UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Transition period ______________ to _______________
Commission File Number 1-12999
DOMAIN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0526147
(State or Other Jurisdiction of (I.R.S Employer Identification No.)
Incorporation or Organization)
16801 Greenspoint Park Drive, Suite 200 77060
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (281) 618-1800
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
stock as of May 14, 1998:
Common Stock $0.01 par value 15,107,719
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DOMAIN ENERGY CORPORATION
Table of Contents for Form 10-Q
Quarter Ended March 31, 1998
<TABLE>
<CAPTION>
PAGE
NUMBER
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COVER PAGE ................................................................... 1
DOCUMENT TABLE OF CONTENTS ................................................... 2
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 (unaudited)
and December 31, 1997 ................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 (unaudited) ............... 4
Consolidated Statement of Shareholders' Equity for the
three months ended March 31, 1998 (unaudited) ........... 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 (unaudited) ........ 6
Notes to Consolidated Financial Statements (unaudited) .... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ......................................... 14
ITEM 2. Changes in Securities and Use of Proceeds .................. 14
ITEM 3. Defaults Upon Senior Securities ........................... 14
ITEM 4. Submission of Matters to a Vote of Security Holders ....... 15
ITEM 5. Other Information ......................................... 15
ITEM 6. Exhibits and Reports on Form 8-K ........................... 15
SIGNATURES ................................................................... 16
INDEX OF EXHIBITS ............................................................ 17
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOMAIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Note 1)
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
(unaudited)
ASSETS
Cash and cash equivalents ..................................... $ 8,249 $ 4,731
Accounts receivable ........................................... 8,631 12,562
IPF Program notes receivable, current portion ................. 9,175 8,873
Notes receivable - stockholders .............................. -- 546
Prepaid and other assets ...................................... 2,808 2,858
--------- ---------
Total current assets ................................... 28,863 29,570
IPF Program notes receivable, net ............................. 42,611 40,892
Oil and natural gas properties, full cost method
Proved properties ........................................ 139,252 116,782
Unproved properties ...................................... 39,175 36,603
Less: Accumulated depreciation, depletion and amortization .. (20,822) (15,411)
--------- ---------
Total oil and natural gas properties, net ................ 157,605 137,974
Other assets, net ............................................. 4,369 4,113
--------- ---------
Total assets .......................................... $ 233,448 $ 212,549
========= =========
LIABILITIES
Accounts payable and accrued expenses ......................... $ 15,985 $ 15,907
--------- ---------
Total current liabilities ............................. 15,985 15,907
Long-term debt ................................................ 80,910 63,720
Deferred income taxes ......................................... 1,181 --
--------- ---------
Total liabilities ..................................... 98,076 79,627
Minority interest ............................................. 888 888
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock:
$0.01 par value, 5,000,000 shares authorized, none issued .. -- --
Common Stock
$0.01 par value, 25,000,000 shares authorized and 15,110,111
issued and 15,107,719 outstanding at March 31, 1998 and
December 31, 1997 ...................................... 151 151
Additional paid-in capital .................................... 129,019 128,730
Treasury stock ................................................ (10) (10)
Retained earnings ............................................. 5,324 3,163
--------- ---------
Total stockholders' equity ............................ 134,484 132,034
--------- ---------
Total liabilities and stockholders' equity ............ $ 233,448 $ 212,549
========= =========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE>
DOMAIN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note 1)
(in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
---------------------
1998 1997
------- --------
REVENUES
Oil and natural gas ................................ $13,312 $ 12,782
IPF Activities, net ................................ 1,958 732
Other .............................................. 688 (292)
------- --------
Total revenues ........................ 15,958 13,222
------- --------
EXPENSES
Lease operating .................................... 4,113 3,060
Production and severance taxes ..................... 305 413
Depreciation, depletion and amortization ........... 5,598 3,282
General and administrative, net .................... 1,607 792
Stock compensation ................................. 185 3,150
------- --------
Total operating expenses .............. 11,808 10,697
Income from operations ............................. 4,150 2,525
Interest expense, net .............................. 655 1,109
------- --------
Income before taxes ................................ 3,495 1,416
Income tax provision ............................... 1,334 1,735
------- --------
Net income (loss) .................................. $ 2,161 $ (319)
======= ========
Net income (loss) per common share:
Basic ......................................... $ 0.14 $ (0.03)
Assuming dilution ............................. $ 0.14 $ (0.03)
Weighted average common shares outstanding:
Basic ......................................... 15,108 9,156
Assuming dilution ............................. 15,822 9,156
The accompanying notes are an integral part of
the consolidated financial statements.
4
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DOMAIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Note 1)
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid in Treasury Retained
Stock Capital Stock Earnings Total
------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ...... $ 151 $ 128,730 $ (10) $ 3,163 $132,034
Stock compensation ................ -- 289 -- -- 289
Net income ........................ -- -- -- 2,161 2,161
------ ---------- -------- -------- --------
Balance at March 31, 1998 ......... $ 151 $ 129,019 $ (10) $ 5,324 $134,484
====== ========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
5
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DOMAIN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 1)
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $ 2,161 $ (319)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization ................... 5,598 3,282
Stock compensation ......................................... 185 3,150
Deferred income taxes ...................................... 1,296 1,550
Minority interest .......................................... -- 32
Allowance for doubtful IPF investments ..................... 271 --
Changes in operating assets and liabilities:
Decrease in accounts receivable ............................ 3,931 5,467
Decrease in prepaid and other current assets ............... 50 57
Increase (decrease) in accounts payable and accrued expenses 3,139 (5,107)
-------- -------
Net cash provided by operating activities ......................... 16,631 8,112
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in oil and natural gas properties ...................... (17,052) (3,858)
Investment in Oakvale Acquisition ................................. (11,575) --
Proceeds from sale of oil and gas properties ...................... 628 1,700
IPF Program investments of capital (notes receivable) ............. (6,849) (9,246)
IPF Program return of capital (notes receivable) .................. 4,557 3,426
Other assets ...................................................... (558) 401
-------- -------
Net cash used in investing activities ............................. (30,849) (7,577)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt borrowings ..................................... 20,445 9,379
Repayment of debt borrowing ....................................... (3,255) (4,953)
Issuance of common stock, net ..................................... 546 1,085
-------- -------
Net cash provided by financing activities ......................... 17,736 5,511
Increase in cash and cash equivalents ............................. 3,518 6,046
Cash and cash equivalents, beginning of period .................... 4,731 36
-------- -------
Cash and cash equivalents, end of period .......................... $ 8,249 $ 6,082
======== =======
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
6
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Domain Energy Corporation (the "Company") is an independent oil and gas
company engaged in the exploration, development, production and acquisition of
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 consolidated balance sheet at March 31, 1998 and the consolidated
statements of operations, stockholders' equity and cash flows included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments which are, in the opinion of management, necessary to present a fair
statement of the results for the interim periods on a basis consistent with the
annual audited financial statements. All such adjustments are of a normal
recurring nature. Certain information, accounting policies and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have also been omitted from the
interim financial statements pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for an entire year. The
consolidated balance sheet at December 31, 1997 is derived from the December 31,
1997 audited balance sheet, but does not include all disclosures required by
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's audited annual financial statements
included at pages 36 through 57 in the Company's Annual Report on Form 10-K,
dated March 23, 1998.
2. ACQUISITIONS
FUNDS ACQUISITION - On July 1, 1997, the Company consummated the
acquisition (the "Funds Acquisition") of certain property interests from three
unaffiliated institutional investors. The aggregate purchase price for the
interests was approximately $28.4 million, which was paid in cash with a portion
of the net proceeds of the initial public offering of the Company's common stock
consummated on June 27, 1997. The acquisition was accounted for using the
purchase method of accounting.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company for the three months ended March 31, 1997 as if the
Funds Acquisition had occurred at the beginning of 1997 (in thousands, except
per share data).
THREE MONTHS ENDED
MARCH 31, 1997
------------------
Revenues $ 15,784
Net loss $ (274)
Net loss per share (1) $ (0.03)
(1) EPS assuming dilution.
GULFSTAR ACQUISITION - On December 15, 1997, the Company acquired all of
the outstanding capital stock of Gulfstar Energy, Inc. and Mid Gulf Drilling
Corp. (the "Gulfstar Acquisition"). The aggregate purchase price of these
privately held, independent energy companies was $16.6 million, comprised of
$8.6 million in cash and 499,990 shares of the Company's common stock valued at
$16.00 per share. The acquisition was accounted for using the purchase method of
accounting.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company for the three months ended March 31, 1997 as if the
Gulfstar Acquisition had occurred at the beginning of 1997. The 1997 pro forma
amounts also give effect to the Funds Acquisition discussed above (in thousands,
except per share data).
7
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
THREE MONTHS ENDED
MARCH 31, 1997
------------------
Revenues $ 16,074
Net loss $ (459)
Net loss per share (1) $ (0.05)
(1) EPS assuming dilution. EPS calculation assumes that the 499,990 shares of
common stock issued in connection with the Gulfstar Acquisition were
outstanding for the entire year.
OAKVALE ACQUISITION - On February 26, 1998, the Company acquired the
Oakvale Field from Pioneer Natural Resources USA Inc. for an aggregate purchase
price of $11.6 million. The acquisition was accounted for using the purchase
method of accounting. The acquisition is not material to the Company's financial
statements and therefore pro forma information is not provided.
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," (SFAS No. 130). SFAS No. 130 is effective
for periods beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and displaying of comprehensive income and its
components. The purpose of reporting comprehensive income is to report a measure
of all changes in equity of an enterprise that results from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. As of March 31, 1998, there are no
adjustments ("Other comprehensive income") to net income in deriving
comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information",
(SFAS No. 131). SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments. SFAS No. 131
is effective for periods beginning after December 15, 1997, but need not be
applied to interim financial statements in the initial year of application.
Management of the Company is evaluating what, if any, additional disclosures may
be required when this statement is first applied.
4. EARNINGS PER SHARE
The Company reports earnings per share ("EPS") in accordance with Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share," (SFAS 128).
SFAS 128 requires the dual presentation of basic and diluted EPS.
The following table is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations for net income reported
for the first quarter of 1998 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST QUARTER 1998 FIRST QUARTER 1997
--------------------------------------- ---------------------------------------
INCOME SHARES PER SHARE INCOME SHARES (2) PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to common stockholders .. $2,161 15,108 $0.14 $(319) 9,156 $(0.03)
===== ======
EFFECT OF DILUTIVE SECURITIES
Stock options (1) ........................ -- 714 -- --
------ ------ ----- -----
DILUTED EPS
Income available to common stockholders .. $2,161 15,822 $0.14 $(319) 9,156 $(0.03)
====== ====== ===== ===== ===== ======
</TABLE>
8
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DOMAIN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(1) The Company had options granted for 100,000 shares outstanding at March 31,
1998 which were not included in the EPS computation, because the effect of the
options are antidilutive.
(2) For the first quarter of 1997, the shares outstanding used in the EPS
calculation were determined in accordance with the regulations of the Securities
and Exchange Commission. Shares outstanding were calculated assuming that the
7,177,681 shares of Common Stock issued in connection with the Company's
acquisition in December 1996, the 486,003 shares of Common Stock issued to the
Company's employees in February and April 1997, the 849,694 shares of Common
Stock reserved for issuance pursuant to outstanding options under the Stock
Purchase and Option Plan and the 643,037 shares of Common Stock purchased
concurrently with the Company's initial public offering by First Reserve Fund
VII, Limited Partnership were outstanding since January 1, 1997.
5. LONG-TERM DEBT
At March 31, 1998 and December 31, 1997, notes payable and long-term debt
consisted of the following (in thousands):
March 31, December 31,
1998 1997
------- -------
Company Credit Facility .................... $49,052 $34,552
IPF Credit Facility ........................ 31,858 29,168
------- -------
Long-term debt ............................. 80,910 63,720
less current maturities .................... -- --
------- -------
$80,910 $63,720
======= =======
5. SUBSEQUENT EVENTS
On May 12, 1998, the Company entered into a definitive
agreement to merge with Lomak Petroleum, Inc. ("Lomak"). Pursuant to the merger
agreement, the Company's shareholders will receive $14.50 worth of Lomak common
stock for each common share. The final exchange ratio will be determined based
on the market price of Lomak's shares during the 15-day period prior to
completion of the merger. The exchange ratio is subject to a maximum and minimum
of 1.2083 and 0.8529 Lomak shares, respectively. As a condition to the merger,
the Company's majority shareholder, an affiliate of First Reserve Corporation
("First Reserve"), has agreed to sell to Lomak 3.3 million shares of the Company
(22% of the total outstanding) for $43.9 million in cash ($13.50 per share). As
contemplated by the merger agreement, First Reserve has voted all of its shares
(52% of the total outstanding) in favor of the merger. As a result, no further
approval of the Company's shareholders is necessary. Completion of the
transaction is subject to approval of Lomak's shareholders and to customary
regulatory approvals.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following review of operations for the three months ended March 31,
1998 and 1997 should be read in conjunction with the financial statements of the
Company and Notes thereto included elsewhere in this Form 10-Q and with the
Financial Statements, Notes and Management's Discussion and Analysis for the
year ended December 31, 1997 included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
10
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes certain financial data, non-GAAP financial
data, production volumes, average realized prices and expenses for the Company's
oil and natural gas operations for the periods shown:
FOR THE
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
-------- --------
FINANCIAL DATA (IN THOUSANDS):
Revenues:
Natural Gas ................................... $ 10,470 $ 10,094
Oil and condensate ............................ 2,842 2,688
IPF Activities ................................ 1,958 732
Total revenues ................................... 15,958 13,222
Total operating expenses ......................... 11,808 10,697
-------- --------
Operating income ................................. $ 4,150 $ 2,525
======== ========
Net income (loss) ................................ $ 2,161 $ (319)
Net cash provided by operating activities ........ 16,631 8,112
Net cash used in investing activities ............ (30,849) (7,577)
Net cash provided by financing activities ........ 17,736 5,511
NON-GAAP FINANCIAL DATA
(IN THOUSANDS):
Cash flow from operations before changes in
working capital ................................ $ 9,511 $ 7,695
EBITDA (1) .................................. 9,934 8,957
IPF Program return of capital (2) ........... 4,557 3,426
-------- --------
EBITDA plus IPF Program return
of capital ............................... $ 14,491 $ 12,283
======== ========
PRODUCTION VOLUMES:
Natural gas (MMcf) ........................ 4,872 3,668
Oil and condensate (MBbls) ................ 190 141
Total (MMcfe) ............................. 6,013 4,516
AVERAGE REALIZED PRICES: (3)
Natural gas (per Mcf) .................... $ 2.15 $ 2.75
Oil and Condensate (per Bbl) .............. $ 14.96 $ 19.06
EXPENSES (PER MCFE):
Lease operating ........................... $ 0.68 $ 0.68
Production and severance taxes ............ $ 0.05 $ 0.09
Depreciation, depletion and
amortization ........................... $ 0.90 $ 0.69
General and administrative, net (4) ....... $ 0.21 $ 0.14
(1) EBITDA represents earnings before stock compensation expense, interest,
income taxes, depreciation, depletion and amortization. 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.
11
<PAGE>
(2) 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.
(3) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities.
(4) Includes production attributable to properties managed for the Funds for
the three months ended March 31, 1997 and excludes fees received from
investors.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Oil and natural gas revenues increased to $13.3 million in the first
quarter of 1998 from $12.8 million in the first quarter of 1997, an increase of
$0.5 million, or 4.1%. Production volumes for oil and condensate increased to
190 MBbls in the first quarter of 1998 from 141 MBbls in the first quarter of
1997, an increase of 49 MBbls, or 34.8%. Production volumes for natural gas
increased to 4.9 Bcf in the first quarter of 1998 from 3.7 Bcf in the first
quarter of 1997, an increase of 1.2 Bcf, or 32.8%. The increase in natural gas
production was primarily due to the Funds Acquisition (1.1 Bcf) completed in
July 1997 and the Gulfstar Acquisition (0.4 Bcf) completed in December 1997,
offset by natural declines in production from certain fields. The increase in
total oil and natural gas production increased revenues by $4.2 million. This
was largely offset by a 21.8% decrease in the average realized price received
for the Company's natural gas and a 21.5% decrease in the average realized price
received for the Company's oil and condensate. These decreases in realized
prices decreased revenues by $3.7 million.
The Company realized an average oil price of $14.21 per Bbl and an average
natural gas price of $2.11 per Mcf for the first quarter of 1998. Net of hedging
results, the Company realized average prices of $14.96 per Bbl and $2.15 per
Mcf, respectively. Hedging activities increased oil and natural gas revenues for
the first quarter 1998 by approximately $0.3 million. For the first quarter of
1997, the Company realized an average oil price of $21.45 per Bbl and an average
natural gas price of $2.73 per Mcf. Net of hedging results, the Company realized
average prices of $19.06 per Bbl and $2.75 per Mcf, respectively Hedging
activities decreased oil and natural gas revenues for the first quarter of 1997
by approximately $0.3 million.
