portion of
its Loans, Note and Commitment is assigned to the respective
assignee.
Upon execution and delivery by the assignee to the Company and the
Administrative Agent of an instrument in writing pursuant to which such assignee
agrees to become a "Lender" hereunder (if not already a Lender) having the
Commitment and Loans specified in such instrument, and upon consent thereto by
the Company and the Administrative Agent to the extent required above, the
assignee shall have, to the extent of such assignment (unless provided in such
assignment with the consent of the Company and the Administrative Agent), the
obligations, rights and benefits of a Lender hereunder holding the Commitment
and Loans (or portions thereof) assigned to it (in addition to the Commitment
and Loans, if any, theretofore held by such assignee) and the assigning Lender
shall, to the extent of such assignment, be released from the Commitment (or
portion thereof) so assigned. Upon each such assignment the assigning Lender
shall pay the Administrative Agent an assignment fee of $3,000.
(c) A Lender may sell or agree to sell to one or more other Persons
(each a "PARTICIPANT") a participation in all or any part of any Loans held by
it, or in its Commitment, PROVIDED that such Participant shall not have any
rights or obligations under this Agreement or any Note or any other Loan
Document (the Participant's rights against such Lender in respect of such
participation to be those set forth in the agreements executed by such Lender in
favor of the Participant). All amounts payable by the Company to any Lender
under Section 5 hereof in respect of Loans held by it, and its Commitment, shall
be determined as if such Lender had not sold or agreed to sell any
participations in such Loans and Commitment, and as if such Lender were funding
each of such Loan and Commitment in the same way that it is funding the portion
of such Loan and Commitment in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant to
take or refrain from taking any action hereunder or under any other Loan
Document except that such Lender may agree with the Participant that it will
not, without the consent of the Participant, agree to (i) increase or extend the
term of such Lender's Commitment, (ii) extend the date fixed for the payment of
principal of or interest on the related Loan or Loans or any portion of any fee
hereunder payable to the Participant, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon,
or any fee hereunder payable to the Participant, to a level below the rate at
which the Participant is entitled to receive such interest or fee or (v) consent
to
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any modification, supplement or waiver hereof or of any of the other Loan
Documents to the extent that the same, under Section 11.09 or 12.04 hereof,
requires the consent of each Lender.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.06, any Lender may (without
notice to the Company, the Administrative Agent or any other Lender and without
payment of any fee) assign and pledge all or any portion of its Loans and its
Note to any Federal Reserve Bank as collateral security pursuant to Regulation A
and any Operating Circular issued by such Federal Reserve Bank, and such Loans
and Note shall be fully transferrable as provided therein. No such assignment
shall release the assigning Lender from its obligations hereunder.
(e) A Lender may furnish any information concerning the Company or
any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to Section 12.12(b) hereof.
(f) Anything in this Section 12.06 to the contrary notwithstanding,
no Lender may assign or participate any interest in any Loan held by it
hereunder to the Company or any of its Affiliates or Subsidiaries without the
prior consent of each Lender.
12.07 SURVIVAL. The obligations of the Company under Sections 5.01,
5.05, 5.06 and 12.03 hereof, the obligations of each Subsidiary Guarantor under
Section 6.03 hereof, and the obligations of the Lenders under Section 11.05
hereof, shall survive the repayment of the Loans and the termination of the
Commitments and, in the case of any Lender that may assign any interest in its
Commitment or Loans hereunder, shall survive the making of such assignment,
notwithstanding that such assigning Lender may cease to be a "Lender" hereunder.
In addition, each representation and warranty made, or deemed to be made by a
notice of any Loan, herein or pursuant hereto shall survive the making of such
representation and warranty, and no Lender shall be deemed to have waived, by
reason of making any Loan, any Default that may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that such Lender or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was false
or misleading at the time such Loan was made.
12.08 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
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12.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
the Supreme Court of the State of New York sitting in New York County (including
its Appellate Division), and of any other appellate court in the State of New
York, for the purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. Each Obligor hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection that it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
12.11 WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
12.12 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. (a) The
Company acknowledges that from time to time financial advisory, investment
banking and other services may be offered or provided to the Company or one or
more of its Subsidiaries (in connection with this Agreement or otherwise) by any
Lender or by one or more subsidiaries or affiliates of such Lender and the
Company hereby authorizes each Lender to share any information delivered to such
Lender by the Company and its Subsidiaries pursuant to this Agreement, or in
connection with the decision of such Lender to enter into this Agreement, to any
such subsidiary or affiliate. Such authorization shall survive the repayment of
the Loans and the termination of the Commitments.
(b) Each Lender and the Administrative Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by any Obligor pursuant to this Agreement
that is identified by such Person as being confidential at the time the same is
delivered to the Lenders or the Administrative Agent, PROVIDED that nothing
herein shall limit
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the disclosure of any such information (i) to the extent required by statute,
rule, regulation or judicial process, (ii) to counsel for any of the Lenders or
the Administrative Agent, (iii) to regulatory personnel, auditors or
accountants, (iv) to the Administrative Agent or any other Lender (or to Chase
Securities Inc.), (v) in connection with any litigation related to the
transactions contemplated by the Loan Documents, (vi) to a subsidiary or
affiliate of such Lender as provided in paragraph (a) above or (vii) to any
assignee or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) first executes
and delivers to the respective Lender an acknowledgement to the effect that it
is bound by the provisions of this Section 12.12(b), which acknowledgement may
be included as part of the respective assignment or participation agreement
pursuant to which such assignee or participant acquires an interest in the Loans
hereunder).