Other revenues increased to $0.7 million in the first quarter of 1998 from
a loss of $0.3 million in the first quarter of 1997, an increase of $1.0
million. This increase was primarily due to a $0.6 million gain realized as the
result of a treasury lock entered into by the Company during the first quarter
of 1998 in anticipation of a proposed debt offering and $0.4 million of losses
in the first quarter of 1997 from the Michigan Development Project which the
Company sold in April 1997.
Revenues from IPF Activities increased to $2.2 million, excluding a
$271,000 charge for doubtful accounts, in the first quarter of 1998 from $0.7
million in the first quarter of 1997, an increase of $1.5 million, or 204.5%.
This increase was primarily the result of investing more than $40.0 million in
IPF Activities during 1997, which was more than double the total invested in
1996.
Lease operating expenses increased to $4.1 million in the first quarter of
1998 from $3.1 million in the first quarter of 1997, an increase of $1.0
million, or 34.4%. Lease operating expenses were higher in the first quater of
1998 compared to the same period in 1997 due to the Funds Acquisition ($0.6
million) completed in July 1997 and the Gulfstar Acquisition ($0.4 million)
completed in December 1997. On a per Mcfe basis, lease operating expenses were
$0.68 for both the first quarter of 1998 and the first quarter of 1997.
Depreciation, depletion and amortization ("DD&A") expense increased to $5.6
million in the first quarter of 1998 from $3.3 million in the first quarter of
1997, an increase of $2.3 million, or 70.6%. This was the result of higher oil
and natural gas production volumes ($1.0 million) and an increase in the DD&A
rate ($1.3 million). The DD&A rate increased to $0.90 per mcfe in the first
quarter of 1998 compared to $0.69 per mcfe for the same period in 1997. The
increase in the DD&A rate was primarily due to the addition of oil and natural
gas properties acquired in 1997.
General and administrative expense increased to $1.6 million in the first
quarter of 1998 from $0.8 million in the first quarter of 1997, an increase of
$0.8 million, or 102.9%. This increase was primarily due to an increase in the
number of employees in 1998, partially due to the Gulfstar Acquisition completed
in December 1997, and the expense of a proportional amount of anticipated 1998
year-end compensation awards ($0.3 million) in the first quarter of 1998.
12
<PAGE>
Stock compensation expense decreased to $0.2 million in the first quarter
of 1998 from $3.2 million during the same period in 1997, a decrease of $3.0
million. The $3.0 million decrease is primarily attributable to stock purchased
by the management of the Company in the first quarter of 1997 under the 1996
Stock Purchase and Option Plan for Key Employees of Domain Energy Corporation
and Affiliates (the "Stock Purchase and Option Plan").
Income tax expense decreased to $1.3 million in the first quarter of 1998
from $1.7 million in the first quarter of 1997, a decrease of $0.4 million. This
decrease was primarily due to income before taxes decreasing to $3.5 million for
the first quarter of 1998 compared to $4.5 million (excluding permanent
difference attributable to stock compensation of $3.1 million) for the first
quarter of 1997. The effective tax rates, excluding permanent differences, were
38% and 39% for the first quarters of 1998 and 1997, respectively.
Net income was $2.2 million for the first quarter of 1998 compared to a net
loss of $0.3 million for the first quarter of 1997.
LIQUIDITY, CAPITAL EXPENDITURES AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash and cash equivalents of
approximately $8.2 million and working capital of $12.9 million. During the
first quarter of 1998, the Company's primary sources of cash were from its
operating activities and its revolving credit facilities.
Net cash provided by operating activities increased to $16.6 million for
the first quarter of 1998 from $8.1 million for the first quarter of 1997. Net
cash flows from operations before changes in operating assets and liabilities
for the first quarter of 1998 was $9.5 million compared to $7.7 million for the
first quarter of 1997, an increase of $1.8 million, or 23.6%. This increase was
primarily due to an increase in revenues from IPF Activities, before a charge
for doubtful accounts, of $1.5 million. Changes in operating assets and
liabilities accounted for the remaining $6.7 million increase in cash flows from
operating activities.
Cash flows used in investing activities for the first quarter of 1998 was
$30.8 million compared to $7.6 million for the first quarter of 1997, an
increase of $23.2 million. This increase was primary due to an increase in oil
and natural gas investments of $24.8 million, including $11.6 million for the
Oakvale Acquisition.
Total capital expenditures, including the IPF Program, were $35.5 million
for the first quarter of 1998. The Company's capital expenditure budget for 1998
is approximately $150.0, including $55.0 million for acquisitions, $45.0 million
for exploration and development, and $50.0 million for IPF Program investments.
However, the Company now expects only to spend approximately $51.4 million in
connection with acquisitions and exploration and development, and $30.0 million
for IPF Program investments during 1998. The Company's expected capital
expenditures and investments reflect changes due to current oil prices which
impact acquisition and exploration and development activities as well as
investments made by the IPF Program. Actual levels of capital expenditures may
vary significantly due to a variety of factors, including drilling results, oil
and gas prices, industry conditions, future acquisitions and IPF Program
activity. The Company expects to selectively pursue acquisition opportunities
for proved reserves where it believes significant operating improvement or
exploration and exploitation potential exists.
The Company expects to fund its activities for the remainder of 1998
through a combination of cash flow from operations and the use of its existing
revolving credit facilities and, if necessary, new financings to borrow funds
required from time to time to supplement internal cash flows. Based upon the
Company's current level of operations and anticipated growth, management of the
Company believes that available cash, together with borrowings under the
existing revolving credit facilities, cash provided by operating activities and,
if necessary, new financings will be adequate to meet the Company's anticipated
future requirements for working capital, capital expenditures and payments of
principal and interest on its indebtedness. However, there can be no assurance
that such anticipated growth will be realized, that the Company's business will
generate sufficient cash flow from operations or that future borrowings will be
available in an amount sufficient to enable the Company to service its
indebtedness or make necessary capital expenditures.
Cash flows provided by financing activities increased to $17.7 million in
the first quarter of 1998 compared to $5.5 million in the first quarter of 1997,
an increase of $12.2 million. This increase is primarily due to increased net
borrowings under the Company's revolving credit facilities of $12.8 million
during the first quarter of 1998.
13
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The borrowing base under the Company's revolving credit facility with Chase
Manhattan Bank, as agent, (the "Company Credit Facility") was increased to $60.0
million on April 12, 1998, giving the Company $11.9 million available under this
credit facility.
Effective May 14, 1998, the borrowing base under the Company's revolving
credit facility with Compass Bank, as agent, (the "IPF Credit Facility") was
increased to $49.0 million, giving the Company $16.0 million available under
this credit facility.
RECENT DEVELOPMENTS
On May 12, 1998, the Company entered into a definitive agreement to merge
with Lomak Petroleum, Inc. ("Lomak"). Pursuant to the merger agreement, the
Company's shareholders will receive $14.50 worth of Lomak common stock for each
common share. The final exchange ratio will be determined based on the market
price of Lomak's shares during the 15-day period prior to completion of the
merger. The exchange ratio is subject to a maximum and minimum of 1.2083 and
0.8529 Lomak shares, respectively. As a condition to the merger, the Company's
majority shareholder, an affiliate of First Reserve Corporation ("First
Reserve"), has agreed to sell to Lomak 3.3 million shares of the Company (22% of
the total outstanding) for $43.9 million in cash ($13.50 per share). As
contemplated by the merger agreement, First Reserve has voted all of its shares
(52% of the total outstanding) in favor of the merger. As a result, no further
approval of the Company's shareholders is necessary. Completion of the
transaction is subject to approval of Lomak's shareholders and to customary
regulatory approvals.
There can be no assurance that this transaction will not adversely affect
the Company's ability to fund its planned 1998 capital expenditures.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
14
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders (the "Annual Meeting") of the
Company was held on May 12, 1998 at which the stockholders voted on
the following matters with the following results:
(a) ELECTION OF DIRECTORS.
At the Annual Meeting, the stockholders elected Jonathan S. Linker,
Michael Harvey, William E. Macaulay, William P. Nicoletti, Steven H.
Pruett, Michael V. Ronca and Gary K. Wright as directors of the
Company, each to serve a term expiring at the 1999 annual meeting of
stockholders. The results of voting were as follows:
Director For Abstained or Withheld
-------- ---------- ---------------------
Jonathan S. Linker 13,397,595 233,100
Michael L. Harvey 13,397,295 233,400
William E. Macaulay 13,062,222 568,473
William P. Nicoletti 13,399,295 231,400
Steven H. Pruett 13,313,257 317,438
Michael V. Ronca 13,399,295 231,400
Gary K. Wright 13,398,095 232,600
(b) SECOND AMENDED AND RESTATED STOCK PURCHASE AND OPTION PLAN.
The stockholders approved the Company's Second Amended and Restated
1996 Stock Purchase and Option Plan with 10,825,787 shares voting in
favor of the proposal, 1,604,897 shares voting against the proposal
and 203,638 shares abstaining from voting.
(c) AMENDMENT TO CERTIFICATE OF INCORPORATION.
The stockholders approved a proposal to amend the Company's Amended
and Restated Certificate of Incorporation with 13,407,913 shares
voting in favor of the proposal, 211,707 shares voting against the
proposal and 11,075 shares abstaining from voting.
(d) APPOINTMENT OF AUDITORS.
The stockholders ratified the appointment of auditors with 13,589,625
shares voting for ratification, 23,163 shares voting against
ratification and 17,907 shares abstaining from voting.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits for a list of those exhibits filed
herewith, which index only includes those contracts executed or
becoming effective during the most recent period reflected in this
Report as allowed pursuant to Instruction 2 to Item 601(b)(10) of
Regulation S-K.
(b) The Company did not file any reports on Form 8-K during the first
quarter of 1998.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOMAIN ENERGY CORPORATION
May 14, 1998 /S/ RICK G. LESTER
-------------------
Rick G. Lester
Vice President, Chief
Financial Officer and
Treasurer
16
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INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Second Amended and Restated Certificate of Incorporation of the Company
filed with the State of Delaware on May 14, 1998.
3.2 Second Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997).
10.1 Second Amended and Restated 1996 Stock Purchase and Option Plan for Key
Employees of Domain Energy Corporation and Affiliates.
10.2 Stock Purchase Agreement dated as of November 21, 1997, between the
Company and Enron Capital & Trade Resources Corp.
10.3 Employment Agreement, executed on March 24, 1998, to be effective
February 17, 1998 between Michael L. Harvey and the Company.
10.4 Non-Qualified Stock Option Agreement, dated as of March 24, 1998,
between the Company and Michael L. Harvey.
10.5 Agreement and Plan of Merger by and among Lomak Petroleum, Inc., DEC
Acquisition, Inc. and Domain Energy Corporation, dated May 12, 1998.
10.6 First Amendment to Agreement and Plan of Merger by and among Lomak
Petroleum, Inc., DEC Acquisition, Inc. and Domain Energy Corporation,
dated May 12, 1998.
27.1 Financial Data Schedule.
17
EXHIBIT 3.1
SECOND 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"), which original
Certificate was amended and restated by the filing of an Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware on June ___, 1997 (as so amended, the "Certificate of Incorporation")
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 55,000,000 shares, consisting
of
<PAGE>
(i) 5,000,000 shares of Preferred Stock, $.01 par value per
share, and
(ii) 50,000,000 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>
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 a 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 14th day
of May 1998.
DOMAIN ENERGY CORPORATION
By: ___________________________
Michael V. Ronca
President and CEO
Attest:
______________________________________
Catherine L. Sliva
Executive Vice President and Secretary
5
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
1996 STOCK PURCHASE AND OPTION PLAN
FOR KEY EMPLOYEES OF
DOMAIN ENERGY CORPORATION AND AFFILIATES
1. PURPOSE OF PLAN
The Second 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 433,500
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 Stock 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) Subject to adjustment in accordance with Section 9 or 10 hereof, as of
the effective date of this Plan the number of Shares available for issuance
under this Plan shall be 1,510,772, which represents ten percent (10%) of the
total number of Shares outstanding as of the date on which this Plan was
approved by the Board of Directors. As the number of outstanding Shares
increases subsequent to such date (which number shall be determined without
considering as outstanding any Shares that are the subject of any unexercised
options under this Plan or any other option plan of the Company or any Shares
owned by the Company or any of its subsidiaries) the Shares available for
issuance under this plan shall increase proportionately; provided, however, that
the maximum number of Shares for which Incentive Stock Options may be granted
under the Plan shall not exceed 1,000,000 Shares (which number is subject to
adjustment as provided in Section 9 and 10). The number of Shares subject to
Grants under this Plan to any one Participant shall not be more than 750,000
Shares. The number of shares of Common Stock reserved under the Plan shall not
8
<PAGE>
be less than the total number of shares granted, whether exercised or
unexercised for all Grants under the Plan. 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.
(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.
9
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(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.
(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
<PAGE>
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 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.
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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 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 10.2
STOCK PURCHASE AGREEMENT
DATED AS OF NOVEMBER 21, 1997
BY AND BETWEEN
DOMAIN ENERGY CORPORATION
AND
ENRON CAPITAL & TRADE RESOURCES CORP.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE............................ 1
1.1 Purchase and Sale.................................. 1
1.2 Closing............................................ 2
1.3 Excluded Liabilities............................... 2
1.4 Post-Closing Adjustment............................ 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF ECT........ 4
2.1 Organization and Standing.......................... 4
2.2 Capitalization..................................... 4
2.3 Corporate Power and Authority...................... 5
2.4 Conflicts; Consents and Approvals.................. 5
2.5 Oil and Gas Properties; Contracts.................. 6
2.6 Financial Statements; No Material Adverse
Change............................................. 8
2.7 Litigation......................................... 8
2.8 Taxes.............................................. 9
2.9 Employees and Subsidiaries......................... 10
2.10 Investment Intent.................................. 10
2.11 Disclosure of Information.......................... 11
2.12 Investment Experience.............................. 11
2.13 Restricted Securities.............................. 11
2.14 Legends............................................ 11
2.15 Disclosure......................................... 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
DOMAIN....................................... 12
3.1 Organization and Standing.......................... 12
3.2 Capitalization..................................... 12
3.3 Corporate Power and Authority...................... 13
3.4 Conflicts; Consents and Approvals.................. 13
3.5 Reliance........................................... 14
3.6 Qualified Leaseholder.............................. 14
3.7 Qualified Purchaser................................ 15
3.8 Disclosure......................................... 15
3.9 Litigation......................................... 15
3.10 Financial Statements............................... 15
3.11 Liabilities........................................ 16
3.12 Domain SEC Documents............................... 16
3.13 No Default......................................... 17
ARTICLE IV COVENANTS.................................... 17
4.1 Conduct of Business of Mid-Gulf.................... 17
4.2 Access............................................. 19
4.3 Reasonable Business Efforts........................ 19
4.4 Fees and Expenses.................................. 19
4.5 Brokers or Finders................................. 20
4.6 Notification of Certain Matters.................... 20
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4.7 Confidentiality.................................... 20
4.8 Registration Rights Agreement...................... 21
4.9 Elimination of Intercompany Accounts............... 21
4.10 Indemnification by Domain.......................... 21
4.11 Indemnification by ECT............................. 22
4.12 Defense of Third Party Claims...................... 22
4.13 Tax Matters........................................ 22
4.14 Domain Common Shares............................... 28
ARTICLE V CONDITIONS TO CLOSING........................ 29
5.1 Conditions to Each Party's Obligation to
Effect the Closing................................. 29
5.2 Conditions to Obligations of ECT to Effect
the Closing........................................ 29
5.3 Conditions to Obligations of Domain to Effect
the Closing........................................ 30
ARTICLE VI TERMINATION AND AMENDMENT.................... 31
6.1 Termination........................................ 31
6.2 Effect of Termination.............................. 31
ARTICLE VII MISCELLANEOUS................................ 32
7.1 Survival of Representations and Warranties......... 32
7.2 Amendment.......................................... 32
7.3 Extension; Waiver.................................. 32
7.4 Notices............................................ 32
7.5 Interpretation..................................... 33
7.6 Counterparts....................................... 34
7.7 Governing Law...................................... 34
7.8 Assignment......................................... 34
7.9 Validity........................................... 34
7.10 Entire Agreement; No Third Party
Beneficiaries...................................... 34
7.11 Arbitration........................................ 35
ii
<PAGE>
EXHIBITS
Exhibit A Registration Rights Agreement
MID-GULF DISCLOSURE SCHEDULES
Schedule 2.5 Oil and Gas Properties; Contracts
Schedule 2.6 Material Changes since Balance Sheet Date
Schedule 2.7 Litigation
Schedule 2.8 Taxes
Schedule 4.1 Conduct of Business of Mid-Gulf
Schedule 4.5 Brokers
DOMAIN DISCLOSURE SCHEDULES
Schedule 3.2 Voting Debt and Other Securities
Schedule 3.9 Litigation
Schedule 4.5 Brokers
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<PAGE>
INDEX OF DEFINED TERMS
AAA..................................................................... 7.11(b)
Agreement Recitals......................................................Recitals
Arbitrator.............................................................. 7.11(c)
Arbitrators............................................................. 7.11(c)
Cash Portion............................................................ 1.1
Claim................................................................... 4.10
Closing................................................................. 1.2
Closing Date............................................................ 1.3(a)
COBRA................................................................... 1.3(b)
Code.................................................................... 1.1
Commission.............................................................. 2.10
Contract................................................................ 2.5
Dispute................................................................. 7.11(a)
Domain Recitals.........................................................Recitals
Domain Assets........................................................... 3.10
Domain Audited Financials............................................... 3.10
Domain Common Stock ....................................................Recitals
Domain Disclosure Schedules............................................. 3.2
Domain Financial Statements............................................. 3.10
Domain Preferred Stock.................................................. 3.2
Domain SEC Documents.................................................... 3.12
Domain's Related Persons................................................ 4.11
ECT.....................................................................Recitals
ECT's Tax Returns..................................................4.13(c)(2)(i)
EFC..................................................................... 3.2
Effective Date.......................................................... 1.4
Election...........................................................4.13(c)(1)(i)
ERISA................................................................... 1.3(b)
ERISA Affiliate......................................................... 1.3(b)
ERISA Affiliate Plans................................................... 1.3(b)
Exchange Act............................................................ 3.12
GAAP.................................................................... 1.4(b)
Governmental Authority.................................................. 2.4(d)
Income Taxes..........................................................2.8(a)(ii)
IPO Prospectus.......................................................... 2.11
Merger Agreement........................................................ 1.2
Mid-Gulf................................................................Recitals
Mid-Gulf Business....................................................... 2.1(b)
Mid-Gulf Common Stock................................................... 1.1
Mid-Gulf Disclosure Schedules........................................... 2.5
Modified ADSP.....................................................4.13(c)(1)(ii)
NYSE.................................................................... 4.14
Oil and Gas Properties.................................................. 2.5
Registration Rights Agreement.......................................... 4.8
Registration Statement.................................................. 3.12
Related Persons......................................................... 4.10
Securities Act.......................................................... 2.10
Securities Purchase Agreement........................................... 3.2
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Stock Sale..............................................................Recitals
Straddle Period....................................................4.13(c)(2)(i)
Substances.............................................................. 2.5
Tax Contest........................................................4.13(c)(4)(i)
Tax Return............................................................2.8(a)(iv)
Taxes................................................................2.8(a)(iii)
Voting Debt............................................................. 2.2
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement dated as of November 21, 1997 ("this
Agreement") is by and between Domain Energy Corporation, a Delaware corporation
("Domain"), and Enron Capital & Trade Resources Corp., a Delaware corporation
("ECT").
WHEREAS, ECT is the holder of all of the issued and outstanding capital
stock of Mid-Gulf Drilling Corp., a Delaware corporation ("Mid-Gulf");
WHEREAS, ECT desires to sell, and Domain desires to purchase, all of such
capital stock of Mid-Gulf for and in consideration of a purchase price comprised
of (i) $100,000 in cash and (ii) shares of Common Stock of Domain, par value
$.01 per share ("Domain Common Stock"), pursuant to the terms hereof (the "Stock
Sale");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions hereof
and as soon as practicable following the satisfaction or waiver, if permissible,
of the conditions set forth in Article V hereof, ECT shall sell, transfer and
convey to Domain all of the shares of common stock, par value $0.01 per share,
of Mid-Gulf issued and outstanding immediately prior to the Closing ("Mid-Gulf
Common Stock"), all of which are and shall be held by ECT. Such transfer shall
be effected by delivery to Domain of the certificate or certificates
representing such shares, together with stock powers duly executed in blank. In
consideration of such sale, transfer and conveyance, Domain shall (i) pay to ECT
$100,000 in cash (the "Cash Portion") and (ii) issue to ECT 105,263 shares of
Domain Common Stock (the "Domain Common Shares"). The parties agree that the
transactions set forth herein will not constitute a "reorganization" as such
term is defined by Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code").
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1.2 CLOSING. Upon the terms and subject to the conditions hereof,
simultaneously with the consummation of the transactions contemplated by the
Agreement and Plan of Merger dated November 21, 1997, by and among Domain,
Domain Gulf Acquisition Corp. and Gulfstar Energy, Inc. (the "Merger
Agreement"), Domain and ECT shall consummate the transactions contemplated
hereby and take all actions as may be required by law to make such transactions
effective. Such consummation shall occur at a closing (the "Closing") to be held
at a location agreed to by Domain and ECT for the purpose of confirming all the
foregoing. At the Closing, Domain shall make payment of the Cash Portion by wire
transfer of immediately available funds to an account designated by ECT, and
shall cause a certificate or certificates representing the Domain Shares to be
issued to ECT.
1.3 EXCLUDED LIABILITIES. Domain shall not assume or be obligated to pay,
perform or otherwise discharge in any manner the following liabilities or
obligations:
(a) any liabilities or obligations in respect of Taxes attributable
to Mid-Gulf for taxable periods ending on or before the date the Closing
occurs (the "Closing Date") except for Taxes for which Domain is liable
pursuant to Section ;
(b) any liabilities, obligations or responsibilities relating to any
"employee pension benefit plan" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
maintained at any time by ECT and any trade or business (whether or not
incorporated) which is or has ever been under common control (with the
exception of Gulfstar Energy, Inc. or its subsidiaries), or which is or
has ever been treated as a single employer, with ECT under Section 414(b),
(c), (m) or (o) of the Code, ("ERISA Affiliate") or to which ECT and any
ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"),
including any multiemployer plan, maintained, contributed to, or required
to be contributed to, at any time, by ECT or any ERISA Affiliate,
including any liability (A) to the Pension Benefit Guaranty Corporation
under Title IV of ERISA; (B) relating to a multiemployer plan; (C) with
respect to non-compliance with the notice and benefit continuation
requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA"); (D) with respect to any non-compliance with
ERISA; or (E) with respect to any suit, proceeding or claim which is
brought against Domain, Mid-Gulf, any
2
<PAGE>
Benefit Plan or ERISA Affiliate Plan or any fiduciary or former fiduciary
of any such Benefit Plan or ERISA Affiliate Plan; and
(c) any liabilities or obligations arising from any activities that
are outside the scope of the Mid-Gulf Business (as defined in Section
below).
All such liabilities and obligations not being assumed pursuant to
this Section are herein called the "Excluded Liabilities".
1.4 POST-CLOSING ADJUSTMENT. Within ninety (90) days after the Closing, a
final settlement statement will be prepared by ECT and submitted to Domain
showing income and expenses (including capital expenditures) for the Oil and Gas
Properties (as defined in Section below) incurred between July 1, 1997 (the
"Effective Date") and the Closing Date.
(a) ECT shall be credited with the amount of all costs and expenses,
including, without limitation, royalties, rentals and other charges, ad valorem,
windfall profit, and other taxes based upon or measured by the ownership of
property or the production of hydrocarbons or the receipt of proceeds therefrom,
expenses paid under applicable operating agreements and, in the absence of an
operating agreement, expenses of the sort customarily billed under such
agreements, not including income Taxes, paid by or on behalf of Mid-Gulf, in
connection with the operation of the Oil and Gas Properties during the period
after the Effective Date.
(b) Domain shall be credited with proceeds received by or on behalf
of Mid-Gulf that are, in accordance with generally accepted accounting
principles consistently applied ("GAAP"), attributable to the Oil and Gas
Properties for the period of time after the Effective Date.
(c) In addition to the matters mentioned above, the final settlement
statement shall include any prepaid expenses at the Effective Date that relate
to the Oil and Gas Properties.
(d) The net amount to be paid by the owing party shall be paid
thirty (30) days after receipt of the final settlement statement. Domain shall
have the right for a period of six (6) months from the date of the final
settlement statement in which to audit the matters covered thereby.
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<PAGE>
(e) In the event Domain and ECT are unable to mutually agree upon
the amount of the final settlement statement, an audit shall be conducted by the
Houston office of the firm of Arthur Andersen, L.L.P. Domain and ECT agree to be
bound by the findings of such audit, insofar as the final settlement statement
amount is concerned, and each shall bear one half of all expenses associated
with such audit.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ECT
ECT represents and warrants to Domain as follows:
2.1 ORGANIZATION AND STANDING.
(a) Each of ECT and Mid-Gulf is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to own, lease, use and operate its
properties and to conduct its business as and where now owned, leased, used,
operated and conducted. Each of ECT and Mid-Gulf is duly qualified to do
business and in good standing in each jurisdiction in which the nature of the
business conducted by it or the property it owns, leases or operates makes such
qualification necessary, except where the failure to be so qualified or in good
standing in such jurisdiction would not have a material adverse effect on its
business or assets. The copies of the Certificate of Incorporation and By-laws
of Mid-Gulf which have previously been made available to Domain are true,
complete and correct copies of such documents as in effect as of the date of
this Agreement.
(b) Other than ownership and operation of the Oil and Gas Properties
and related activities (the "Mid-Gulf Business"), Mid-Gulf has not engaged in or
conducted, and currently does not engage in or conduct, any active trade or
business.
2.2 CAPITALIZATION. The authorized capital stock of Mid-Gulf consists of
ten thousand (10,000) shares of Mid-Gulf Common Stock of which 1,000 shares are
issued and outstanding and no shares are held in Mid-Gulf's treasury. All the
outstanding shares of Mid-Gulf's capital stock are duly authorized, validly
issued, fully paid and nonassessable and not subject to any preemptive rights of
third parties in respect thereto. No bonds, debentures, notes or other
indebtedness having the right to vote under ordinary circumstances (or
convertible into securities having such right to vote) ("Voting Debt") of
Mid-Gulf are
4
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issued or outstanding. There are no existing options, warrants, calls,
subscriptions, rights, commitments or other agreements of any character
obligating Mid-Gulf to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock, Voting Debt or securities
convertible into or exchangeable for such shares, other securities or interests
or obligating Mid-Gulf to grant, extend or enter into any such option, warrant,
call, subscription, right, agreement or commitment. There are no outstanding
contractual obligations of Mid-Gulf to repurchase, redeem or otherwise acquire
any shares of capital stock of Mid-Gulf. ECT owns all of the outstanding capital
stock of Mid-Gulf free and clear of any lien, claim, option, charge, security
interest, limitation on voting rights and encumbrance of any kind.
2.3 CORPORATE POWER AND AUTHORITY. ECT has full corporate power and
authority to execute and deliver this Agreement and to consummate the Stock Sale
and the other transactions contemplated hereby. The execution and delivery of
this Agreement by ECT and the consummation by ECT of the Stock Sale and the
other transactions contemplated hereby have been duly and validly approved by
the Board of Directors of ECT and no other corporate proceedings on the part of
ECT are necessary to approve this Agreement by ECT and to consummate the Stock
Sale or the other transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by ECT and constitutes a valid and binding
obligation of ECT, enforceable against ECT in accordance with its terms.
2.4 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution and delivery
of this Agreement by ECT, nor the consummation of the Stock Sale or the other
transactions contemplated hereby will:
(a) conflict with, or violate any provision of the Certificate of
Incorporation or By-laws of ECT or MidGulf;
(b) conflict with, violate or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, or entitle any
party (with the giving of notice, the passage of time or otherwise) to
terminate, accelerate, modify or call a default under, or result in the
termination, acceleration or cancellation of, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of ECT or Mid-Gulf under, any of the terms, conditions or provisions of
any note, bond, mortgage,
5
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indenture, deed of trust, license, contract, undertaking, agreement, lease or
other instrument or obligation to which ECT or Mid-Gulf is a party or by which
any of their respective properties or assets may be bound;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to ECT or Mid-Gulf or any of their respective properties
or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by ECT or Mid-Gulf with any third party or any United
States federal, state or local or any foreign government, governmental,
administrative or regulatory authority, agency or commission or any court,
tribunal or judicial or arbitral body (each, a "Governmental Authority"), other
than any actions required under federal and state securities laws as are
contemplated by this Agreement;
except for in the case of clauses (b), (c) and (d), for any of the foregoing
that would neither, in the aggregate, have a material adverse effect on ECT or
Mid-Gulf nor prevent or delay the consummation of the Stock Sale or any other
transaction contemplated hereby.
2.5 OIL AND GAS PROPERTIES; CONTRACTS. (a) All of Mid-Gulf's leasehold
interests or operating rights interests in oil and gas leases or other mineral
interests, and all of Mid-Gulf's potential leasehold interests or operating
rights interests under farmout agreements, and Mid-Gulf's "Net Revenue Interest"
and "Working Interest," or in the case of farmout agreements, Mid-Gulf's
potential "Net Revenue Interest" and "Working Interest" therein (collectively,
the "Oil and Gas Properties") are set forth on Schedule 2.5 to the disclosure
schedules delivered by Mid-Gulf to Domain pursuant to this Agreement
(collectively, the "Mid-Gulf Disclosure Schedules") and Mid-Gulf's interest or
potential interest in the Oil and Gas Properties is not subject to any payout,
back-in or other similar provisions except as noted on Schedule 2.5 to the
Mid-Gulf Disclosure Schedules. Except as disclosed on Schedule 2.5 to the
Mid-Gulf Disclosure Schedules, there are no contracts, obligations,
undertakings, agreements or commitments (each, a "Contract") to which Mid-Gulf,
any subsidiary of Mid-Gulf or any of the Oil and Gas Properties are bound and to
which Gulfstar is not also a party: (i) for the sale, exchange or other
disposition of any severed crude oil, natural gas, casinghead gas, drip
gasoline, natural gasoline, petroleum, natural gas liquids, condensate,
products, liquids and other hydrocarbons and other minerals or materials of
every kind and description produced from the Oil and Gas Properties
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(collectively, the "Substances") that is not cancelable without penalty on not
more than 120 days prior written notice; (ii) to sell, lease, farmout or
otherwise dispose of any of its or any subsidiary's interests in any of the Oil
and Gas Properties other than conventional rights of reassignment; or (iii)
relating to operations to which Mid-Gulf's interest in any of the Oil and Gas
Properties is subject. To the knowledge of ECT, all of the contracts listed on
Schedule 2.5 to the Mid-Gulf Disclosure Schedules are in full force and effect.
(b) Mid-Gulf has title of record to the Oil and Gas Properties as
(i) will enable Mid-Gulf to receive from a particular Oil and Gas Property at
least the "Net Revenue Interest" for each of the Oil and Gas Properties
identified on Schedule 2.5 to the Mid-Gulf Disclosure Schedules, without
reduction, suspension or termination throughout the productive life of such Oil
and Gas Property, except for any reduction, suspension or termination (A) caused
by Domain, any subsidiary of Domain or any of their affiliates, successors in
title or assigns, (B) caused by orders of the appropriate regulatory agency
having jurisdiction over a particular Oil and Gas Property that are promulgated
after the Effective Time (as defined in the Merger Agreement) and that concern
pooling, unitization, communitization or spacing matters affecting such Oil and
Gas Property, (C) caused by any Contract containing a sliding-scale royalty
clause or other similar clause with respect to a production burden associated
with a particular Oil and Gas Property (all of which Contracts are specifically
disclosed on Schedule 2.5 to the Mid-Gulf Disclosure Schedules), (D) caused by
minor imperfections in title or in instruments which do not operate to
materially reduce the "Net Revenue Interest" of the affected Oil and Gas
Property or (E) otherwise set forth on Schedule 2.5 to the Mid-Gulf Disclosure
Schedules, (ii) will not obligate Mid-Gulf to bear with respect to a particular
Oil and Gas Property a greater "Working Interest" than the Working Interest for
each of the Oil and Gas Properties identified on Schedule
to the Mid-Gulf Disclosure Schedules, without increase throughout the
productive life of such Oil and Gas Property, except for any increase (A) caused
by Domain, any subsidiary of Domain or any of their affiliates, successors in
title or assigns, (B) that also results in the Net Revenue Interest associated
with such Oil and Gas Property being proportionately increased, (C) caused by
orders of the appropriate regulatory agency having jurisdiction over a
particular Oil and Gas Property that are promulgated after the Effective Time
(as defined in the Merger Agreement) and that concern pooling, unitization,
communitization or spacing matters affecting such Oil and Gas Property or (D)
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otherwise set forth on Schedule 2.5 to the Mid-Gulf Disclosure Schedules and
(iii) is free and clear of all encumbrances, liens, claims, easements, rights,
agreements, rights, instruments, obligations and burdens except for (A) liens
for taxes not yet delinquent, (B) lessors' royalties, overriding royalties,
division orders, reversionary interests, and similar burdens that do not operate
to reduce the Net Revenue Interest of Mid-Gulf in any of the Oil and Gas
Properties to less than the amount set forth therefor on Schedule to the
Mid-Gulf Disclosure Schedules, (C) the consents and rights described in Section
, (D) minor imperfections in title or in instruments which do not operate to
materially reduce the "Net Revenue Interest" of the affected Oil and Gas
Property or increase the "Working Interest" thereof without a corresponding and
proportional increase in the "Net Revenue Interest" and (E) the Contracts,
insofar as the Contracts do not operate to increase the "Working Interest" of
Mid-Gulf set forth on Schedule 2.5 to the Mid-Gulf Disclosure Schedules for any
of the Oil and Gas Properties without a corresponding and proportional increase
in the "Net Revenue Interest", or reduce the "Net Revenue Interest" of Mid-Gulf
set forth on Schedule 2.5 to the Mid-Gulf Disclosure Schedules for any of the
Oil and Gas Properties.