12.13 INTEREST. It is the intent of the Lenders and the Obligors in
the execution and performance of this Agreement and all matters incidental and
related hereto and the other Loan Documents or any agreement or instrument
executed in connection herewith or therewith or with any Indebtedness of the
Obligors to the Lenders to remain in strict compliance with all laws applicable
to the Lenders from time to time in effect, including, without limitation, usury
laws. In furtherance hereof, each Lender and the Obligors stipulate and agree
that none of the terms and provisions contained in or pertaining to this
Agreement or in the other Loan Documents or any other agreement or instrument
("OTHER AGREEMENT") executed in connection herewith or therewith or with any
Indebtedness of the Obligors to such Lender shall ever be construed to create a
contract to pay for the use, forbearance or detention of money with interest at
a rate or in an amount in excess of the Maximum Rate for such Lender or maximum
amount of interest permitted to be charged by such Lender under all laws in
effect and applicable to the Lender. For purposes of this Agreement and the Note
held by any Lender, "interest" shall include the aggregate of all amounts which
constitute or are deemed to constitute interest under the respective laws in
effect and applicable to such Lender that are contracted for, chargeable,
receivable (whether received or deemed to have been received) or taken under
this Agreement or such Note or any Other Agreement. The Obligors shall never be
required to pay to any Lender unearned interest hereunder or on the Note held by
any Lender or any Other Agreement and shall never be required to pay interest
hereunder or on the Note held by any Lender or any Other Agreement at a rate or
in an amount in excess of the Maximum Rate for such Lender or maximum amount of
interest that may be lawfully charged by such Lender under any law which is in
effect and applicable to such Lender, and the provisions of this Agreement and
the Notes or any Other Agreement which may be in apparent conflict herewith. If
the effective rate or amount of interest which would otherwise be payable under
this Agreement or the Note held by a Lender or any Other Agreement, or all of
them, would exceed the Maximum Rate for such Lender or the maximum amount of
interest such Lender or any
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holder of such Note or any Other Agreement is allowed by the relevant Applicable
Law to charge, contract for, take or receive, or in the event such Lender or
such holder or any Other Agreement shall charge, contract for, take or receive
monies that are deemed to constitute interest which could, in the absence of
this provision, increase the effective rate or amount of interest payable under
this Agreement or the Notes or any Other Agreement, or all of them, to a rate or
amount in excess of that permitted to be charged, contracted for, taken or
received under the Applicable Laws then in effect with respect to such Lender,
then the principal amount of the Note held by such Lender or the obligations or
the Obligors to such Lender under this Agreement, such Note or any Other
Agreement or the amount of interest which would otherwise be payable to or for
the account of such Lender under this Agreement or the Note held by such Lender
or any other Agreement, or all of them, shall be reduced to the amount allowed
under said Applicable Laws as now or hereafter construed by the courts having
jurisdiction, and all such monies so charged, contracted for, or received that
are deemed to constitute interest in excess of the Maximum Rate for such Lender
or maximum amount of interest permitted by the relevant Applicable Laws shall be
immediately returned to or credited to the account of the Company upon such
determination. All amounts paid or agreed to be paid in connection with the
indebtedness arising pursuant to this agreement and/or evidenced by the Note
held by any Lender which would under any Applicable Law in effect and applicable
to such Lender be deemed "interest" shall, to the extent permitted by such
applicable law, be amortized, prorated, allocated and spread throughout the full
term of this Agreement and such Note, as applicable.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
DOMAIN ENERGY CORPORATION
By /s/ RICK G. LESTER
Title: Vice President and Chief Financial
Officer
Address for Notices:
Domain Energy Corporation
1100 Louisiana Street
15th Floor
Houston, Texas 77002
Attention: Mr. Rick G. Lester
Telecopier No.: (713) 757-8314
Telephone No.: (713) 757-3698
<PAGE>
-100-
SUBSIDIARY GUARANTORS
TENNECO VENTURES CORPORATION
By /s/ R. G. LESTER
Title:
TENNECO GAS PRODUCTION
CORPORATION
By /s/ R. G. LESTER
Title:
<PAGE>
-101-
LENDERS
COMMITMENT THE CHASE MANHATTAN BANK
$38,750,000
By /s/ RICK F. BETZ
Title: Vice President
<PAGE>
-102-
COMMITMENT COMPASS BANK
$16,250,000
By /s/ DOROTHY M. WILSON
Title: Vice President
<PAGE>
-103-
COMMITMENT TORONTO DOMINION (TEXAS), INC.
$10,000,000
By /s/ DARLENE REIDEL
Darlene Reidel
Vice President
Lending Office for all Loans:
909 Fannin, Suite 1700
Houston, Texas 77010
Address for Notices:
909 Fannin, Suite 1700
Houston, Texas 77010
Attention: Manager, Credit Administration
Telecopier No.: (713) 951-9921
Telephone No.: (713) 653-8200
<PAGE>
-104-
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ RICK F. BETZ
Title: Vice President
Address for Notices to Chase
as Administrative Agent
Chase Agent Bank Services
One Chase Manhattan Plaza, Eighth Floor
New York, New York 10081
Attention: Vincent Siino
Telecopier No.: (212) 552-5777
Telephone No.: (212) 552-7423
<PAGE>
SCHEDULE I
MATERIAL AGREEMENTS AND LIENS
PART A: MATERIAL AGREEMENTS
Amended and Restated Credit Agreement, dated as of May 2, 1996 among
Michigan Production Company, L.L.C. ("MPC"), Michigan Energy Company, L.L.C.
("MEC") and Bank of America Illinois (up to $30 million, $11.5 million of which
has currently been loaned to MPC and MEC, collectively).
Secured Guaranty, dated as of May 2, 1996, by West Shore Processing
Company, LLC in favor of Bank of America Illinois (pro rata portion of $30
million).
Credit Agreement, dated as of June 7, 1996, between Tenneco Ventures
Finance Corporation and Compass Bank--Houston ($20 million).
Subordinated Promissory Note, dated December 31, 1996, by Domain
Energy Guarantor Corporation in favor of First Reserve Fund VII, Limited
Partnership ($8 million).
Loan Agreement, dated September 29, 1995, between Tenneco/EnCap Gas
Fund Partnership and Bank One, Texas, National Association (pro rata portion of
$10 million).
Guaranty, dated September 29, 1995, by Domain Energy Guarantor
Corporation (as assignee of Tennessee Gas Pipeline Company), in favor of Bank
One, Texas, National Association.
Commodity Swap Agreement, dated August 15, 1995, between Enron
Capital & Trade Resources Corp. and Tenneco Ventures Corporation (not
applicable).
Commodity Swap Agreement, dated as of January 12, 1995, between
Enron Capital & Trade Resources Corp. and Tenneco Gas Production Corporation
(not applicable).
Commodity Swap Agreement, dated as of November 19, 1996, between
Enron Capital & Trade Resources Corp. and Tenneco Ventures Corporation (not
applicable).
<PAGE>
Commodity Swap Agreement, dated as of December 16, 1996, between
Enron Capital & Trade Resources Corp. and Tenneco Ventures Corporation (not
applicable).
Guaranty, dated June 16, 1992, by Tennessee Gas Pipeline Company in
favor of General Electric Pension Trust.
Guaranty, dated Juned 16, 1992, by Tennessee Gas Pipeline Company in
favor of GTE Service Corporation Plan for Employees' Pensions.
Guaranty, dated June 30, 1993, by Tennessee Gas Pipeline Company in
favor of The Delta Master Trust by Harris Trust and Savings Bank, as Directed
Trustee.
MMS R-O-W-Surety Bond number 71S33123-02-95 in the amount of
$300,000 issued in connection with all OCS ROWS leases located in Areawide Gulf,
effective as of February 13, 1995.
MMS Lease Development Surety Bond number 71S33123-03-95 in the
amount of $500,000 issued in connection with the OCS-G 3282 lease located in WC
409, effective as of April 24, 1995.
MMS Lease Development Surety Bond number 71S33123-04-95 in the
amount of $500,000 issued in connection with the OCS-G 4565 lease located in GA
303, effective as of April 24, 1995.
MMS Lease Development Surety Bond number 71S33123-05-95 in the
amount of $500,000 issued in connection with the OCS-G 6010 lease located in MU
846, effective as of April 24, 1995.
MMS Lease Development Surety Bond number 71S33123-06-95 in the
amount of $500,000 issued in connection with the OCS-G 6011 lease located in MU
847, effective as of April 24, 1995.
MMS Areawide Development Surety Bond number 71S33123-02-96 in the
amount of $3,000,000 issued in connection with certain offshore leases located
in Areawide Gulf, effective as of January 16, 1996.