2.6 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. ECT has furnished
Domain with the unaudited financial statements of Mid-Gulf as of September 30,
1997, in the form of a balance sheet and an income statement for the
twelve-month period then ended relating to such balance Sheet. Such financial
statements have been prepared in accordance with GAAP as of the date of such
financial statements and fairly present in all material respects the financial
position of Mid-Gulf at the dates thereof and the results of operations and cash
flow of Mid-Gulf for the period indicated. Except as set forth on Schedule to
the Mid-Gulf Disclosure Schedules, since the date of the balance sheet referred
to above there has been no material change (other than those changes also
affecting Gulfstar and its subsidiaries or the industry in general) in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations of Mid-Gulf.
2.7 LITIGATION. Except as disclosed on Schedule to the Mid-Gulf Disclosure
Schedules, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of ECT, threatened, against Mid-Gulf before any
Governmental Entity which, individually or in the aggregate, would have a
material adverse effect on Mid-Gulf or a material adverse effect on the ability
of ECT to consummate the transactions contemplated by this Agreement.
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Except as disclosed on Schedule to the Mid-Gulf Disclosure Schedules, Mid-Gulf
is not subject to any outstanding order, writ, injunction or decree which,
individually or in the aggregate, would have a material adverse effect on
Mid-Gulf or a material adverse effect on the ability of ECT to consummate the
transactions contemplated hereby.
2.8 TAXES.
(a) For purposes of this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as
amended.
(ii) "Income Taxes" means any United States federal, state or
local or foreign Tax (i) based upon, measured by or calculated with respect to
net income, profits or receipts (including, without limitation, capital gains
Taxes and minimum Taxes) or (ii) based upon, measured by or calculated with
respect to multiple bases (including, without limitation, corporate franchise
taxes) if one or more of the bases on which such Tax may be based, measured by
or calculated with respect to, is described in clause (i) above, in each case
together with any interest, penalties, or additions to such Tax.
(iii) "Taxes" means all taxes, charges, fees, levies,
penalties or other assessments imposed by any United States federal, state or
local or foreign taxing authority, including, without limitation, income, gross
receipts, excise, property, sales, transfer, environmental, license, payroll,
withholding, social security, capital stock, franchise or other taxes, including
any interest penalties or additions attributable thereto.
(iv) "Tax Return" means any report, return or other
information or document (including any related or supporting information)
required to be supplied to any authority with respect to Taxes.
(b) Mid-Gulf has duly filed all federal, state, local and foreign
Income Tax Returns required to be filed by it, and all other material Tax
Returns required to be filed by it, except in the case of such other Tax Returns
where the failure to so file will not have a material adverse effect on
Mid-Gulf, and, except as set forth on Schedule to the Mid-Gulf Disclosure
Schedules, Mid-Gulf has duly paid or caused to be paid all Taxes shown to be due
on such Tax Returns in respect of the periods covered by such returns and has
made adequate provision in Mid-Gulf's financial
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statements for payment of all Taxes anticipated to be payable in respect of all
taxable periods or portions thereof ending on or before the date hereof.
Schedule to the Mid-Gulf Disclosure Schedules lists the periods through which
the Tax Returns required to be filed by Mid-Gulf have been examined by the
Internal Revenue Service or other appropriate taxing authority, or the period
during which any assessments may be made by the Internal Revenue Service or
other appropriate taxing authority has expired. Except as set forth on Schedule
to the Mid-Gulf Disclosure Schedules, all material deficiencies and assessments
asserted as a result of such examinations or other audits by federal, state,
local or foreign taxing authorities have been paid, fully settled or adequately
provided for in Mid-Gulf's financial statements, and no issue or claim has been
asserted in writing for Taxes by any taxing authority for any prior period, the
adverse determination of which would result in a deficiency which would have a
material adverse effect on Mid-Gulf, other than those heretofore paid or
provided for in Mid-Gulf's financial statements. Except as set forth on Schedule
to the Mid-Gulf Disclosure Schedules, there are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any Tax
Return of Mid-Gulf. Mid-Gulf has not filed a consent pursuant to Section 341(f)
of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Mid-Gulf. Except as set forth on Schedule to the
Mid-Gulf Disclosure Schedules, Mid-Gulf (i) has not been a member of a group
filing consolidated returns for federal income tax purposes, or (ii) is not a
party to a tax sharing or tax indemnity agreement or any other agreement of a
similar nature that remains in effect.
2.9 EMPLOYEES AND SUBSIDIARIES. Mid-Gulf has never had, and currently has
no, employees other than its officers and has never had, and currently has no,
subsidiaries.
2.10 INVESTMENT INTENT. ECT is an accredited investor as defined under the
Securities Act of 1933, as amended (the "Securities Act"), and will acquire the
Domain Shares for its own account to hold and maintain for investment and not
with a view to, or for sale or other disposition in connection with, any
distribution of all or any part of such shares, except for a sale thereof (i) in
an offering covered by a registration statement filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act covering such
shares or (ii) pursuant to an applicable exemption under the Securities Act.
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2.11 DISCLOSURE OF INFORMATION. ECT has received all the information it
considers necessary or appropriate for deciding whether to accept the Domain
Shares pursuant to this Agreement. ECT hereby acknowledges that it has been
furnished with (i) Domain's Prospectus dated June 23, 1997 relating to Domain's
initial public offering of 6,000,000 shares of Domain Common Stock (the "IPO
Prospectus") and (ii) Domain's Form 10-Q for the quarters ended June 30, 1997
and September 30, 1997. ECT further represents that it has had an opportunity to
ask questions of and receive answers from Domain regarding Domain and its
operations and plan of business and the terms and conditions of the issuance of
the Domain Shares.
2.12 INVESTMENT EXPERIENCE. ECT acknowledges that it is able to fend for
itself, can bear the economic risk of its investment in the Domain Shares and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment in the Domain
Shares. ECT represents it has not been organized for the purpose of acquiring
such shares.
2.13 RESTRICTED SECURITIES. ECT understands that the Domain Shares will
not have been registered pursuant to the Securities Act or any applicable state
securities or Blue Sky law, that such securities will be characterized as
"restricted securities" under the federal securities laws and that under such
laws and applicable regulations such securities cannot be sold or otherwise
disposed of without registration under the Securities Act or an exemption
therefrom. In this connection, ECT represents that it is familiar with Rule 144,
as currently in effect, and understands the resale limitations imposed thereby
and by the Securities Act. Stop transfer instructions may be issued to the
transfer agent for the Domain Shares or a notation may be made in the
appropriate records of Domain in connection with the Domain Shares.
2.14 LEGENDS. It is agreed and understood that the certificate
representing the Domain Shares shall conspicuously set forth on the face or back
thereof a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS SUCH SHARES ARE FIRST REGISTERED UNDER
THAT ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
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2.15 DISCLOSURE. ECT has fully provided Domain with all the information
that Domain has specifically requested in writing for deciding whether to
purchase the Mid-Gulf Common Stock pursuant to this Agreement. All such written
information has been prepared by Mid-Gulf in good faith and to ECT's knowledge
such information prepared by Mid-Gulf does not, contain any untrue statement of
a material fact or omit to state therein a material fact necessary to make the
statements made therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOMAIN
Domain represents and warrants to ECT as follows:
3.1 ORGANIZATION AND STANDING. Domain is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full power and authority to own, lease, use and operate its properties and
to conduct its business as and where now owned, leased, used, operated and
conducted. Domain is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the property
it owns, leases or operates makes such qualification necessary, except where the
failure to be so qualified or in good standing in such jurisdiction would not
have a material adverse effect on its business or assets. The copies of the
Certificate of Incorporation and By-laws of Domain which have previously been
made available to ECT are true, complete and correct copies of such documents as
in effect as of the date of this Agreement.
3.2 CAPITALIZATION. Domain's authorized capital stock consists solely of
(a) 25,000,000 shares of common stock, $.01 par value per share, and (b)
5,000,000 shares of preferred stock, $.01 par value per share ("Domain Preferred
Stock"). As of November 4, 1997, (i) 14,610,121 shares of Domain Common Stock
were issued of which 14,607,729 were outstanding and 2,392 were held by Domain
as treasury shares, (ii) 862,547 shares of Domain Common Stock were issuable
upon the exercise or conversion of options, warrants or convertible securities
granted or issuable by Parent and (iii) no shares of Domain Preferred Stock were
issued and outstanding. Since September 30, 1997, with the exception of the
Domain Common Stock issued to ECT pursuant hereto and to Enron Finance Corp.
("EFC") pursuant to the Securities Purchase Agreement dated November 21, 1997
(the "Securities Purchase Agreement"), by and between Domain and EFC, Domain has
not issued any shares of its capital stock except upon the exercise of such
options, warrants or
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convertible securities. Each outstanding share of capital stock of Domain is,
and all shares of Domain Common Stock to be issued pursuant hereto will be when
issued in accordance with the terms hereof, duly authorized and validly issued,
fully paid and nonassessable and free of any preemptive rights. As of the date
hereof, other than as set forth above or on Schedule 3.2 to the disclosure
schedules delivered by Domain to ECT pursuant to this Agreement (collectively,
the "Domain Disclosure Schedules"), there are no outstanding shares of capital
stock or subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer by Domain of any securities of Domain, nor are
there outstanding any securities which are convertible into or exchangeable for
any shares of capital stock of Domain; and Domain has no obligation of any kind
to issue any additional securities, other than the Domain Common Stock to be
issued to ECT pursuant hereto and to EFC pursuant to the Securities Purchase
Agreement or to pay for securities of Domain or any predecessor. Domain has no
outstanding bonds, debentures, notes or other similar obligations the holders of
which have the right to vote generally with holders of Domain Common Stock.
3.3 CORPORATE POWER AND AUTHORITY. Domain has full corporate power and
authority to execute and deliver this Agreement and the Registration Rights
Agreement and to consummate the Stock Sale and the other transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Registration Rights Agreement by Domain and the consummation by Domain
of the Stock Sale and the other transactions contemplated hereby and thereby
have been duly and validly approved by the Board of Directors of Domain and no
other corporate proceedings on the part of Domain are necessary to approve this
Agreement and the Registration Rights Agreement, and to consummate the Stock
Sale and the other transactions contemplated hereby and thereby. This Agreement
has been, and upon execution and delivery the Registration Rights Agreement will
have been, duly and validly executed and delivered by Domain and constitute (and
in the case of the Registration Rights Agreement will constitute) valid and
binding obligations of Domain, enforceable against Domain in accordance with
their terms.
3.4 CONFLICTS; CONSENTS AND APPROVALS. Neither the execution and delivery
of this Agreement or the Registration Rights Agreement by Domain, nor the
consummation of the transactions contemplated hereby or thereby will:
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(a) conflict with, or violate any provision of the Certificate of
Incorporation or By-laws of Domain or any subsidiary of Domain;
(b) conflict with, violate or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, or entitle any
party (with the giving of notice, the passage of time or otherwise) to
terminate, accelerate, modify or call a default under, or result in the
termination, acceleration or cancellation of, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Domain or any subsidiary of Domain under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
contract, undertaking, agreement, lease or other instrument or obligation to
which Domain or any subsidiary of Domain is a party or by which any of their
respective properties or assets may be bound;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Domain or any subsidiary of Domain or any of their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Domain with any third-party or any Governmental
Authority, other than any actions required under federal and state securities
laws as are contemplated by this Agreement;
except for in the case of clauses (b), (c) and (d), for any of the foregoing
that would neither, in the aggregate, have a material adverse effect on Domain
nor prevent or delay the consummation of the transactions contemplated hereby.
3.5 RELIANCE. Prior to executing this Agreement, Domain has been afforded
an opportunity to (i) examine the assets and properties of Mid-Gulf and such
materials as it has specifically requested in writing to be provided to it by
ECT and Mid-Gulf, (ii) discuss with representatives of ECT and Mid-Gulf such
materials and the nature and operation of Mid-Gulf's assets and properties and
(iii) investigate such assets and properties of Mid-Gulf as requested.
3.6 QUALIFIED LEASEHOLDER. Domain meets the area-wide bonding and any
other bonding requirements of the Minerals Management Service and other
governmental authorities, and, after the Closing, Domain anticipates that in
light of the fact that the Minerals Management Service may impose
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supplemental bonding requirements as a result of the transactions contemplated
hereby, it will continue to be able to meet such bonding requirements. Domain
is, and, after the Closing, is expected to continue to be otherwise qualified to
own the assets and properties of Mid-Gulf. The consummation of the transactions
contemplated hereby will not cause Domain to be disqualified to be an owner of
federal, oil, gas, and mineral leases in the Gulf of Mexico region, or to exceed
any acreage limitation imposed by any law, statute, rule or regulation. Domain
is not aware of any fact that could reasonably be expected to cause the Minerals
Management Service or other governmental authorities to fail to unconditionally
approve the transfer to Domain of the Oil and Gas Properties of Mid-Gulf by
operation of this Agreement.
3.7 QUALIFIED PURCHASER. Domain is an experienced and knowledgeable
investor and operator in the oil and gas business. Domain is acquiring the
capital stock of Mid-Gulf for its own account and not with a view to, or for
offer of resale in connection with, a distribution thereof, within the meaning
of the Securities Act of 1933, as amended, and any other rules, regulations, and
laws pertaining to the distribution of securities.
3.8 DISCLOSURE. Domain has fully provided ECT with all the information
that ECT has specifically requested in writing for deciding whether to sell the
Mid-Gulf Common Stock pursuant to this Agreement. All such written information
has been prepared by Domain in good faith and does not, contain any untrue
statement of a material fact or omit to state therein a material fact necessary
to make the statements made therein not misleading.
3.9 LITIGATION. Except as disclosed on Schedule 3.9, to the Domain
Disclosure Schedules there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Domain threatened, against Domain
before any Governmental Authority which, individually or in the aggregate, would
have a material adverse effect on Domain or a material adverse effect on the
ability of Domain to consummate the transactions contemplated by this Agreement.
Except as disclosed on Schedule 3.9 to the Domain Disclosure Schedules, Domain
is not subject to any outstanding order, writ, injunction or decree which,
individually or in the aggregate, would have a material adverse effect on Domain
or a material adverse effect on the ability of Domain to consummate the
transactions contemplated hereby.
3.10 FINANCIAL STATEMENTS. Domain has delivered to
ECT the audited financial statements of Domain and its
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predecessor as of and for the respective years ended December 31, 1996, December
31, 1995 and December 31, 1994 (the "Domain Audited Financials") and Domain's
unaudited financial statements consisting of a balance sheet as of the end of
the respective interim periods ended March 31, 1997, June 30, 1997 and September
30, 1997 and the related statements of income, retained earnings and cash flows
for the periods then ended (the "Domain Interim Financials" and, together with
the Domain Audited Financials, the "Domain Financial Statements"). The Domain
Financial Statements fairly present in conformity with GAAP the financial
position and assets (collectively, the "Domain Assets") and liabilities of
Domain as of the dates thereof and Domain's results of operations and cash flows
for the periods then ended (subject, in the case of any of the Domain Interim
Financials, to the absence of notes and to normal, recurring year-end
adjustments). The balance sheet as of September 30, 1997, included as a part of
the Domain Interim Financials is referred to herein as the "Domain Interim
Balance Sheet", and the date thereof is referred to herein as the "Domain
Interim Balance Sheet Date".
3.11 LIABILITIES. Domain has no Liabilities, and no material Domain Assets
are subject to any Liabilities, except (a) to the extent specifically disclosed
on or provided for in the Domain Interim Balance Sheet; (b) Liabilities incurred
since the Domain Interim Balance Sheet Date in the ordinary course of its
business; (c) Liabilities that were not required under GAAP to have been
specifically disclosed or reserved for on the Domain Interim Balance Sheet; and
(d) Liabilities under or contemplated by this Agreement or disclosed hereunder.
All Liabilities required under GAAP to be specifically disclosed or reserved for
on the Domain Interim Balance Sheet are disclosed or reserved for thereon. For
purposes of this Section 3.11, "Liability" means any direct liability,
indebtedness, obligation, expense, claim, loss, damage, deficiency, guaranty or
endorsement of or by any Person, absolute or contingent, accrued or unaccrued,
due or to become due, liquidated or unliquidated.
3.12 DOMAIN SEC DOCUMENTS. Domain and each material subsidiary of Domain
has timely filed with the Commission all forms, reports, schedules, statements,
exhibits and other documents required to be filed by it since June 23, 1997,
under the Securities Exchange Act of 1934, as amended (together with the rules
and regulations thereunder, the "Exchange Act") or the Securities Act (such
documents, as supplemented and amended since the time of filing, together with
Domain's Registration Statement on Form S-1 under the Securities Act, No.
333-24641 (the "Registration
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Statement"), collectively, the "Domain SEC Documents"). The Domain SEC
Documents, including, without limitation, any financial statements or schedules
included therein, at the time filed (and, in the case of the Registration
Statement, on the date of effectiveness thereof) (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (b) complied
in all material respects with the applicable requirements of the Exchange Act
and the Securities Act, as the case may be. The financial statements (including
the related notes) of Domain included in the Domain SEC Documents were prepared
in accordance with GAAP during the periods involved (except as may be indicated
in the notes thereto), and fairly present (subject in the case of unaudited
statements to the absence of notes and to normal, recurring and year-end audit
adjustments) the consolidated financial position of Domain as of the dates
thereof and the consolidated results of its operations and cash flows for the
periods then ended.
3.13 NO DEFAULT. Domain is not in default, and no notice of alleged
default has been received by Domain, under any material contract or agreement to
which Domain is a party, no other party to any such contract or agreement is in
default to the knowledge of Domain, and there exists no condition or event that,
after notice or lapse of time or both, would constitute a default by Domain
under any such contract or agreement, in each case which default would have a
material adverse effect on the business, properties or financial condition of
Domain and its subsidiaries, taken as a whole.
ARTICLE IV
COVENANTS
4.1 CONDUCT OF BUSINESS OF MID-GULF. Except as contemplated by this
Agreement or set forth on Schedule 4.1 to the Mid-Gulf Disclosure Schedules or
with the prior written consent of Domain, during the period from the date of
this Agreement to the Closing, ECT shall cause Mid-Gulf to conduct its
operations only in the ordinary and usual course of business consistent with
past practice and will use all reasonable efforts to preserve intact its present
business organization and preserve its material relationships with licensors,
licensees, franchisees, customers, suppliers and any others having business
dealings with it. Without limiting the generality of the foregoing and except as
otherwise expressly provided in this Agreement, ECT shall cause Mid-Gulf not to
take any of the
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following actions prior to the Closing without the prior
written consent of Domain:
(a) adopt any amendment to its charter or by-laws
or comparable organizational documents;
(b) issue, reissue, sell or pledge or authorize or propose the
issuance, reissuance, sale or pledge of any shares of capital stock of any
class, or securities convertible into capital stock of any class, or any rights,
warrants or options to acquire any convertible securities or capital stock;
(c) except for cash dividends, declare, set aside or pay any
dividend or other distribution (whether in securities or property or any
combination thereof) in respect of any class or series of its capital stock;
(d) adjust, split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or otherwise
acquire, any shares of its capital stock;
(e) (i) incur, assume or pre-pay any long-term debt or incur or
assume any short-term debt, except that Mid-Gulf may incur or pre-pay debt to
ECT in the ordinary course of business consistent with past practice, (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person or
entity, or (iii) make any loans, advances or capital contributions to, or
investments in, any other person or entity;
(f) settle or compromise any suit or claim or threatened suit or
claim relating to the transactions contemplated hereby;
(g) acquire (except as otherwise permitted by clause (i) below),
sell, lease or dispose of any assets or securities which are material to
Mid-Gulf, or enter into any material commitment or transaction, or any
commitment or transaction outside the ordinary course of business consistent
with past practice;
(h) (i) modify, amend or terminate any contract, (ii) waive,
release, relinquish or assign any contract (including any insurance policy) or
other right or claim, or (iii) cancel or forgive any indebtedness owed to
Mid-Gulf, other than in each case in a manner in the ordinary course of business
consistent with past practice and which is not material to the business of
Mid-Gulf;
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(i) authorize, commit to or make any capital expenditures except
pursuant to and in accordance with Mid-Gulf's capital budget, as set forth on
Schedule to the Mid-Gulf Disclosure Schedules;
(j) make any tax election not required by law or settle or
compromise any tax liability, in either case that is material to Mid-Gulf; or
(k) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty in this
Agreement untrue or incorrect in any material respect.
4.2 ACCESS. Each of ECT and Domain hereby agrees that between the date of
this Agreement and the Closing, each party will (or in the case of ECT, cause
Mid-Gulf to) (a) give the other party and such other party's authorized
representatives reasonable access during regular business hours upon reasonable
notice to all offices and other facilities and to all books and records of
Mid-Gulf or Domain, as the case may be, (b) permit the other party to make such
inspections as it may reasonably require and (c) cause its officers to furnish
the other party with such financial and operating data and other information
with respect to the business and properties of Mid-Gulf or Domain, as the case
may be, as such other party may from time to time reasonably request. Each party
shall keep all such information confidential and shall not disclose any of such
information without the consent of the other party other than such disclosures
as may be required by applicable law, rule or regulation or pursuant to order of
any Governmental Entity.
4.3 REASONABLE BUSINESS EFFORTS. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its reasonable business
efforts to take, or cause to be taken, all appropriate action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Notwithstanding the foregoing, neither ECT
nor Domain shall be obligated to waive any of its rights under this Agreement.
4.4 FEES AND EXPENSES. If the transactions contemplated are not
consummated, all costs and expenses
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incurred in connection with this Agreement and the transactions contemplated
hereby will be paid by the party incurring the same. If the transactions
contemplated hereby are consummated, all such expenses incurred by Domain will
be paid by Domain; all such expenses incurred by ECT will be paid by ECT; and
all such expenses incurred by Mid-Gulf will be paid or reimbursed by ECT.
4.5 BROKERS OR FINDERS. Except as disclosed on Schedule to the Mid-Gulf
Disclosure Schedules or Schedule 4.5 to the Domain Disclosure Schedules, as
applicable, each of ECT and Domain represents and warrants, as to itself, its
subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finders' fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement.
4.6 NOTIFICATION OF CERTAIN MATTERS. ECT will give prompt notice to Domain
and Domain will give prompt notice to ECT of (a) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which would
be likely to cause (i) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect or (ii) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied in any material respect and (b) any failure of ECT or Domain,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this
Section will not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
4.7 CONFIDENTIALITY. After the Closing Date, ECT shall not, directly or
indirectly, use or provide to, and shall not permit any affiliate, directly or
indirectly, to use or provide to any other Person other than to Domain and its
affiliates any information concerning the business or operations (financial or
other) of Mid-Gulf or the terms of the transactions contemplated hereby, except
as on the advice of counsel is required in governmental filings or judicial,
administrative or arbitration proceedings; provided, that ECT shall be permitted
to provide such information (i) to any of its affiliates (it being understood
and agreed that ECT will be responsible for compliance by ECT's affiliates with
the terms of this Section 4.7) and (ii) so long as such information is not (A)
proprietary or technical (including, without limitation, geological, geophysical
or seismic data or interpretations,
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maps, graphs and similar data), (B) information concerning oil and gas reserve
quantities, reserve reports, economic analyses or drilling and/or acquisition
opportunities, or (C) customarily confidential to customers of ECT or its
affiliates, to companies, partnerships or other business entities with whom ECT
or an affiliate of ECT (excluding Enron Oil & Gas Company) is proposing to
engage in a financing transaction in which ECT believes in good faith that
disclosure of information about Mid-Gulf permitted to be disclosed hereunder is
necessary to further a legitimate business interest of ECT in connection with
such proposed financing transaction; and provided, further, that the foregoing
covenant shall not be applied to any information of Mid-Gulf that is public
(other than as a consequence of disclosure by ECT or any affiliate of ECT in
violation of the terms of this Section 4.7).
4.8 REGISTRATION RIGHTS AGREEMENT. Domain and ECT hereby agree to enter
into a registration rights agreement, in substantially the form set forth as
Exhibit A hereto (the "Registration Rights Agreement"), at (and subject to the
occurrence of) the Closing pursuant to which Domain will agree to register under
the Securities Act the Domain Shares upon the terms and subject to the
conditions contained in the Registration Rights Agreement.
4.9 ELIMINATION OF INTERCOMPANY ACCOUNTS. Upon consummation of the
Closing, all indebtedness of Mid-Gulf to ECT and/or of ECT to Mid-Gulf will be
offset, and the net balance, if owed to ECT, will be contributed to the capital
of Mid-Gulf and if owed to Mid-Gulf, will be declared and paid as a non-cash
dividend to ECT.
4.10 INDEMNIFICATION BY DOMAIN. Domain agrees to indemnify, defend and
hold harmless, ECT and its directors, officers, employees, agents,
representatives and controlled and controlling persons (hereinafter,
collectively "ECT's Related Persons"), from and against all Claims asserted
against, relating to, imposed upon or incurred by ECT or ECT's Related Persons,
directly or indirectly, by reason of, arising out of, or resulting from the
inaccuracy or breach of any covenant, representation or warranty of Domain
contained in this Agreement. As used in this Agreement, the term "Claim" shall
include (i) all debts, liabilities and obligations; (ii) all losses, damages,
costs and expenses (including, without limitation, prejudgment interest in any
litigated matter), penalties, court costs and reasonable attorneys' fees and
expenses; and (iii) all demands, claims, actions, costs of investigation, causes
of action, proceedings, arbitrations, judgments, settlements and assessments,
whether or not ultimately determined to be
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valid, with the exception of punitive or exemplary damages not sustained in an
action by a third party.
4.11 INDEMNIFICATION BY ECT. ECT hereby agrees to indemnify, defend and
hold harmless Domain, and its directors, officers, employees, agents,
representatives and controlled and controlling persons (hereinafter,
collectively "Domain's Related Persons"), from and against all Claims asserted
against, relating to, imposed upon or incurred by Domain or Domain's Related
Persons, directly or indirectly, by reason of, arising out of, or resulting from
(i) the inaccuracy or breach of any covenant, representation or warranty of ECT
contained in this Agreement for the period set forth in Section , except as to
any matters with respect to which a bona fide written Claim shall have been made
or an action at law or in equity shall have commenced before such date, in which
event this indemnification obligation shall continue until the final resolution
of such Claim or action, including all applicable periods for appeal and (ii)
the Excluded Liabilities.
4.12 DEFENSE OF THIRD PARTY CLAIMS. In the event any Claim is asserted
against any indemnified party by a third party, the indemnified party shall with
reasonable promptness notify the indemnifying party of such Claim. Pursuant to
its defense obligation provided in Section or Section , the indemnifying party
shall employ counsel satisfactory to the indemnified party and shall take such
other steps as are reasonably necessary or appropriate to defend the indemnified
party against such Claim.
4.13 TAX MATTERS. (a) All stamp, documentary, transfer and sales taxes
incurred in connection with this Agreement and the transactions contemplated
hereby shall be borne by Domain, and Domain, at its own expense, will file, to
the extent required by applicable law, all necessary Tax Returns and other
documentation with respect to all such transfer or sales taxes, and, if required
by applicable law, ECT will join in the execution of any such Tax Returns or
other documentation.
(b) Each of Domain and ECT shall provide the other with such
assistance as may reasonably be requested by the other party in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each will retain (until the expiration of the applicable statute
of limitations) and provide the requesting party with any records or information
which may be relevant to such return, audit or examination, proceedings or
determination. Any information obtained
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pursuant to this Section or pursuant to any other Section hereof providing for
the sharing of information or review of any Tax Return or other schedule
relating to Taxes shall be kept confidential by the parties hereto.
(c) MID-GULF TAX MATTERS.
(1) SECTION 338(H)(10) ELECTION.
(i) With respect to the sale of the Mid-Gulf Common Stock,
if required by Domain, ECT and Domain shall jointly make the election
provided for by Section 338(h)(10) of the Code and Section 1.338(h)(10)-1
of the Treasury Regulations promulgated under the Code and any comparable
election under state or local tax law (the "Election"). As soon as
practicable after the Closing Date, with respect to such Election, ECT and
Domain shall mutually prepare a Form 8023-A, with all attachments, and ECT
shall sign such Form 8023-A. Domain and ECT shall also cooperate with each
other to take all actions necessary and appropriate (including filing such
additional forms, returns, elections, schedules and other documents as may
be required) to effect and preserve such Election in accordance with the
provisions of Section 1.338(h)(10)-1 of the Treasury Regulations (or any
comparable provisions of state and local tax law) or any successor
provisions.
(ii) With respect to the Election the Modified Aggregate
Deemed Sales Price as defined in Section 1.338(h)(10)-1 of the Treasury
Regulations (the "Modified ADSP") shall be allocated among the assets of
Mid-Gulf pursuant to Treasury Regulation ss. 1.338(h)(10)-1. Domain and
ECT shall use their good faith best efforts to agree upon such allocation.
Domain shall provide to ECT a schedule and supporting material reflecting
such allocation for ECT's review and consent, such consent not to be
unreasonably withheld. The parties shall take no action inconsistent with,
or fail to take any action necessary for the validity of, the Election,
and shall adopt and utilize the asset values determined from such
reasonable allocation for the purpose of all Tax Returns filed by them,
and shall not voluntarily take any action inconsistent therewith upon
examination of any Tax Return, in any refund claim, in any litigation or
otherwise with respect to such Tax Returns.
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(2) RETURN FILING, PAYMENTS, REFUNDS AND CREDITS.
(i) For purposes of this Agreement, the amount of Taxes of
Mid-Gulf attributable to the pre-Closing portion of any taxable period
beginning before and ending after the Closing Date (the "Straddle Period")
shall be determined based upon the cumulative monthly income statements of
Mid-Gulf for all months ending prior to the Closing Date and upon the
relative number of days in the pre-Closing and post-Closing portion of the
month in which the Closing Date occurs; provided, however, that Taxes
imposed on a periodic basis shall be determined by reference to the
relative number of days in the pre-Closing and post-Closing portions of
such Straddle Period and any extraordinary transaction shall be allocated
to the portion of such Straddle Period in which it occurred.
(ii) Domain and ECT shall cause Mid-Gulf to join, for all
pre-Closing periods and the Straddle Period for which Mid-Gulf is required
or eligible to do so, in all consolidated, combined or unitary federal,
state, or local Income Tax or franchise Tax Returns of ECT (or any
affiliate for all pre-Closing periods ("ECT's Tax Returns")), and shall,
in each jurisdiction where this is required or permissible under
applicable law, cause the taxable year of Mid-Gulf to terminate as of the
Closing Date. ECT shall cause to be prepared and timely filed all such
ECT's Tax Returns and shall cause to be paid all Taxes shown to be due on
such ECT's Tax Returns; provided, however, that in the case of ECT's Tax
Return for the Straddle Period, Domain shall or shall cause Mid-Gulf to
pay to ECT the portion of such Taxes shown to be due thereon attributable
to Mid-Gulf for the post-Closing Date portion of the Straddle Period
determined in accordance with Section .
(iii) Domain shall or shall cause Mid-Gulf to prepare and
timely file all Income Tax Returns of Mid-Gulf for all pre-Closing periods
(including the Closing Date) and the Straddle Period, other than those
referred to in Section , which Income Tax Returns have not been filed as
of the Closing Date, and shall cause to be timely paid all Taxes shown to
be due on such Tax Returns. No later than ten days prior to the due date
for the filing of each Income Tax Return referred to in this Section , ECT
shall pay to Mid-Gulf the amount of Taxes shown as due thereon less any
estimated Taxes paid by Mid-Gulf
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during the pre-Closing period (including the Closing Date); provided,
however, that in the case of an Income Tax Return for a Straddle Period,
ECT shall only be required to pay Mid-Gulf the portion of such Taxes that
is attributable to the pre-Closing Date portion of such Straddle Period
(including the Closing Date), determined in accordance with Section , less
any estimated Taxes paid by Mid-Gulf during the pre-Closing period. ECT
shall fully cooperate with Domain and Mid-Gulf in accordance with past
practice in the preparation of the Income Tax Returns referred to in this
Section .
(iv) Domain shall or shall cause Mid-Gulf to prepare and
timely file all Tax Returns of Mid-Gulf for all pre-Closing periods and
the Straddle Period, other than those Tax Returns referred to in Section
and , which Tax Returns have not been filed as of the Closing Date, and
shall cause to be timely paid all Taxes shown to be due thereon. No later
than ten days prior to the due date for the filing of each Tax Return
referred to in this Section , ECT shall pay to Mid-Gulf the amount shown
as due thereon attributable to the pre-Closing Date portion of the
Straddle Period less any estimated Taxes paid by Mid-Gulf during the
pre-Closing period.
(v) The Tax Returns referred to in Section , and shall be
prepared in a manner consistent with past practice, unless a contrary
treatment is required by an intervening change in the applicable law. ECT
shall cause to be made available to Domain a copy of any Tax Return that
is required to be filed by Mid-Gulf under
and Domain shall cause to be made available to ECT a copy of any Tax
Return that is required to be filed by Domain or Mid-Gulf under Section or
, in each case together with all relevant workpapers and other
information. Each such Tax Return shall be made available for review and
approval no later than 20 Business Days prior to the due date for the
filing of such Tax Return (taking into account proper extensions), such
approval not to be unreasonably withheld. An exact copy of any such Tax
Return filed by Domain shall be provided to ECT and any such Tax Return
filed by ECT shall be provided to Domain, in each case, no later than ten
days after such Tax Return is filed.