MMS Supplemental Surety Bond numbers B05833, B05834 - NCX in the
amount of $550,000 issued in connection
2
<PAGE>
with the OCS-G 4591/3485 leases located in HI 282/285, effective as of March 27,
1996.
MMS Supplemental Surety Bond number 71S33123-03-96 in the amount of
$1,500,000 issued in connection with the OCS-G 2857 lease located in EC 042,
effective as of May 24, 1996.
MMS Supplemental Surety Bond number 71S33123-05-96 in the amount of
$1,900,000 issued in connection with the OCS-G 2127 lease located in EC 033,
effective as of May 24, 1996.
MMS Supplemental Surety Bond number 71S33123-06-96 in the amount of
$450,000 issued in connection with the OCS-G 4565 lease located in GA 303,
effective as of May 24, 1996.
State of Michigan Well Bond number 71S33123-07-96 in the amount of
$250,000 issued in connection with certain Michigan blanket well leases,
effective as of August 23, 1996.
SPECIFIED TGPC INDEBTEDNESS
Credit Agreement, dated June 16, 1992, by and between Tenneco Gas
Production Corporation and the Trustees of General Electric Pension Trust.
Credit Agreement, dated December 31, 1994, by and between Tenneco
Gas Production Corporation and Trustees of General Electric Pension Trust.
Credit Agreement, dated June 16, 1992, by and between Tenneco Gas
Production Corporation and Bankers Trust Company, as Trustee for the GTE Service
Corporation Plan for Employees' Pensions.
Credit Agreement, dated December 31, 1994, by and between Tenneco
Gas Production Corporation and Bankers Trust Company, as Trustee for the GTE
Service Corporation Plan for Employees' Pensions.
Credit Agreement, dated June 30, 1993, by and between Tenneco Gas
Production Corporation and The Delta Master Trust by Harris Trust and Savings
Bank, as Directed Trustee.
3
<PAGE>
Credit Agreement, dated December 31, 1994, by and between Tenneco
Gas Production Corporation and The Delta Master Trust by Harris Trust and
Savings Bank, as Directed Trustee.
PART B: LIENS
Pledge Agreement, dated as of May 2, 1996, by Tenneco Ventures
Corporation in favor of Bank of America Illinois (to secure pro rata portion of
$30 million).
Pledge Agreement, dated as of May 2, 1996, by West Shore Processing
Company, LLC in favor of Bank of America Illinois (to secure pro rata portion of
$30 million).
Numerous Mortgages and Deeds of Trust by Tenneco Gas Production
Corporation in favor of General Electric Pension Trust in respect of the Credit
Agreement dated June 16, 1992 and the Credit Agreement dated December 31, 1994,
each described above.
Numerous Mortgages and Deeds of Trust by Tenneco Gas Production
Corporation in favor of GTE Service Corporation in respect of the Credit
Agreement dated June 16, 1992 and the Credit Agreement dated December 31, 1994,
each described above.
Numerous Mortgages and Deeds of Trust by Tenneco Gas Production
Corporation in favor of Delta Air Lines Pension in respect of the Credit
Agreement dated June 30, 1993 and the Credit Agreement dated December 31, 1994,
each described above.
4
<PAGE>
SCHEDULE II
ENVIRONMENTAL MATTERS
Shortly after Tenneco Ventures Corporation acquired West Delta 30,
in the course of repairs to a flowline the personnel representing Seneca
Resources, the Operator, noticed small sheens occurring coincidentally with
movement of divers working on the bottom. To the best of their knowledge, the
personnel believe that the source was a pre-existing condition of the mudline
and the previous owner, Shell, was notified accordingly by Seneca.
<PAGE>
SCHEDULE III
SUBSIDIARIES AND INVESTMENTS
<TABLE>
<CAPTION>
=====================================================================================================================
PART A: SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------
PERSONS HOLDING
JURISDICTION OWNERSHIP INTERESTS
OF AND NATURE OF SUCH LIENS IN RESPECT OF SUCH
NAME ORGANIZATION INTEREST INTERESTS/EQUITY RIGHTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restricted Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------
Tenneco Delaware Domain Energy None
Ventures Corporation 100% -
Corporation Common
- ---------------------------------------------------------------------------------------------------------------------
Tenneco Gas Delaware Domain Energy None
Production Corporation 100% -
Corporation Common
- ---------------------------------------------------------------------------------------------------------------------
Oceana Texas Tenneco Ventures None
Exploration Corporation: 80% -
Company, L.C. Member
Encap Ventures 1993
Limited Partnership
20% - Member
- ---------------------------------------------------------------------------------------------------------------------
Matrix Energy - Texas Tenneco Ventures Tenneco Ventures Corporation's
T Limited Corporation 80% - percentage of available
Partnership Limited Partner distributions will decrease
first from 80% to 50% after its
Matrix Oil & Gas, Inc. has received cash distributions
20% - General Partners equal to its contribution plus
a 15% rate of return, and then
from 50% to 32.5% after it has
received cash distributions equal
to its contributions plus a 20%
rate of return.
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
Unrestricted Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------
Domain Energy Delaware Domain Energy None
Guarantor Corporation - 100%
Corporation Common
- ---------------------------------------------------------------------------------------------------------------------
Tenneco Delaware Tenneco Ventures None
Ventures Corporation 100% -
Finance Common
Corporation
- ---------------------------------------------------------------------------------------------------------------------
Tenneco/EnCap Texas Tenneco Ventures None
Gas Fund Corporation 50% -
Partnership General Partner
Encap Ventures 1993
Limited Partnership
50% - General Partner
- ---------------------------------------------------------------------------------------------------------------------
Michigan Gas Texas Tenneco Ventures None
Fund I Corporation 50% -
General Partner
Encap Ventures 1993
Limited Partnership
50% - General Partner
- ---------------------------------------------------------------------------------------------------------------------
New York Gas New York Tenneco Ventures None
Fund I Corporation 50% -
General Partner
Encap Ventures 1993
Limited Partnership
50% - General Partner
2
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
Texas Gas Fund Texas Tenneco Ventures None
I Corporation 50% -
General Partner
Encap Ventures 1993
Limited Partnership
50% - General Partner
- ---------------------------------------------------------------------------------------------------------------------
Texas Gas Fund Texas Tenneco Ventures None
II Corporation 50% -
General Partner
Encap Ventures 1993
Limited Partnership
50% - General Partner
=====================================================================================================================
3
<PAGE>
=================================================================================================================
PART B: INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------
SUBSIDIARY HOLDING LIENS IN RESPECT OF SUCH
INVESTMENT NATURE OF INVESTMENT INVESTMENT
- -----------------------------------------------------------------------------------------------------------------
Tenneco Ventures Warrants to acquire 28,350 None
Corporation shares of Common Stock of
Benton Corp.