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(vi) Any refunds or credits of the Taxes of Mid-Gulf plus
any interest received with respect thereto from the applicable taxing
authorities for any pre-Closing period (including, without limitation,
refunds or credits arising from amended returns filed after the Closing
Date) shall be for the account of ECT, except to the extent that such
refunds or credits are attributable to the mandatory carryback of any
deductions or credits for any Tax Period ending after a Closing Date and,
if received by Domain or Mid-Gulf, shall be paid to ECT within ten days
after Domain or Mid-Gulf receives such refund or after the relevant Tax
Return is filed within which the credit is applied against Domain's or
Mid-Gulf's liability for Taxes for a period which begins after the Closing
Date, net of any Taxes Domain or Mid-Gulf is required to pay on account of
receiving such refund or credit (including a reasonable estimate of
resulting future Tax costs.) ECT, without the consent of Domain, shall not
apply for any refund that will create a material adverse effect on any
post-Closing period Tax Return and shall not apply for any refund for any
Straddle Period Tax Return or any Tax Return for Mid-Gulf that is not a
consolidated, combined, or unitary Tax Return. Any refunds or credits of
Taxes of Mid-Gulf for any Straddle Period shall be apportioned between ECT
and Domain in the same manner as the liability for such Taxes is
apportioned pursuant to Section .
(3) TAX INDEMNIFICATION.
(i) Without duplication, ECT shall indemnify, defend and
hold Domain, its affiliates and their successors and assigns, and the
officers, directors, employees and agents of Domain, its affiliates and
their successors and assigns harmless from and against any and all Taxes
(including interest and penalties) which may be suffered or incurred by
them in respect of or relating to, directly or indirectly, (x) Taxes of or
attributable to Mid-Gulf for all pre-Closing periods (including the
Closing Date), (y) Taxes of or attributable to Mid-Gulf with respect to
the pre-Closing portion of the Straddle Period (including the Closing
Date), and (z) Taxes payable by Mid-Gulf with respect to any pre-Closing
period or Straddle Period by reason of Mid-Gulf being severally liable for
the Tax of any affiliate pursuant to Treasury Regulation ss. 1.1502-6 or
any analogous state or local Tax law.
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(ii) Without duplication, Domain shall indemnify, defend
and hold ECT, its affiliates and their successors and assigns, and the
officers, directors, employees and agents of ECT, its affiliates and their
successors and assigns harmless from and against any and all Taxes
(including interest and penalties) which may be suffered or incurred by
them in respect of or relating to, directly or indirectly, (x) Taxes of or
attributable to Mid-Gulf with respect to all post-Closing periods and (y)
Taxes of or attributable to Mid-Gulf with respect to the post-Closing
portion of any Straddle Period.
(4) TAX CONTEST.
(i) Each of ECT and Domain shall notify the other party in
writing within 30 days of receipt of written notice of any pending or
threatened Tax examination, audit or other administrative or judicial
proceeding (a "Tax Contest") that could reasonably be expected to result
in an indemnification obligation under this Section of such other party
pursuant to this Section . If the recipient of such notice of a Tax
Contest fails to provide such notice to the other party, it shall not be
entitled to indemnification for any Taxes arising in connection with such
Tax Contest, but only to the extent, if any, that such failure or delay
shall have precluded the indemnifying party's ability to defend against,
settle or satisfy any action, suit or proceeding against it, or any
damage, loss, claim or demand for which the indemnified party is entitled
to indemnification hereunder.
(ii) If a Tax Contest relates to any period ending on or
prior to the Closing Date or to any Taxes for which ECT is liable in full
hereunder, ECT shall at its expense control the defense and settlement of
such Tax Contest. If such Tax Contest relates to any period beginning
after the Closing Date or to any Taxes for which Domain is liable in full
hereunder, Domain shall at its own expense control the defense and
settlement of such Tax Contest. The party not in control of the defense
shall have the right to observe the conduct of any Tax Contest at its
expense, including through its own counsel and other professional experts.
Domain and ECT shall jointly represent Mid-Gulf in any Tax Contest
relating to a Straddle Period, and fees and expenses related to such
representation shall be paid equally by Domain and ECT.
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(iii) Notwithstanding anything to the contrary in Section ,
to the extent that an issue raised in any Tax Contest controlled by one
party or jointly controlled could materially affect the liability for
Taxes of the other party, the controlling party shall not, and neither
party in the case of joint control shall, enter into a final settlement
without the consent of the other party, which consent shall not be
unreasonably withheld. Where a party withholds its consent to any final
settlement, that party may continue or initiate further proceedings, at
its own expense, and the liability of the party that wished to settle (as
between the consenting and the nonconsenting party) shall not exceed the
liability that would have resulted from the proposed final settlement
(including interest, additions to Tax and penalties that have accrued at
that time), and the non-consenting party shall indemnify the consenting
party for such Taxes.
(5) TAX SHARING AGREEMENTS. Any Tax sharing agreement to which
Mid-Gulf is a party shall be deemed terminated with respect to Mid-Gulf on, and
effective as of, the Closing Date, and no Person shall have any rights or
obligations under such Tax sharing agreement with respect to Mid-Gulf after such
termination.
(d) DISPUTES. In the event that a dispute arises between ECT and
Domain as to the amount of Taxes, or indemnification, whether or not
attributable to Mid-Gulf, or the amount of any allocation of purchase price
under Section hereof, the parties shall attempt in good faith to resolve such
dispute, and any agreed upon amount shall be paid to the appropriate party. If
such dispute is not resolved 30 days thereafter, the parties shall submit the
dispute to a mutually agreed independent accounting firm for resolution, which
resolution shall be final, conclusive and binding on the parties.
Notwithstanding anything in this Agreement to the contrary, the fees and
expenses of such independent accounting firm in resolving the dispute shall be
borne equally by ECT and Domain. Any payment required to be made as a result of
the resolution of the dispute by such independent accounting firm shall be made
within ten days after such resolution, together with any interest determined by
such independent accounting firm to be appropriate.
4.14 DOMAIN COMMON SHARES. Domain shall take all
actions required, if any, to cause the Domain Common Shares
to be listed on the New York Stock Exchange (the "NYSE") and
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shall give such notice as may be required to the NYSE with respect to the
transactions contemplated hereby.
ARTICLE V
CONDITIONS TO CLOSING
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING. The
respective obligations of each party to effect the Closing are subject to the
satisfaction or waiver, where permissible, prior to the Closing, of the
following condition: no United States or state statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any Governmental Entity that is in effect and has the
effect of making the acquisition of the Mid-Gulf Common Stock under the terms of
this Agreement illegal or otherwise prohibiting the consummation of the
transactions contemplated hereby.
5.2 CONDITIONS TO OBLIGATIONS OF ECT TO EFFECT THE CLOSING. The obligation
of ECT to effect the Closing is further subject to the satisfaction or waiver,
where permissible, at or prior to the Closing, of the following conditions:
(a) Domain shall have performed in all material respects its
covenants in this Agreement, to the extent such covenants are to be performed
prior to the Closing;
(b) the representations and warranties of Domain shall be true and
correct in all respects at and as of the Closing as if made as of the Closing;
(c) the transactions contemplated by the Merger Agreement shall have
been consummated, or shall be consummated simultaneously with the Closing
hereunder and the Merger Agreement shall not have been terminated;
(d) ECT shall have received a certificate, dated the Closing Date,
of an executive officer of Domain certifying as to the matters specified in
Section and
hereof;
(e) ECT shall have received from Weil, Gotshal & Manges LLP, counsel
to Domain, an opinion dated the Closing Date in form reasonably acceptable to
ECT and its counsel; and
(f) ECT shall have received from Domain a certificate or
certificates representing the Domain Shares registered in the name of ECT or its
designee; and
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(g) the transactions contemplated by the Securities Purchase
Agreement shall have been consummated, or shall be consummated simultaneously
with the Closing hereunder.
5.3 CONDITIONS TO OBLIGATIONS OF DOMAIN TO EFFECT THE CLOSING. The
obligations of Domain to effect the Closing are further subject to the
satisfaction or waiver, where permissible, at or prior to the Closing, of the
following conditions:
(a) ECT shall have performed in all material respects the covenants
in this Agreement, to the extent such covenants are to be performed prior to the
Closing;
(b) the representations and warranties of ECT shall be true and
correct in all respects at and as of the Closing as if made as of the Closing;
and
(c) the transactions contemplated by the Merger Agreement shall have
been consummated, or shall be consummated simultaneously with the Closing
hereunder and the Merger Agreement shall not have been terminated;
(d) Domain shall have received a certificate, dated as of the
Closing Date, of an executive officer of ECT certifying as to the matters
specified in Section and
hereof;
(e) Domain shall have received from Bracewell & Patterson, L.L.P.,
counsel to ECT, an opinion dated the Closing Date in form reasonably acceptable
to Domain and its counsel;
(f) ECT shall have delivered to Domain a certificate or certificates
representing the Mid-Gulf Common Stock, together with stock powers duly endorsed
by ECT so that the Mid-Gulf Common Stock may be duly registered in Domain's
name; and
(g) the transactions contemplated by the Securities Purchase
Agreement shall have been consummated, or shall be consummated simultaneously
with the Closing hereunder.
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ARTICLE VI
TERMINATION AND AMENDMENT
6.1 TERMINATION. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual consent of Domain and ECT by action
of their respective Boards of Directors;
(b) by either Domain or ECT if the Closing is not consummated before
December 15, 1997, despite the good faith effort of such party to effect such
consummation; provided that this right to terminate will not be available to a
party whose failure to fulfill an obligation under this Agreement has been the
cause of the failure to consummate;
(c) by either Domain or ECT upon termination of the Merger
Agreement;
(d) by either Domain or ECT if any court of competent jurisdiction
has issued an injunction permanently restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated hereby, which
injunction has become final and non-appealable;
(e) by ECT, if (i) any of the representations and warranties of
Domain contained in this Agreement were incorrect in any respect when made or
have since become, and at the time of termination remain, incorrect in any
respect, or (ii) there has been a material breach on the part of Domain in the
covenants of Domain set forth herein, or any failure on the part of Domain to
comply with its material obligations hereunder; or
(f) by Domain, if (i) any of the representations and warranties of
ECT contained in this Agreement were incorrect in any respect when made or have
since become, and at the time of termination remain, incorrect in any respect,
or (ii) there has been a material breach on the part of ECT in the covenants of
ECT set forth herein, or any failure on the part of ECT to comply with its
material obligations hereunder.
6.2 EFFECT OF TERMINATION. In the event of a termination of this Agreement
by either ECT or Domain in accordance with Section , no party hereto (or its
officers or directors) will have any liability or further obligation to any
other party to this Agreement, except for
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any liability resulting from the willful breach of any representation, covenant
or agreement set forth herein.
ARTICLE VII
MISCELLANEOUS
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Other than the
representations and warranties of ECT set forth in Sections , , and , which will
not survive the Closing or be actionable thereafter, the representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement will survive the Closing for a period of one year after the Closing.
The covenants and agreements herein will survive termination of this Agreement
and the Closing, as applicable.
7.2 AMENDMENT. This Agreement may be amended by the parties hereto by
action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.3 EXTENSION; WAIVER. At any time prior to the Closing, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may to the extent legally allowed (a) extend the time for the performance of any
of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements of the other parties hereto or conditions
to their own obligations contained herein. Any agreement on the part of a party
hereto to any such extension or waiver will be valid only if set forth in a
written instrument signed on behalf of such party. No waiver by any party of any
condition, or of any breach of any covenant, agreement, representation or
warranty contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach or waiver of any other condition or of any breach of any
other covenant, agreement, representation or warranty.
7.4 NOTICES. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified (return receipt requested) mail
to the parties at the following addresses (or at such other address for a party
as is specified by like notice):
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(a) if to Domain:
Domain Energy Corporation
16801 Greenspoint Park Drive, Suite 2000
Houston, Texas 77060
Telecopy: (281) 618-1977
Attention: Michael V. Ronca
President and CEO
with a copy to:
James L. Rice III
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Telecopy: (713) 224-9511
(b) if to ECT, to:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopy: (713) 646-4039 or (713) 646-4946
with a copy to:
Enron Capital & Trade Resources Corp.
1400 Smith Street
Houston, Texas 77002
Attention: W. Lance Schuler
Telecopy: (713) 646-3393
and
John L. Keffer
Bracewell & Patterson, L.L.P.
711 Louisiana, Suite 2900
Houston, Texas 77002
Telecopy: (713) 221-1212
7.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference will be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and will not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement they will be deemed to be followed by the words "without
limitation".
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7.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
will become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
7.7 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas regardless of the laws that might
otherwise govern under principles of conflict of laws applicable thereto.
7.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
7.9 VALIDITY. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforcement of any other provisions
hereof, which will remain in full force and effect. If any term or other
provision of this Agreement is invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other terms and provisions of this
Agreement will nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner that is adverse to any party which is entitled to the
benefit thereof and which has not been waived by such party. Upon any such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto will negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
by this Agreement are consummated to the extent possible.
7.10 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the Mid-Gulf Disclosure Schedules and the Domain Disclosure Schedules
and any other documents and instruments referred to herein) (a) constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to subject matters hereof, and
(b) are not intended to confer upon any person other than the parties
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hereto and thereto any rights or remedies hereunder or thereunder.
7.11 ARBITRATION.
(a) BINDING ARBITRATION. On the request of any party hereto, whether
made before or after the institution of any legal proceeding, any action,
dispute, claim or controversy of any kind now existing or hereafter arising
between any of the parties hereto in any way arising out of, pertaining to or in
connection with the Agreement (a "Dispute") shall be resolved by binding
arbitration in accordance with the terms hereof. Any party hereto may, by
summary proceedings, bring an action in court to compel arbitration of any
Dispute.
(b) GOVERNING RULES. Any arbitration shall be administered by the
American Arbitration Association (the "AAA") in accordance with the terms of
this Section, the Commercial Arbitration Rules of the AAA, and, to the maximum
extent applicable, the Federal Arbitration Act. Judgment on any award rendered
by an arbitrator may be entered in any court having jurisdiction.
(c) ARBITRATORS. Any arbitration shall be conducted before a three
person panel of neutral arbitrators. Such panel shall consist of one person from
each of the following categories: (1) an attorney who has practiced in the area
of commercial law for at least 10 years or a retired judge at the Texas or
United States District Court or an appellate court level; (2) a person with at
least 10 years experience in mergers and acquisitions, and (3) a person with at
least 10 years experience in the petroleum industry (individually, an
"Arbitrator" and collectively, the "Arbitrators"). The AAA shall submit a list
of persons meeting the criteria outlined above for each category of Arbitrator,
and the parties shall select one person from each category in the manner
established by the AAA. If the parties cannot agree on an Arbitrator within 30
days after the request for an arbitration, then any party may request the AAA to
select an Arbitrator. The Arbitrators may engage engineers, accountants or other
consultants that the arbitrator deems necessary to render a conclusion in the
arbitration proceeding.
(d) CONDUCT OF ARBITRATION. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be conducted
in Houston, Texas. The Arbitrators shall be
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empowered to impose sanctions and to take such other actions as the arbitrators
deem necessary to the same extent a judge could impose sanctions or take such
other actions pursuant to the Federal Rules of Civil Procedure and applicable
law. However, the Arbitrators shall not be empowered to impose punitive or other
exemplary damages. At the conclusion of any arbitration proceeding, the
Arbitrators shall make specific written findings of fact and conclusions of law.
The Arbitrators shall have the power to award recovery of all costs and fees to
the prevailing party. The parties hereto each agrees to keep all Disputes and
arbitration proceedings strictly confidential except for disclosure of
information required by applicable law. It is expressly agreed that the
Arbitrators shall have no authority to award treble, exemplary or punitive
damages of any type under any circumstances regardless of whether such damages
may be available under Texas law, the parties hereby waiving their right, if
any, to recover treble, exemplary or punitive damages in connection with any
Dispute.
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IN WITNESS WHEREOF, Domain and ECT have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the date first
written above.
DOMAIN ENERGY CORPORATION
By: /s/ MICHAEL V. RONCA
MICHAEL V. RONCA
President and CEO
ENRON CAPITAL & TRADE RESOURCES CORP.
By: /s/ TIMOTHY J. DETMERING
TIMOTHY J. DETMERING
Vice President
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT, made March 24, 1998, to be effective February 17, 1998,
by and between Domain Energy Corporation, a Delaware corporation (the "Company")
and Michael L. Harvey ("Executive").
RECITALS
In order to induce Executive to serve as Executive Vice President -
Corporate Development 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 Executive Vice
President - Corporate Development of the Company. In his capacity as Executive
Vice President - Corporate Development of the Company, Executive shall report to
the President and Chief Executive Officer of the Company (the "CEO"). Executive
shall have the following responsibilities and authorities: (i) identifying
growth opportunities for the Company, with a particular focus on the Gulf Coast
region, in the form of property acquisitions, drilling joint ventures and
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corporate acquisitions and mergers; (ii) coordinating the evaluation and due
diligence process as well as leading negotiations on transactions generated by
Executive; (iii) serving as a member of the Company's executive management
committee, which reviews and approves capital budgets, establishes financial and
operational budgets and establishes general corporate policy; (iv) working
closely with the Company's Executive Vice President Exploration and Production
to execute the Company's business plans and to prioritize allocation of capital
and human resources; and (v) functioning as the Company's "ambassador to
industry" by participating in various industry associations such as IPAA, TIPRO
and the Producer Forum; or, such other responsibilities and authorities
commensurate with position of an Executive Vice President of the Company as are
assigned by the CEO.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as Executive Vice President - Corporate Development 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 CEO
shall from time to time delegate to him on such terms and conditions and subject
to such restrictions as the CEO may reasonably from time to time impose. The
Company will create one additional seat on the Board of Directors of the Company
(the "Board") and shall cause Executive to be appointed to fill such seat and
thereafter, so long as this Agreement shall remain in effect, to cause Executive
to be nominated for election at each annual meeting of the Company's
stockholders to be held in each of 1998 and 1999 and, in accordance with the
Company's normal solicitation efforts,
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solicit proxies for Executive's election to the Board in accordance with the
Company's normal solicitation efforts. Executive agrees to serve, if elected, as
a member of the Board and unless otherwise requested by the Company, to resign
from the Board upon termination of this Agreement.