- -----------------------------------------------------------------------------------------------------------------
Tenneco Ventures 63,000 shares of National None
Corporation Energy Group Common Stock
- -----------------------------------------------------------------------------------------------------------------
Tenneco Ventures 1% - Class A Member in 45% ownership interest of
Corporation Michigan Energy Company, LLC Dwain Immel, Hi Limited
Partnership and Montana BC
26.5% - indirect interest Limited in the form of
(through Michigan Gas Fund Class B memberships.
I) in Michigan Energy Distributions are available
Company, LLC to Class B owners after
Class A owners recover costs
plus a 15% rate of return.
Preferred Member Interest Class
I of LaSalle Street Natural
Resources Corporation.
Pledge Agreement dated as of
May 2, 1996, in favor of Bank
of America Illinois.
- -----------------------------------------------------------------------------------------------------------------
Tenneco Ventures 19.25% (reducing to 11%) Right of MarkWest Michigan,
Corporation indirect interest (through LLC to earn up to a 60%
Michigan Energy Company, LLC ownership interest in
and Michigan Gas Fund I) in exchange for contribution
West Shore Processing of capital.
Company
4
<PAGE>
- -----------------------------------------------------------------------------------------------------------------
Tenneco Ventures 18.8% (reducing to 11%) - Right of MarkWest Michigan,
Corporation indirect interest (through LLC to earn up to a 60%
Michigan Energy Company, ownership interest in
LLC, West Shore Processing exchange for contribution
Company, LLC and Michigan of capital.
Gas Fund I) in Basin
Pipeline Company, LLC
- -----------------------------------------------------------------------------------------------------------------
Tenneco Ventures 34.65% - Class A Member in 45% ownership of Manistee
Corporation Michigan Production Company, Gas Limited Liability
LLC Company in the form of a
Class B Membership.
Distributions are available
to Class B owners after
Class A owners recover
their costs plus a 15% rate
of return.
Pledge Agreement dated as of
May 2, 1996, in favor Bank of
America Illinois.
- -----------------------------------------------------------------------------------------------------------------
Michigan Gas Fund I 53% - Class A Member in None
Michigan Energy Company, LLC
=================================================================================================================
</TABLE>
5
<PAGE>
SCHEDULE IV
REAL PROPERTY
None.
<PAGE>
SCHEDULE V
LITIGATION
PLAINS RESOURCES:
A settlement has been reached in a lawsuit between Nicklos Drilling
Company and Plains Resources et. al. The lawsuit stemmed from costs incurred
when drillpipe was stuck in the Boagni #1 well, which led to a total loss of the
wellbore, necessitating a redrill of the well. Tenneco Ventures' share of the
settlement, which includes Joint Interest Billings and legal costs, is $230,000.
This settlement will be paid in January of 1997.
GECKO:
In late 1995, three employees of a storage tank rental firm were
killed while cleaning out one of their tanks that had previously been used on a
location in which Tenneco Ventures had a working interest. The problem stemmed
from the employees having been exposed to Hydrogen Sulfide (H2S). According to
the operator of the well, Gecko Operating, the tank was tested prior to being
moved from a well site and found to be free of any H2S contamination. The source
of the H2S was traced to wash water utilized by the employees in their own yard.
The water had reportedly been taken from a different tank in their yard and
neither the source water nor the tank water was connected in any way to Gecko's
operations. Despite this background, Tenneco Ventures has received word that a
lawsuit is being filed against Gecko which could subsequently expose Tenneco
Ventures to the litigation. The potential liability of Tenneco Ventures, if any,
is unknown.
WEST DELTA 30:
Tenneco Ventures has been advised that legal action is being pursued
by an individual as a result of injuries sustained while working at a platform
on the West Delta 30 block. The potential liability of Tenneco Ventures, if any,
is unknown.
MUSTANG ISLAND 847:
In the Fall of 1995, a helicopter pilot under contract to OCS,
Tenneco Ventures' contract operator for the field, inadvertently stepped off
into a stairwell while tying down his aircraft on the B platform at Mustang
Island 847. The pilot reportedly received minor cuts, bruises and contusions,
was held overnight at a hospital for
<PAGE>
observation, and released. To Tenneco Ventures' knowledge, no claims have been
made or are pending relating to this incident which is being identified as the
only known injury sustained on a property operated by Tenneco Ventures.
WEST COTE BLANCHE BAY:
Tenneco Ventures and Tenneco Gas Production Corporation ("TGPC")
have 7.19889% and 3.59890% working interests, respectively, in West Cote Blanche
Bay. In connection with those interests, Tenneco Ventures and TGPC are alleged
by Texaco Exploration and Production, Inc. ("Texaco") to owe a portion of $1.3
million, which represents total debt outstanding to Texaco from Benton Oil and
Gas Company of Louisiana, Tenneco Ventures and TGPC. Texaco has indicated that
it will pursue all available remedies to collect amounts owing. Management
believes that the likely exposure of Tenneco Ventures and TGPC does not exceed
$175,000, and efforts are underway with Texaco to resolve this dispute.
2
<PAGE>
SCHEDULE VI
EQUITY RIGHTS
Subscription Agreement, dated as of December 31, 1996, between First Reserve
Fund VII, Limited Partnership, and Domain Energy Corporation.
Securityholders Agreement, dated as of December 31, 1996, among Domain Energy
Corporation and First Reserve Fund VII, Limited Partnership, Michael V. Ronca,
Rick G. Lester, Herbert A. Newhouse, Catherine L. Sliva, Douglas H. Woodul,
Steven M. Curran, Dean R. Bouillion and Lucynda S. Herrin.
First Reserve Fund VII, Limited Partnership, as the sole stockholder of the
Company as of the date hereof has agreeed with the members of Management that
Management will have the right, shortly after the Closing Date, to purchase in
the aggregate 480.53 shares of the Company's Common Stock for an aggregate
purchase price of $1,514,354.00. To evidence Michael V. Ronca's rights in that
regard, the Company has entered into that certain Management Investor
Subscription Agreement, dated as of December 31, 1996, with Michael V. Ronca.
The Company will enter into substantially similar agreements shortly after the
Closing Date with each of the other members of Management who elect to exercise
their respective rights to acquire their pro rata share of the 480.53 shares of
Common Stock of the Company.
Subordinated Promissory Note, dated December 31, 1996, by Domain Energy
Guarantor Corporation in favor of First Reserve Fund VII, Limited Partnership,
which is convertible into 2,539 shares of the Company's Common Stock.
<PAGE>
SCHEDULE VII
MATERIAL ADVERSE CHANGES
After December 31, 1995, the following series of transactions were entered into
by Tenneco Ventures Corporation and its Subsidiaries related to Michigan
activities.
CONTRIBUTION AGREEMENT
On March 29, 1996, a Contribution Agreement was executed among Hi P Limited
Partnership, Montana BC Limited Partnership, Dwain Immel, Manistee Gas Limited
Liability Company ("Manistee"), and Michigan Gas Fund I.
The agreement provided for the formation of Michigan Production Company, LLC
("MPC") and Michigan Energy Company, LLC ("MEC"). Debt owed by Manistee and
Basin Pipeline Company, LLC ("Basin") to Michigan Gas Fund I of, collectively,
approximately $18.7 million was contributed by Michigan Gas Fund I to MPC and
MEC in exchange for substantially all of the assets of Manistee and Basin.
Except for approximately $2.6 million, the obligations of Manistee and Basin to
repay such debt was forgiven. The $2.6 million of remaining obligation is
recourse only to certain property and equipment still owned by Manistee, with a
purchase option by MEC.
PARTICIPATION, OWNERSHIP, AND OPERATING AGREEMENT FOR WEST SHORE PROCESSING
COMPANY, LLC. ("WEST SHORE") On May 2, 1996, the referenced agreement was
executed providing for the creation of West Shore and the contribution of $16.7
million of capital by MarkWest Michigan, LLC ("MarkWest") to the activities of
West Shore and Basin. In exchange for the contribution, MarkWest earns up to a
60% ownership interest in West Shore and Basin. The capital is primarily
dedicated to building pipeline extensions and a processing plant. MPC and Oceana
Exploration Company, L.C. have also dedicated present and future gas reserves to
West Shore pursuant to a Gas Gathering Treating and Processing Agreement.
BANK OF AMERICA, AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF MAY 2, 1996,
AMONG MPC AND MEC, AS THE BORROWERS AND BANK OF AMERICA ILLINOIS, AS THE LENDER
Pursuant to the referenced agreement, Bank of America ("Bank") has loaned $11.5
million to MPC and MEC,
<PAGE>
collectively, secured by the assets of MPC and MEC. Loans are available in
excess of $11.5 million (up to $30 million) as additional producing collateral,
or other collateral acceptable to the Bank, is provided.
Prior to December 31, 1996, the Bank and the Borrowers will execute amendments
to the Credit Agreement releasing Tennessee Gas Pipeline Company and Tenneco
Ventures Corporation from certain guaranty obligations.
2
<PAGE>
SCHEDULE VIII
DEFAULTS UNDER CONTRACTS AND LICENSES
None.
<PAGE>
SCHEDULE IX
CONSENTS
None.
<PAGE>
SCHEDULE X
CAPITAL STOCK OF DOMAIN ENERGY CORPORATION
AUTHORIZED ISSUED/OUTSTANDING
20,000 shares of Common Stock 9,519.4717 shares of
Common Stock held by
First Reserve Fund VII,
Limited Partnership
EXHIBIT 10.11
AMENDED AND RESTATED
1996 STOCK PURCHASE AND OPTION PLAN
FOR KEY EMPLOYEES OF
DOMAIN ENERGY CORPORATION AND AFFILIATES
1. PURPOSE OF PLAN
The Amended and Restated 1996 Stock Purchase and Option Plan for Key
Employees of Domain Energy Corporation and Affiliates (the "Plan") is designed:
(a) to promote the long term financial interests and growth of Domain
Energy Corporation (the "Corporation") and its affiliates by attracting and
retaining management personnel with the training, experience and ability to
enable them to make a substantial contribution to the success of the
Corporation's business;
(b) to motivate management personnel by means of growth-related incentives
to achieve long range goals; and
(c) to further the alignment of interests of participants with those of
the stockholders of the Corporation through opportunities for increased stock,
or stock-based, ownership in the Corporation.
2. DEFINITIONS
As used in the Plan, the following words shall have the following
meanings:
(a) "Affiliate" means, with respect to the Corporation, any corporation
directly or indirectly controlling, controlled by, or under common control with,
the Corporation or any other entity designated by the Board of Directors of the
Corporation in which the Corporation or an Affiliate has an interest.
(b) "Board of Directors" means the Board of Directors of the Corporation.
(c) "Change of Control" shall mean the occurrence of either (x) the
purchase or other acquisition by any person, entity or group (within the meaning
of section 13(d) of 14(d) of the Securities Exchange Act of 1934, or any
comparable successor provisions) of persons or entities (a "Group"), other than
the FRC Entities, of (i) ownership of fifty percent (50%)
1
<PAGE>
or more of the combined voting power of the Corporation's then outstanding
voting securities entitled to vote generally or (ii) all or substantially all of
the direct and indirect assets of the Company and its subsidiaries or (y) any
merger, consolidation, reorganization or other business combination of the
Corporation with or into any other entity which results in a person, entity or
Group other than First Reserve or any of its Affiliates owning fifty percent
(50%) or more of the combined voting power of the surviving or resulting
corporation's then outstanding voting securities entitled to vote generally.
(d) "Committee" means the Compensation Committee of the Board of
Directors.
(e) "Common Stock" or "Share" means common stock of the Corporation which
may be authorized but unissued, or issued and reacquired.
(f) "Employee" means a person, including an officer, in the regular
full-time employment of the Corporation or one of its Affiliates who, in the
opinion of the Committee, is, or is expected to be, primarily responsible for
the management, growth or protection of some part or all of the business of the
Corporation.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Fair Market Value" shall mean (A) if on the date as of which Fair
Market Value is being determined the Common Stock is listed on a national
securities exchange or is quoted in the NASDAQ System or the over-the-counter
market, the last sale price, regular way, of such security on the principal
national securities exchange on which such security is at the time listed, or
(B) if there have been no sales on any such exchange on any day, the average of
the highest bid and lowest asked prices on such exchange at the end of such day,
or (C) if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or (D) if on any day the Common Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such case
of clauses (A)-(D) averaged over a period of 20 days consisting of the day as of
which Fair Market Value is being determined and the latest 19 consecutive
trading days prior to such day, or (E) if the Common Stock is not publicly
traded, then the fair market value of the Common Stock as determined in good
faith by the Committee.
2
<PAGE>
(i) "FRC Entities" shall mean investment funds or other entities for which
First Reserve Corporation acts as a general and/or managing partner or in
respect of which First Reserve Corporation provides investment advice, either
directly or through entities controlled by it.
(j) "Grant" means an award made to a Participant pursuant to the Plan and
described in Paragraph 5, including, without limitation, an award of an
Incentive Stock Option, Stock Option, Stock Appreciation Right, Dividend
Equivalent Right, Restricted Stock, Purchase Stock, Performance Units,
Performance Shares or Other Stock Based Grant or any combination of the
foregoing.
(k) "Grant Agreement" means an agreement between the Corporation and a
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.
(l) "Participant" means an Employee, director or other person having a
unique relationship with the Corporation or one of its Affiliates, to whom one
or more Grants have been made and such Grants have not all been forfeited or
terminated under the Plan.
(m) "Stock-Based Grants" means the collective reference to the grant of
Stock Appreciation Rights, Dividend Equivalent Rights, Restricted Stock,
Performance Units, Performance Shares and Other Stock Based Grants.
(n) "Stock Options" means the collective reference to "Incentive Stock
Options" and "Other Stock Options".