1.3 Nothing in this Agreement shall preclude Executive from
engaging, so long as, in the reasonable determination of the CEO, 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 the CEO and
Executive shall give the CEO prior written notice of any investment in an entity
that is not publicly traded) or from serving, subject to the prior approval of
the CEO, 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 CEO required therein shall not be unreasonably withheld.
Attached hereto as Schedule 1.3 is a description of all existing investments,
board memberships and trusteeships relating to any entity engaged in any aspect
of the oil and gas business that would require approval by, or notice to, the
CEO under this Section 1.3 if such investment, board membership or trusteeship
were to be effected after the date of this Agreement.
2. TERM OF EMPLOYMENT. Executive's term of employment under this
Agreement shall commence as of the date hereof and, subject to the terms hereof,
shall terminate on the earlier of (i) December 31, 2000 (the "Termination Date")
or (ii) termination of Executive's employment pursuant to this Agreement;
PROVIDED, HOWEVER, that
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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 $150,000 per annum for the period commencing on the
beginning of Executive's term of employment hereunder and ending on the
Termination Date, subject to Section 6.5(c). 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 Company and, as so increased,
shall constitute "Base Salary" hereunder.
3.2 COMPENSATION PLANS AND PROGRAMS. Executive shall be entitled to
participate in any compensation plan or program 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,
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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. 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
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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 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 3.2 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 annual cash bonus for which Executive may be eligible
pursuant to Section 3.2 ("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).
Subject to Section 6.5(b), 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 ("Target
Bonus"; which for 1998 has been established by the Board as an amount equal to
40% of Base Salary) 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.
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(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 transfer to an account specified by Executive. Payments of
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 an Executive Vice President 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 Section 6.1(d) hereof).
(d) For purposes of this Agreement, "Change of Control" shall mean
the occurrence of either (i) the purchase or other acquisition by any person,
entity or group (within the meaning of section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended, or any comparable successor provisions) of
persons or entities (a "Group"), other than the FRC Entities (as defined in the
Non-Qualified Stock Option Agreement attached hereto as Exhibit A (the "Option
Agreement")), of (A) ownership of fifty percent (50%) or
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more of the combined voting power of the Company's then outstanding voting
securities entitled to vote generally or (B) all or substantially all of the
direct and indirect assets of the Company and its subsidiaries or (ii) any
merger, consolidation, reorganization or other business combination of the
Company with or into any other entity which results in a person, entity or Group
other than the FRC Entities 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.
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;
(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 3.2 and 4.1 hereof, to which he is entitled
pursuant to the terms of such plans or programs, in accordance with their
terms.
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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 3.2 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,
as hereinafter defined. In the event that Executive's employment is terminated
by the Company for Cause or by Executive other than for Good Reason or other
than 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
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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, regardless 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 under
any lawful direction of the CEO 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 CEO and Executive has been given a 30-day cure period after
receipt of such notice to take reasonable corrective 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 CEO 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
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judgment of the such Board, Executive was guilty of conduct set forth in any of
clauses (i) through (iv) above and specifying the particulars thereof.
6.5 SPECIAL TERMINATION. (a) At any time during the period from and
including July 1, 1999 through and including July 31, 1999, Executive shall have
the right to terminate this Agreement without Good Reason and the Company shall
have the right to terminate this Agreement without Cause, in either case
pursuant to written notice from the terminating party specifying (i) that such
party is invoking the provisions of this Section 6.5 and (ii) the effective date
of termination, which shall be not earlier than 30 days after receipt by the
non-terminating party of the notice of termination and not later than August 31,
1999. Any termination effected pursuant to this Section 6.5 is referred to
herein as a "Special Termination".
(b) In the event of a Special Termination invoked by Executive, the
Termination Amount shall be zero ($0.00). In the event of a Special Termination
invoked by the Company, the Termination Amount shall be an amount equal to
Executive's Base Salary at its then current annual rate. In addition, in the
event of a Special Termination invoked by the Company, the Company at its
expense shall either continue Executive's health and dental insurance as
provided by the Company at the effective date of termination, or provide or
cause to be provided comparable replacement insurance therefor, for a period of
one year from the effective date of termination.
(c) If neither the Company nor Executive invokes the right to effect
a Special Termination within the period permitted therefor, the Company shall
adjust Executive's Base Salary to within 2%, plus or minus, of the arithmetic
average of the base
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salaries of the other Executive Vice Presidents of the Company, but only if such
arithmetic average exceeds Executive's Base Salary as then in effect.
7. STOCK OPTIONS. Upon execution hereof by the Company and
Executive, the Company shall issue to Executive an option to purchase up to
100,000 shares of its 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 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:
Michael V. Ronca
Domain Energy Corporation
P. O. Box 2229
Houston, Texas 77252-2229
with a copy to:
James L. Rice III, Esq.
Weil, Gotshal & Manges LLP
700 Louisiana
Suite 1600
Houston, Texas 77002
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To Executive:
Michael L. Harvey
#1 Our Court Lane
Houston, Texas 77024
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 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
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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.
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 nonpublic information, written or oral, in any form or medium,
concerning the financial data; strategic business plans; seismic, geological,
geophysical and similar data, and interpretations thereof; maps, graphs and
similar data; information concerning oil and gas reserve quantities, reserve
reports, economic analyses or drilling and/or acquisition opportunities; product
development data (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
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affiliates 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, except in the
case of a Special Termination, for six (6) months thereafter, Executive agrees
that, without the prior written consent of the Company, (A) he will not,
directly 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 the Company or
any of its subsidiaries 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 the Company 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 the Company or its subsidiaries if it is also principally
engaged in the oil and gas exploration and production business within the same
geographic area in which the Company or any of its subsidiaries 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 respect, such court
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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.
(e) Executive agrees to furnish a copy of Section 13 of this
Agreement to any new employer of Executive where employment commences within six
(6) months of the date of termination of Executive's employment pursuant to this
Agreement.
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
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intended preservation of such rights and obligations. The 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.
20. THE NAME "GULFSTAR". If at any time after the date hereof the
Company completes any transaction, the legal effect of which would be to cause
the separate corporate existence of Gulfstar Energy, Inc. to cease, and in
connection therewith or otherwise the Company proposes to relinquish its rights
to the name "Gulfstar", the Company will assign to Executive all of the
Company's rights in and to such name.
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DOMAIN ENERGY CORPORATION
By/s/MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive Officer
/s/MICHAEL L. HARVEY
Michael L. Harvey
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SCHEDULE 1.3
1. 37 1/2% interest through Gulfstar Petroleum Corporation in Gulfstar
Petroleum Company, a Texas general partnership.
2. 50% interest in Gulfstar Petroleum Corporation, a Texas corporation, of
which Mr. Harvey is Chairman of the Board of Directors, President and
Chief Executive Officer.
3. Gulfstar Operating Company, a Texas corporation, a wholly owned subsidiary
of Gulfstar Petroleum Company.
4. 40% interest in Estrella del Golfo, a Delaware limited liability company,
of which Mr. Harvey is Chairman, Manager and Chief Executive Officer.
5. Co-executor of the Estate of John C. Harvey, which estate owns interests
in numerous oil and gas fields.
6. Executor of the Estate of Adele C. Harvey, which estate owns minimal
interests in oil and gas fields.
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
EXHIBIT A
The text of Exhibit A has been intentionally omitted and has been filed with
this Form 10-Q as Exhibit 10.4.
EXHIBIT 10.4
NON-QUALIFIED
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of March 24, 1998, is made by and between
Domain Energy Corporation, a Delaware corporation hereinafter referred to as the
"Corporation," and Michael L. Harvey, an employee of the Corporation or a
Subsidiary (as hereinafter defined) or Affiliate (as hereinafter defined) of the
Corporation, hereinafter referred to as "Optionee."
WHEREAS, the Corporation wishes to afford the Optionee the
opportunity to purchase shares of its Common Stock, par value $.01 per share
(the "Common Stock");
WHEREAS, the Corporation wishes to carry out the Plan (as
hereinafter defined), the terms of which are hereby incorporated by reference
and made a part of this Agreement; and
WHEREAS, the Committee (as hereinafter defined), appointed to
administer the Plan, has determined that it would be to the advantage and best
interest of the Corporation and its stockholders to grant the Option (as
hereinafter defined) provided for herein to the Optionee, and has advised the
Corporation thereof and instructed the undersigned officer to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified in the Plan or below unless the context clearly
indicates to the contrary.
SECTION 1.1 - AFFILIATE
"Affiliate" shall mean, 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.
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SECTION 1.2 - CAUSE
"Cause" shall have the meaning ascribed thereto in the Employment
Agreement.
SECTION 1.3 - CHANGE OF CONTROL
"Change of Control" shall mean the occurrence of either (a) the
purchase or other acquisition by any person, entity or group (within the meaning
of section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, or
any comparable successor provisions) of persons or entities (a "Group"), other
than the FRC Entities, of (i) ownership of fifty percent (50%) 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 Corporation and its Subsidiaries or (b) 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.
SECTION 1.4 - COMMITTEE
"Committee" shall mean the Compensation Committee of the Board of
Directors of the Corporation.
SECTION 1.5 - COMMON STOCK
"Common Stock" shall mean the Corporation's common stock, par value
$.01 per share.
SECTION 1.6 - EMPLOYMENT AGREEMENT
"Employment Agreement" shall mean the Employment Agreement dated
March 24, 1998, to be effective February 17, 1998, between the Corporation and
the Optionee.
SECTION 1.7 - FRC ENTITIES
"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.
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SECTION 1.8 - GOOD REASON
"Good Reason" shall have the meaning ascribed thereto in the
Employment Agreement.
SECTION 1.9 - GRANT DATE
"Grant Date" shall mean the date of this Agreement.
SECTION 1.10 - OPTION
"Option" shall mean the options to purchase Common Stock granted
under this Agreement and shall include the Original Option and the Performance
Option.
SECTION 1.11 - PERFORMANCE CRITERIA
"Performance Criteria" shall mean the criteria set forth in Schedule
A, attached hereto and made a part hereof for all purposes.
SECTION 1.12 - PERMANENT DISABILITY
"Permanent Disability" shall have the meaning ascribed thereto in
the Employment Agreement.
SECTION 1.13 - PLAN
"Plan" shall mean the Amended and Restated 1996 Stock Purchase and
Option Plan for Key Employees of Domain Energy Corporation and Affiliates, as
amended from time to time.
SECTION 1.14 - PRONOUNS
The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
SECTION 1.15 - RETIREMENT
"Retirement" shall have the meaning ascribed thereto in the
Employment Agreement.
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SECTION 1.16 - SECRETARY
"Secretary" shall mean the Secretary of the Corporation.
SECTION 1.17 - SPECIAL TERMINATION
"Special Termination" shall have the meaning ascribed thereto in the
Employment Agreement.
Section 1.18 - SUBSIDIARY
"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.
ARTICLE II
GRANT OF OPTION
SECTION 2.1 - GRANT OF OPTION
(a) For good and valuable consideration, on and as of the date
hereof the Corporation irrevocably grants to the Optionee an option to purchase,
from time to time, any part or all of 50,000 shares of Common Stock upon the
terms and conditions set forth in this Agreement (the "Original Option").
(b) For good and valuable consideration, on and as of the date
hereof the Corporation irrevocably grants to the Optionee an option to purchase,
from time to time, any part or all of 50,000 shares of Common Stock upon the
terms and conditions set forth in this Agreement (the "Performance Option").
SECTION 2.2 - EXERCISE PRICE
Subject to Section 2.4, the exercise price of the shares of Common
Stock covered by the Option shall be $13.96 per share, without commission or
other charge.
SECTION 2.3 - CONSIDERATION TO THE CORPORATION
In consideration of the granting of the Option by the Corporation,
the Optionee agrees to render faithful and efficient services to the Corporation
or a Subsidiary or Affiliate
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thereof, with such duties and responsibilities as are set forth in the
Employment Agreement. Nothing in this Agreement or in the Plan shall confer upon
the Optionee any right to continue in the employ of the Corporation or any
Subsidiary or Affiliate thereof or shall interfere with or restrict in any way
the rights of the Corporation and its Subsidiaries or Affiliates, which are
hereby expressly reserved, to terminate the employment of the Optionee at any
time for any reason whatsoever, with or without Cause, subject to the terms of
any applicable written agreement between or among the Optionee and the
Corporation or any of its stockholders or any Subsidiary or Affiliate of the
Corporation, including without limitation the Employment Agreement.
SECTION 2.4 - ADJUSTMENTS IN OPTION PURSUANT TO MERGER, CONSOLIDATION, ETC.
Subject to Section 9 of the Plan, in the event that the outstanding
shares of the Common Stock subject to the Option are, from time to time, changed
into or exchanged for a different number or kind of shares of the Corporation or
other securities of the Corporation or other entity by reason of a merger,
consolidation, recapitalization, Change of Control, reclassification, stock
split, stock dividend, combination of shares, or otherwise, the Committee shall
make an appropriate and equitable adjustment in the number and kind of shares
and/or the amount of consideration as to which or for which, as the case may be,
such Option, or portions thereof then unexercised, shall be exercisable. Any
such adjustment made by the Committee shall be final and binding upon the
Optionee, the Corporation and all other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
(a) That portion of the Option constituting the Original Option
shall become exercisable as to 20% of the shares of Common Stock subject to the
Original Option on the first anniversary of the Grant Date and shall thereafter
become exercisable as to an additional 20% of such shares upon each anniversary
thereafter. Notwithstanding the foregoing, the Original Option shall become
exercisable as to (i) 5,000 of the shares of Common Stock subject thereto
immediately upon a Special Termination and (ii) 100% of the shares of Common
Stock subject thereto immediately upon (x) a Change of Control, (y) the receipt
of any notice that the Original Option will be terminated pursuant to Section
3.2(e), or (z) termination of Optionee's employment by reason of (A) death, (B)
Permanent Disability, (C) Retirement, (D) by the Corporation or an Affiliate
thereof without Cause (except pursuant to a Special Termination by the
Corporation or an Affiliate thereof) or (E) by the Optionee for Good Reason.
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(b) That portion of the Option constituting the Performance Option
shall become exercisable at any time following the second anniversary of the
Grant Date, when and if the Performance Criteria are met. Notwithstanding the
foregoing, the Performance Option shall become exercisable as to 100% of the
shares of Common Stock subject to the Performance Option on the ninth
anniversary of the Grant Date.
(c) In the event Optionee's employment with the Corporation or an
Affiliate thereof is terminated (i) by reason of death, Permanent Disability or
Retirement, (ii) by the Corporation or an Affiliate thereof without Cause or by
the Optionee for Good Reason or (iii) upon a Special Termination, the
Performance Option shall become fully exercisable provided that the Performance
Criteria shall have been met, but to the extent that the Performance Criteria
shall not have been met as of the Optionee's termination of employment, the
Performance Option shall be immediately cancelled.
SECTION 3.2 - EXPIRATION OF OPTION
The Option may not be exercised to any extent by the Optionee after
the first to occur of the following events:
(a) The tenth anniversary of the Grant Date; or
(b) The first anniversary of the date of the Optionee's termination
of employment by reason of death, Permanent Disability or Retirement; or
(c) The first business day which is 180 calendar days after
termination of employment of the Optionee pursuant to a Special
Termination; or
(d) The first business day which is 90 calendar days after
termination of employment of the Optionee by the Corporation or an
Affiliate thereof without Cause (excluding a Special Termination by the
Corporation or an Affiliate thereof) or by the Optionee for Good Reason;
or
(e) The date of the Optionee's termination of employment by the
Corporation or an Affiliate thereof with Cause, or by the Optionee without
Good Reason (excluding a Special Termination by the Optionee); or
(f) If the Committee so determines pursuant to Section 9 of the
Plan, the effective date of either the merger or consolidation of the
Corporation into another Person (unless the consideration received by the
stockholders of the Corporation in such merger or consolidation consists
entirely of common stock of the surviving 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,
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reclassification, liquidation or dissolution of the Corporation. At least
ten (10) days prior to the effective date of any of the events set forth
in such Section 9 of the Plan, the Committee shall give the Optionee
notice of such event if the Option has then neither been fully exercised
nor become unexercisable under this Section 3.2.
ARTICLE IV
EXERCISE OF OPTION
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
SECTION 4.2 - PARTIAL EXERCISE AND PERIODS OF UNEXERCISABILITY
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time and from
time to time prior to the time when the Option or portion thereof becomes
unexercisable under Section 3.2; provided, however, that any partial exercise
shall be for whole shares of Common Stock only.