(o) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Corporation if each of the corporations, or
group of commonly controlled corporations, other than the last corporation in
the unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3. ADMINISTRATION OF PLAN
(a) The Plan shall be administered by the Committee. Except as provided in
Section 4, the members of the Committee shall be eligible to be selected for
Grants under the Plan; provided, however, that the members of the Committee
shall qualify to administer the Plan for purposes of Rule 16b-3 (and any other
applicable rule) promulgated under Section 16(b) of the Exchange Act to the
extent that the Corporation is subject to such rule. The
3
<PAGE>
Committee may adopt its own rules of procedure, and action of a majority of the
members of the Committee taken at a meeting, or action taken without a meeting
by unanimous written consent, shall constitute action by the Committee. The
Committee shall have the power and authority to administer, construe and
interpret the Plan, to make rules for carrying it out and to make changes in
such rules. Any such interpretations, rules, and administration shall be
consistent with the basic purposes of the Plan.
(b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Corporation its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe except that only the
Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.
(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Corporation, and the
officers and directors of the Corporation shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Corporation and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Grants, and all members of the Committee shall be fully
protected by the Corporation with respect to any such action, determination or
interpretation.
4. ELIGIBILITY
The Committee may from time to time make Grants under the Plan to such
Employees, directors or other persons having a unique relationship with the
Corporation or any of its Affiliates, and in such form and having such terms,
conditions and limitations as the Committee may determine. Grants may be granted
singly, in combination or in tandem. The terms, conditions and limitations of
each Grant under the Plan shall be set forth in a Grant Agreement, in a form
approved by the Committee, consistent, however, with the terms of the Plan;
provided, however, such Grant Agreement shall contain provisions dealing with
the treatment of Grants in the event of the termination, death or disability of
a Participant, and may also include provisions concerning the treatment of
Grants in the event of a Change of Control of Corporation.
4
<PAGE>
5. GRANTS
From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:
(a) INCENTIVE STOCK OPTIONS - These are stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), to
purchase Common Stock. In addition to other restrictions contained in the Plan,
an option granted under this Paragraph 5(a), (i) may not be exercised more than
10 years after the date it is granted, (ii) may not have an option price less
than the Fair Market Value of Common Stock on the date the option is granted,
(iii) must otherwise comply with Code Section 422, and (iv) must be designated
as an "Incentive Stock Option" by the Committee. The maximum aggregate Fair
Market Value of Common Stock (determined at the time of each Grant) with respect
to which Incentive Stock Options are first exercisable with respect to any
Participant under this Plan and any Incentive Stock Options granted to the
Participant for such year under any plans of the Corporation or any Subsidiary
in any calendar year is $100,000. Payment of the option price shall be made in
accordance with the terms of Paragraph 6, the Grant Agreement, and of any
applicable guidelines of the Committee in effect at the time.
(b) OTHER STOCK OPTIONS - These are options to purchase Common Stock which
are not designated by the Committee as "Incentive Stock Options". At the time of
the Grant the Committee shall determine, and shall include in the Grant
Agreement or other Plan rules, the option exercise period, the option price, and
such other conditions or restrictions on the grant or exercise of the option as
the Committee deems appropriate, which may include the requirement that the
grant of options is predicated on the acquisition of Purchase Shares under
Paragraph 5(e) by the Optionee. In addition to other restrictions contained in
the Plan, an option granted under this Paragraph 5(b), (i) may not be exercised
more than 10 years after the date it is granted and (ii) may not have an option
exercise price less than 50% of the Fair Market Value of Common Stock on the
date the option is granted, PROVIDED that options to purchase up to 575 shares
of Common Stock may be granted with an exercise price of $.01 per share. Payment
of the option price shall be made in accordance with the terms of Paragraph 6,
the Grant Agreement and of any applicable guidelines of the Committee in effect
at the time.
(c) STOCK APPRECIATION RIGHTS - These are rights that on exercise entitle
the holder to receive the excess of (i) the Fair Market Value of a share of
Common Stock on the date of exercise over (ii) the Fair Market Value on the date
of Grant (the "base value") multiplied by
5
<PAGE>
(iii) the number of rights exercised as determined by the Committee. Stock
Appreciation Rights granted under the Plan may, but need not be, granted in
conjunction with an Option under Paragraph 5(a) or 5(b). The Committee, in the
Grant Agreement or by other Plan rules, may impose such conditions or
restrictions on the exercise of Stock Appreciation Rights as it deems
appropriate, and may terminate, amend, or suspend such Stock Appreciation Rights
at any time. No Stock Appreciation Right granted under this Plan may be
exercised less than 6 months or more than 10 years after the date it is granted
except in the event of death or disability of a Participant. To the extent that
any Stock Appreciation Right that shall have become exercisable, but shall not
have been exercised or cancelled or, by reason of any termination of employment,
shall have become non-exercisable, it shall be deemed to have been exercised
automatically, without any notice of exercise, on the last day on which it is
exercisable, provided that any conditions or limitations on its exercise are
satisfied (other than (i) notice of exercise and (ii) exercise or election to
exercise during the period prescribed) and the Stock Appreciation Right shall
then have value. Such exercise shall be deemed to specify that the holder elects
to receive cash and that such exercise of a Stock Appreciation Right shall be
effective as of the time of automatic exercise.
(d) RESTRICTED STOCK - Restricted Stock is Common Stock delivered to a
Participant with or without payment of consideration with restrictions or
conditions on the Participant's right to transfer or sell such stock; provided
that the price of any Restricted Stock delivered for consideration and not as
bonus stock may not be less than 50% of the Fair Market Value of Common Stock on
the date such Restricted Stock is granted or the price of such Restricted Stock
may be the par value. If a Participant irrevocably elects in writing in the
calendar year preceding a Grant of Restricted Stock, dividends paid on the
Restricted Stock granted may be paid in shares of Restricted Stock equal to the
cash dividend paid on Common Stock. The number of shares of Restricted Stock and
the restrictions or conditions on such shares shall be as the Committee
determines, in the Grant Agreement or by other Plan rules, and the certificate
for the Restricted Stock shall bear evidence of the restrictions or conditions.
No Restricted Stock may have a restriction period of less than 6 months, other
than in the case of death or disability.
(e) PURCHASE STOCK - Purchase Stock refers to shares of Common Stock
offered to a Participant at such price as determined by the Committee, the
acquisition of which will make him eligible to receive under the Plan,
including, but not limited to, Other Stock Options; provided, however, that the
price of such Purchase Shares may not be less than 50% of the Fair Market Value
of the Common Stock on the date such shares of Purchase Stock are offered.
6
<PAGE>
(f) DIVIDEND EQUIVALENT RIGHTS - These are rights to receive cash payments
from the Corporation at the same time and in the same amount as any cash
dividends paid on an equal number of shares of Common Stock to shareholders of
record during the period such rights are effective. The Committee, in the Grant
Agreement or by other Plan rules, may impose such restrictions and conditions on
the Dividend Equivalent Rights, including the date such rights will terminate,
as it deems appropriate, and may terminate, amend, or suspend such Dividend
Equivalent Rights at any time.
(g) PERFORMANCE UNITS - These are rights to receive at a specified future
date payment in cash of an amount equal to all or a portion of the value of a
unit granted by the Committee. At the time of the Grant, in the Grant Agreement
or by other Plan rules, the Committee must determine the base value of the unit,
the performance factors applicable to the determination of the ultimate payment
value of the unit and the period over which the Corporation's performance will
be measured. These factors must include a minimum performance standard for the
Corporation below which no payment will be made and a maximum performance level
above which no increased payment will be made. The term over which the
Corporation's performance will be measured shall be not less than six months.
(h) PERFORMANCE SHARES - These are rights to receive at a specified future
date payment in cash or Common Stock, as determined by the Committee, of an
amount equal to all or a portion of the average Fair Market Value for all days
that the Common Stock is traded during the last forty-five (45) days of the
specified period of performance of a specified number of shares of Common Stock
at the end of a specified period based on the Corporation's performance during
the period. At the time of the Grant, the Committee, in the Grant Agreement or
by Plan rules, will determine the factors which will govern the portion of the
rights so payable and the period over which the Corporation's performance will
be measured. The factors will be based on the Corporation's performance and must
include a minimum performance standard for the Corporation below which no
payment will be made and a maximum performance level above which no increased
payment will be made. The term over which the Corporation's performance will be
measured shall be not less than six months. Performance Shares will be granted
for no consideration.
(i) OTHER STOCK-BASED GRANTS - The Committee may make other Grants under
the Plan pursuant to which shares of Common Stock (which may, but need not, be
shares of Restricted Stock pursuant to Paragraph 5(d)) or other equity
securities of the Corporation are or may in the future be acquired, or Grants
denominated in stock units, including ones valued using measures other than
market value. Other Stock-Based Grants may be granted
7
<PAGE>
with or without consideration; provided, however, that the price of any such
Grant made for consideration that provides for the acquisition of shares of
Common Stock or other equity securities of the Corporation may not be less than
50% of the Fair Market Value of the Common Stock or such other equity securities
on the date of grant of such Grant. Such Other Stock-Based Grants may be made
alone, in addition to or in tandem with any Grant of any type made under the
Plan and must be consistent with the purposes of the Plan.
6. PAYMENT OF OPTION PRICE FOR STOCK OPTIONS
The payment of the option price for all shares purchased pursuant to the
exercise of Stock Options shall be (w) by cash or check in full on the date of
exercise (such cash or check may be delivered on behalf of a Participant by a
stock broker designated by the Corporation to whom the Participant has submitted
an irrevocable notice of election, on forms approved by the Corporation, to sell
shares of Common Stock deliverable upon exercise of a Stock Option), (x) through
the delivery of shares of Common Stock having a Fair Market Value equal to the
full amount of the exercise price, (y) by the withholding by the Corporation
from the shares of Common Stock issuable upon any exercise of the option that
number of shares having a Fair Market Value equal to such exercise price
pursuant to a written election delivered to the Committee prior to the date of
exercise, or (z) by a combination of such methods. The Committee shall determine
acceptable methods for tendering Common Stock and may impose such limitations
and prohibitions on the use of Common Stock to exercise a Stock Option as it
deems appropriate.
7. LIMITATIONS AND CONDITIONS
(a) The number of Shares available for Grants under this Plan shall be
1,150 shares of the authorized Common Stock as of the effective date of the
Plan, subject to adjustment in accordance with Section 9 or 10 hereof. The
number of Shares subject to Grants under this Plan to any one Participant shall
not be more than 450 shares, subject to adjustment in accordance with Section 9
or 10 hereof. Unless restricted by applicable law, Shares related to Grants that
are forfeited, terminated, cancelled or expire unexercised, shall immediately
become available for Grants.
(b) No Grants shall be made under the Plan beyond ten years after the
effective date of the Plan, but the terms of Grants made on or before the
expiration of the Plan may extend beyond such expiration. At the time a Grant is
made or amended or the terms or conditions of a Grant are changed, the Committee
may provide for limitations or conditions on such Grant.
8
<PAGE>
(c) Nothing contained herein shall affect the right of the Corporation to
terminate any Participant's employment at any time or for any reason.
(d) Deferrals of Grant payouts may be provided for, at the sole discretion
of the Committee, in the Grant Agreements.
(e) Except as otherwise prescribed by the Committee, the amounts of the
Grants for any employee of a Affiliate, along with interest, dividend, and other
expenses accrued on deferred Grants, shall be charged to the Participant's
employer during the period for which the Grant is made. If the Participant is
employed by more than one Affiliates or by both the Corporation and an Affiliate
during the period for which the Grant is made, the Participant's Grant and
related expenses will be allocated between the companies employing the
Participant in a manner prescribed by the Committee.
(f) Other than as specifically provided with regard to the death of a
Participant, no benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to do so shall be void. No such benefit shall, prior to
receipt thereof by the Participant, be in any manner liable for or subject to
the debts, contracts, liabilities, engagements, or torts of the Participant.
(g) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Corporation in respect of any Shares
purchasable in connection with any Grant unless and until certificates
representing any such Shares have been issued by the Corporation to such
Participants.
(h) No election as to benefits or exercise of Stock Options, Stock
Appreciation Rights, or other rights may be made during a Participant's lifetime
by anyone other than the Participant except by a legal representative appointed
for or by the Participant.
(i) Absent express provisions to the contrary, any grant under this Plan
shall not be deemed compensation for purposes of computing benefits or
contributions under any retirement plan of the Corporation or its Subsidiaries
and shall not affect any benefits under any other benefit plan of any kind now
or subsequently in effect under which the availability or amount of benefits is
related to level of compensation. This Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
9
<PAGE>
(j) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of the Corporation or any of
its Subsidiaries, nor shall any assets of the Corporation or any of its
Subsidiaries be designated as attributable or allocated to the satisfaction of
the Corporation's obligations under the Plan.
8. TRANSFERS AND LEAVES OF ABSENCE
For purposes of the Plan, unless the Committee determines otherwise: (a) a
transfer of a Participant's employment without an intervening period of
separation among the Corporation and any Affiliate shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the
Corporation during such leave of absence.
9. ADJUSTMENTS
In the event of any change in the outstanding Common Stock by reason of a
stock split, spin-off, stock dividend, stock combination or reclassification,
recapitalization or merger, Change of Control or similar event, or as required
under any Grant Agreement, the Committee may adjust appropriately the number of
Shares subject to the Plan and available for or covered by Grants and Share
prices related to outstanding Grants and make such other revisions to
outstanding Grants as it deems are equitably required.
10. MERGER, CONSOLIDATION, EXCHANGE,
ACQUISITION, LIQUIDATION OR DISSOLUTION
In its absolute discretion, and on such terms and conditions as it deems
appropriate, coincident with or after the grant of any Stock Option or any
Stock-Based Grant, the Committee may provide, with respect to the merger or
consolidation of the Corporation into another corporation, the exchange of all
or substantially all of the assets of the Corporation for the securities of
another corporation, a Change of Control or the recapitalization,
reclassification, liquidation or dissolution of the Corporation, either a) that
such Stock Option or Stock-Based Grant cannot be exercised after such event, in
which case the Committee shall also provide, either by the terms of such Stock
Option or Stock-Based Grant or by a resolution adopted prior to the occurrence
of such event, that for some period of time prior to such event, such Stock
Option or Stock-Based Grant shall be exercisable as to all shares subject
thereto which are exercisable or, by virtue of the event, become exercisable,
notwithstanding anything to the contrary herein (but subject to the provisions
of Paragraph 7(b)) and that, upon the occurrence of such event, such Stock
Option or Stock-Based Grant
10
<PAGE>
shall terminate and be of no further force or effect; or b) that even if the
Stock Option or Stock-Based Grant shall remain exercisable after such event,
from and after such event, any such Stock Option or Stock-Based Grant shall be
exercisable only for the kind and amount of securities and/or other property, or
the cash equivalent thereof, receivable as a result of such event by the holder
of a number of shares of stock for which such Stock Option or Stock-Based Grant
could have been exercised immediately prior to such event.
In addition, in the event of a Change of Control, the Committee may,
in its absolute discretion and on such terms and conditions as it deems
appropriate, provide, either by the terms of such Stock Option or Stock-Based
Grant or by a resolution adopted prior to the occurrence of the Change of
Control, that such Stock Option or Stock-Based Grant shall be exercisable as to
all or any portion of the shares subject thereto, notwithstanding anything to
the contrary herein (but subject to the provisions of Paragraph 7(b)).
11. AMENDMENT AND TERMINATION
The Committee shall have the authority to make such amendments to any
terms and conditions applicable to outstanding Grants as are consistent with
this Plan provided that, except for adjustments under Paragraph 9 or 10 hereof,
no such action shall modify such Grant in a manner adverse to the Participant
without the Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant.
The Board of Directors may amend, suspend or terminate the Plan except
that no such action, other than an action under Paragraph 9 or 10 hereof, may be
taken which would, without shareholder approval (but only if such approval is
necessary for exemption under Section 16(b) of the Exchange Act), increase the
aggregate number of Shares available for Grants under the Plan, decrease the
price of outstanding Options or Stock Appreciation Rights, change the
requirements relating to the Committee or extend the term of the Plan.
12. WITHHOLDING TAXES
The Corporation shall have the right to deduct from any cash payment made
under the Plan any federal, state or local income or other taxes required by law
to be withheld with respect to such payment. It shall be a condition to the
obligation of the Corporation to deliver shares upon the exercise of a Stock
Option or Stock Appreciation Right, upon payment of Performance units or shares,
upon delivery of Restricted Stock or upon exercise, settlement or payment of any
Other Stock-Based Grant that the Participant pay to the Corporation such amount
as may be requested by the Corporation for the purpose of
11
<PAGE>
satisfying any liability for such withholding taxes. Any Grant Agreement may
provide that the Participant may elect, in accordance with any conditions set
forth in such Grant Agreement, to pay a portion or all of such withholding taxes
in shares of Common Stock.
13. EFFECTIVE DATE AND TERMINATION DATES
The Plan shall be effective on and as of the date of its approval by the
stockholders of the Corporation and shall terminate ten years later, subject to
earlier termination by the Board of Directors pursuant to Paragraph 11;
PROVIDED, HOWEVER, that any payment under the Plan which would constitute a
"parachute payment" under section 280G of the Code must be approved by a vote of
75% of the Corporation's stockholders to be effective.
12
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE COMPANY
JURISDICTION
OF
NAME ORGANIZATION
- ------------------------------------- -------------
Domain Energy Ventures Corporation... Delaware
Domain Energy Production
Corporation........................ Delaware
Domain Energy Guaranty Corporation... Delaware
Domain Energy Finance Corporation.... Delaware
Oceana Exploration Company, L.C. .... Texas
Matrix Energy-T Limited
Partnership........................ Texas
Michigan Gas Fund I.................. Texas
New York Gas Fund I.................. New York
Texas Gas Fund I..................... Texas
Texas Gas Fund II.................... Texas
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Domain Energy
Corporation on Form S-1 of our report dated April 3, 1997, appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated April 3, 1997 relating to the financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Houston, Texas
April 4, 1997
EXHIBIT 23.3
DEGOLYER AND MACNAUGHTON
ONE ENERGY SQUARE
DALLAS, TEXAS 75206
April 1, 1997
Domain Energy Corporation
1100 Louisiana, Suite 1500
Houston, Texas 77002
Gentlemen:
We hereby consent to the references to our firm in your Registration
Statement on Form S-1 in the "Summary Oil and Gas Reserve Data" section on
page 9 and in the "Experts" section on page 64, and to the incorporation by
reference of information contained in our "Appraisal Report as of December 31,
1996 of Certain Interests owned by Domain Energy Ventures Corporation and Domain
Energy Production Corporation -- Proved Reserves;" PROVIDED, HOWEVER, that we
are necessarily unable to verify the accuracy of the reserves and discounted
present worth values contained therein because our estimates of reserves and
discounted present worth have been combined with estimates of reserves and
present worth prepared by other petroleum consultants.
Very truly yours,
/s/ DeGOLYER and
MacNAUGHTON
DeGOLYER and
MacNAUGHTON
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to (i) the incorporation by reference in this
Registration Statement on Form S-1 (the "Registration Statement") of Domain
Energy Corporation, a Delaware corporation (the "Company") under the Securities
Act of 1933, as amended (the "Act"), of information contained in our reserve
report that is summarized in our summary letter dated March 26, 1997, relating
to estimates of proved reserves and future revenue, as of December 31, 1996, to
the interests of Domain Energy Ventures Corporation and Domain Energy Production
Corporation Fund II in certain oil and gas properties located in the West Delta
30 Field Area, federal waters offshore Louisiana, which summary letter is
attached as Annex A to the Prospectus constituting a part of the Registration
Statement on Form S-1, as amended, filed by the Company under the Act, and (ii)
all references to such report, letter, and/or to this firm incorporated by
reference in this Registration Statement, and further consent to our being named
as an expert therein.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ DANNY D. SIMMONS
Danny D. Simmons
Senior Vice President
Houston, Texas
April 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN
THE REGISTRATION STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<CASH> 8,736 0 11,467
<SECURITIES> 0 0 0
<RECEIVABLES> 21,278 15,466 5,100
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 31,359 17,074 16,919
<PP&E> 88,648 137,975 97,735
<DEPRECIATION> 0 26,251 3,912
<TOTAL-ASSETS> 137,126 137,096 117,755
<CURRENT-LIABILITIES> 23,888 11,313 2,378
<BONDS> 84,675 0 103,302
0 0 0
0 0 0
<COMMON> 0 2 2
<OTHER-SE> 27,577 2,158 802
<TOTAL-LIABILITY-AND-EQUITY> 137,126 137,096 106,486
<SALES> 57,322 37,647 7,040
<TOTAL-REVENUES> 57,322 37,647 7,040
<CGS> 0 0 0
<TOTAL-COSTS> 43,261 35,432 4,961
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 470 0 0
<INCOME-PRETAX> 13,591 2,215 2,079
<INCOME-TAX> 5,551 861 1,105
<INCOME-CONTINUING> 8,197 1,354 974
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,197 1,354 974
<EPS-PRIMARY> .96 .16 .11
<EPS-DILUTED> .96 .16 .11
</TABLE>