SECTION 4.3 - MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be exercised
solely by delivering to the Secretary or her office all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.2:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion thereof, stating that the
Option or portion thereof is thereby exercised, such notice complying with
all applicable rules established by the Committee;
(b) Payment for the shares with respect to which such Option or
portion thereof is exercised (i) by cash or check on the date of exercise
(such cash or check may be delivered on behalf of a Optionee by a stock
broker designated by the Corporation to whom the Optionee has submitted an
irrevocable notice of election, on forms approved by the Corporation, to
sell shares of Common Stock deliverable upon
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exercise of an Option), (ii) through the delivery of shares of Common
Stock having a Fair Market Value equal to the full amount of the exercise
price, (iii) 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 (iv) by a combination of such methods;
(c) Full payment to the Corporation of all amounts which, under
federal, state or local law, it is required to withhold upon exercise of
the Option, which payment shall be (i) by cash or check or (ii) by
electing, pursuant to a written notice delivered to the Committee prior to
the date of exercise, to have shares of Common Stock (having an aggregate
Fair Market Value on the date of exercise sufficient to satisfy the
applicable tax withholding requirements) withheld from the shares
deliverable upon such exercise; and
(d) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option.
SECTION 4.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Corporation. Such shares
shall be fully paid and nonassessable. The Corporation shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The obtaining of approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish
for reasons of administrative convenience.
SECTION 4.5 - RIGHTS AS STOCKHOLDER
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Corporation in respect of any shares
purchasable upon the exercise
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of the Option or any portion thereof unless and until the Option has been
exercised and the relevant shares purchased.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 - ADMINISTRATION
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee shall be final and binding upon the Optionee, 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 Option. In its absolute discretion,
the Board of Directors may at any time and from time to time exercise any and
all rights and duties of the Committee under the Plan and this Agreement.
SECTION 5.2 - OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law, by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
SECTION 5.3 - SHARES TO BE RESERVED
The Corporation shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
SECTION 5.4 - NOTICES
Any notice to be given under the terms of this Agreement to the
Corporation shall be addressed to the Corporation in care of its Secretary, and
any notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By
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a notice given pursuant to this Section 5.4, either party may hereafter
designate a different address for notices to be given to him. Any notice which
is required to be given to the Optionee shall, if the Optionee is then deceased,
be given to the Optionee's personal representative if such representative has
previously informed the Corporation of his status and address by written notice
under this Section 5.4. Any notice shall have been deemed 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 nationally
recognized overnight courier service.
SECTION 5.5 - TITLES
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
SECTION 5.6 - APPLICABILITY OF PLAN
The Option and the shares of Common Stock issued to the Optionee
upon exercise of the Option shall be subject to all of the terms and provisions
of the Plan to the extent applicable to the Option and such shares. In the event
of any conflict between this Agreement and the Plan, the terms of the Plan shall
control.
SECTION 5.7 - AMENDMENT
This Agreement may be amended only by a writing executed by the
parties hereto which specifically states that it is amending this Agreement.
SECTION 5.8 - GOVERNING LAW
THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE INTERPRETATION,
VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT REGARDLESS OF THE LAW
THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 5.9 - JURISDICTION
Any suit, action or proceeding against the Optionee with respect to
this Agreement, or any judgment entered by any court in respect of any thereof,
may be brought in any court of competent jurisdiction in the State of Delaware,
and the Optionee hereby submits to the non-exclusive jurisdiction of such courts
for the purpose of any such suit, action, proceeding or judgment. The Optionee
hereby irrevocably waives any objections which he may now or hereafter have to
the laying of the venue of any suit, action or proceeding arising out of or
relating to this Agreement brought in any court of competent
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jurisdiction in the State of Delaware, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum. No suit, action or proceeding against
the Corporation with respect to this Agreement may be brought in any court,
domestic or foreign, or before any similar domestic or foreign authority other
than in a court of competent jurisdiction in the State of Delaware, and the
Optionee hereby irrevocably waives any right which he may otherwise have had to
bring such an action in any other court, domestic or foreign, or before any
similar domestic or foreign authority. The Corporation hereby submits to the
jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
SECTION 5.10 - STATUS OF STOCK
The Corporation intends to register for issuance under the
Securities Act of 1933, as amended (the "Act") the shares of Common Stock
acquirable upon exercise of the Option, and to keep such registration effective
throughout the period the Option is exercisable. In the absence of such
effective registration or an available exemption from registration under the
Act, issuance of shares of Common Stock acquirable upon exercise of the Option
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Corporation intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of the Option, the
Optionee (or the person permitted to exercise the Option pursuant to Section ),
if requested by the Corporation to do so, will execute and deliver to the
Corporation in writing an agreement containing such provisions as the
Corporation may require to assure compliance with the Act and all other
applicable securities laws.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
DOMAIN ENERGY CORPORATION
By:/s/MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive
Officer
/s/MICHAEL L. HARVEY
Michael L. Harvey
Address: #1 Our Court Lane
Houston, Texas 77024
Optionee's Taxpayer Identification
Number: ###-##-####
Aggregate number of shares of Common Stock for which the Original Option granted
hereunder is exercisable (50% of
total number of shares):
50,000
Aggregate number of shares of Common Stock for which the Performance Option
granted hereunder is exercisable (50% of
total number of shares):
50,000
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SCHEDULE A
(Michael L. Harvey Non-Qualified Stock Option Agreement)
PERFORMANCE CRITERIA
For purposes of this Schedule A, the following terms shall have the
meanings specified below:
"Bcfe" shall mean one billion cubic feet of natural gas equivalent,
determined using the ratio of one barrel of crude oil, condensate or other
liquids to six million cubic feet of natural gas.
"Compensation Committee" shall mean the Compensation Committee of
the Board of Directors of the Corporation.
"Fiscal Year" shall mean the fiscal year of the Corporation.
"Total Proved Reserve Increase" shall mean, with respect to any
Fiscal Year, the difference, if any, between (i) the Corporation's total
proved reserves for such Fiscal Year as reported by the Corporation in its
Form 10-K for such Fiscal Year and (ii) the Corporation's total proved
reserves for the Fiscal Year ended December 31, 1997, as reported by the
Corporation in its Form 10-K for the Fiscal Year ended December 31, 1997.
The Performance Criteria shall be satisfied if, for any Fiscal Year set
forth in the following table, the Total Proved Reserve Increase determined with
respect to such Fiscal Year equals or exceeds the amount set forth in such table
for such Fiscal Year, and such increase is attributable in some substantial part
to the efforts of Optionee, as determined by the Compensation Committee:
FISCAL YEAR-END TOTAL PROVED RESERVE INCREASE
1998 20 Bcfe
1999 20 Bcfe
2000 30 Bcfe
2001 40 Bcfe
2002 50 Bcfe
In addition, in the event of a Special Termination, the Performance
Criteria shall also be satisfied if, as of June 30, 1999, A minus B equals or
exceeds 15 Bcfe, where:
A equals the Corporation's total proved reserves as of June 30,
1999, as determined by the Compensation Committee; and
B equals the Corporation's total proved reserves for the Fiscal Year
ended December 31, 1997, as reported by the Corporation in its Form 10-K
for such Fiscal Year.
<PAGE>
March 24, 1998
Mr. Michael L. Harvey
#1 Our Court Lane
Houston, TX 77024
Dear Mr. Harvey:
This will confirm our understanding that, in connection with the
consummation of the transactions contemplated by the Agreement and Plan of
Merger dated as of November 21, 1997 among Domain Energy Corporation ("Domain"),
Domain Gulf Acquisition Corp. and Gulfstar Energy, Inc., you will have the
optional right, to be exercisable at any time prior to September 30, 1998, to
borrow up to $250,000 in the aggregate from Domain for the purpose of acquiring
shares of Domain common stock, par value $.01 per share ("Shares"), through open
market purchases. This transaction would be documented pursuant to execution and
delivery by you and Domain of a Promissory Note and Pledge Agreement, each
substantially in the form of those attached hereto as Exhibits A and B,
respectively.
If the foregoing correctly summarizes our agreement with respect to
the matters addressed above, please so indicate by executing each copy of this
letter and returning one fully executed copy to the undersigned.
DOMAIN ENERGY CORPORATION
By:/s/MICHAEL V. RONCA
Michael V. Ronca
President and CEO
Agreed to and acknowledged
this 24th day of March, 1998
By:/s/ MICHAEL L. HARVEY
Michael L. Harvey
<PAGE>
PROMISSORY NOTE
$[250,000.00] Houston, Texas
_________________, 1998
FOR VALUE RECEIVED, the undersigned, Michael L. Harvey (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 FIFTY THOUSAND & No/100 DOLLARS ($250,000.00)]. The principal amount
shall be paid on the earliest to occur of (i) termination of the Executive's
employment by the Company for Cause or without Good Reason by the Executive,
(ii) six months after termination of the Executive's employment pursuant to a
Special Termination, (iii) one year after termination of the Executive's
employment without Cause by the Company or with Good Reason by the Executive,
(iv) 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 (v) 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", "Good Reason", "Permanent Disability", "Retirement" and
"Special Termination" as used in this Note are used with the meanings ascribed
thereto in the Employment Agreement dated March 24, 1998 between the Company and
the Executive.
The following shall constitute "Events of Default" under the terms
of this Note:
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(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.
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 letter agreement dated as of March 24,
1998 between the Company and the Executive.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
MICHAEL L. HARVEY
MICHAEL L. HARVEY
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EXHIBIT B
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of _____________, 1998, made by Michael
L. Harvey (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 Shares (as defined in the letter agreement
dated March 24, 1998 between the Company and the Executive (the "Letter
Agreement")), to be evidenced by a note substantially in the form of Exhibit A
to the Letter 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 Letter Agreement and used herein shall have the meanings
assigned to them in the Note and the Letter 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.
"COLLATERAL": the Pledged Stock and all Proceeds.
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"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, together with all stock certificates received
upon exercise of any 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.
(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.
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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 (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant
any option with respect to, the Collateral, (ii) 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 (iii) 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.
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(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.
(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.
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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 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
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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 (i) when delivered by hand or (ii) if given by mail,
when deposited in the mails by certified mail, return receipt requested or (iii)
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 of 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.
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(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:
#1 Our Court Lane
Houston, Texas 77024
Fax: (713) 467-5755
Accepted this ____ day of ________, 1998
DOMAIN ENERGY CORPORATION
By:
Michael V. Ronca
President and Chief Executive Officer
Address for Notice:
Domain Energy Corporation
P.O. Box 2229
Houston, Texas 77252-2229
Fax: (281) 618-1977
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LOMAK PETROLEUM, INC.,
DEC ACQUISITION, INC.
AND
DOMAIN ENERGY CORPORATION
Dated May 12, 1998
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TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.1 THE MERGER...........................................1
Section 1.2 EFFECTIVE TIME OF THE MERGER.........................1
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 CERTIFICATE OF INCORPORATION.........................2
Section 2.2 BYLAWS...............................................2
Section 2.3 DIRECTORS AND OFFICERS...............................2
ARTICLE III
CONVERSION OF SHARES
Section 3.1 CONVERSION OF CAPITAL STOCK..........................2
Section 3.2 SURRENDER AND PAYMENT................................3
Section 3.3 COMPANY STOCK OPTIONS................................5
Section 3.4 NO FRACTIONAL SHARES.................................7
Section 3.5 CLOSING..............................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 ORGANIZATION AND QUALIFICATION.......................7
Section 4.2 CAPITALIZATION.......................................8
Section 4.3 AUTHORITY............................................9
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATION................10
Section 4.5 COMPANY SEC REPORTS.................................11
Section 4.6 FINANCIAL STATEMENTS................................11
Section 4.7 ABSENCE OF UNDISCLOSED LIABILITIES..................11
Section 4.8 ABSENCE OF CERTAIN CHANGES..........................11
Section 4.9 TAXES...............................................12
Section 4.10LITIGATION..........................................13
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Section 4.11EMPLOYEE BENEFIT PLANS; ERISA.......................13
Section 4.12ENVIRONMENTAL LIABILITY.............................14
Section 4.13COMPLIANCE WITH APPLICABLE LAWS.....................15
Section 4.14INSURANCE...........................................16
Section 4.15LABOR MATTERS; EMPLOYEES............................16
Section 4.16RESERVE REPORTS.....................................17
Section 4.17OIL AND GAS RESERVES; EQUIPMENT.....................18
Section 4.18TITLE TO OIL AND GAS INTERESTS......................19
Section 4.19TITLE TO OTHER PROPERTIES...........................21
Section 4.20PERMITS.............................................21
Section 4.21MATERIAL CONTRACTS..................................21
Section 4.22REQUIRED STOCKHOLDER VOTE OR CONSENT................22
Section 4.23PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT..22
Section 4.24INTELLECTUAL PROPERTY...............................23
Section 4.25HEDGING.............................................23
Section 4.26BROKERS.............................................23
Section 4.27OPINION OF FINANCIAL ADVISOR........................23
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF LOMAK AND MERGER SUB
Section 5.1 ORGANIZATION AND QUALIFICATION......................24
Section 5.2 CAPITALIZATION......................................25
Section 5.3 AUTHORITY...........................................25
Section 5.4 CONSENTS AND APPROVALS; NO VIOLATION................26
Section 5.5 LOMAK FINANCIAL STATEMENTS..........................27
Section 5.6 ABSENCE OF UNDISCLOSED LIABILITIES..................27
Section 5.7 ABSENCE OF CERTAIN CHANGES..........................27
Section 5.8 LOMAK SEC REPORTS...................................28
Section 5.9 TAXES...............................................28
Section 5.10 LITIGATION.........................................29
Section 5.11 EMPLOYEE BENEFIT PLANS; ERISA......................29
Section 5.12 ENVIRONMENTAL LIABILITY............................30
Section 5.13 COMPLIANCE WITH APPLICABLE LAWS....................31
Section 5.14 INSURANCE..........................................31
Section 5.15 LABOR MATTERS......................................32
Section 5.16 RESERVE REPORTS....................................32
Section 5.17 OIL AND GAS RESERVES; EQUIPMENT....................33
Section 5.18 TITLE TO OIL AND GAS INTERESTS.....................34
Section 5.19 TITLE TO OTHER PROPERTIES..........................36
Section 5.20 MATERIAL CONTRACTS.................................36
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Section 5.21 PERMITS............................................37
Section 5.22 REQUIRED STOCKHOLDER VOTE OR CONSENT...............37
Section 5.23 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.37
Section 5.24 INTELLECTUAL PROPERTY..............................38
Section 5.25 HEDGING............................................38
Section 5.26 BROKERS............................................38
Section 5.27 MERGER SUB'S OPERATIONS............................39
Section 5.28 OPINION OF FINANCIAL ADVISOR.......................39
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER..............................................39
Section 6.2 CONDUCT OF BUSINESS BY LOMAK PENDING THE MERGER.....41
Section 6.3 CONDUCT OF BUSINESS OF MERGER SUB...................43
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS AND INFORMATION..............................43
Section 7.2 ACQUISITION PROPOSALS...............................44
Section 7.3 DIRECTORS' AND OFFICERS' INDEMNIFICATION............44
Section 7.4 FURTHER ASSURANCES..................................45
Section 7.5 EXPENSES............................................46
Section 7.6 COOPERATION.........................................46
Section 7.7 PUBLICITY...........................................46
Section 7.8 ADDITIONAL ACTIONS..................................46
Section 7.9 FILINGS.............................................46
Section 7.10 CONSENTS...........................................46
Section 7.11 EMPLOYEE MATTERS; BENEFIT PLANS....................47
Section 7.12 LOMAK BOARD........................................47
Section 7.13 STOCKHOLDERS MEETINGS..............................47
Section 7.14 PREPARATION OF THE PROXY STATEMENT/PROSPECTUS AND
REGISTRATION STATEMENT.............................48
Section 7.15 STOCK EXCHANGE LISTING.............................50
Section 7.16 NOTICE OF CERTAIN EVENTS...........................50
Section 7.17 SITE INSPECTIONS...................................50
Section 7.18 CHIEF OPERATING OFFICER............................50
Section 7.19 CHARTER AMENDMENTS; NAME...........................50
Section 7.20 VOTING AGREEMENT...................................51
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ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 CONDITIONS TO THE OBLIGATION OF EACH PARTY..........51
Section 8.2 CONDITIONS TO THE OBLIGATIONS OF LOMAK AND MERGER
SUB.................................................51
Section 8.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY........52
ARTICLE IX
SURVIVAL
Section 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........52
Section 9.2 SURVIVAL OF COVENANTS AND AGREEMENTS................52
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 TERMINATION........................................53
Section 10.2 EFFECT OF TERMINATION..............................53
ARTICLE XI
MISCELLANEOUS
Section 11.1 NOTICES............................................54
Section 11.2 SEPARABILITY.......................................55
Section 11.3 ASSIGNMENT.........................................55
Section 11.4 INTERPRETATION.....................................55
Section 11.5 COUNTERPARTS.......................................55
Section 11.6 ENTIRE AGREEMENT...................................55
Section 11.7 GOVERNING LAW......................................55
Section 11.8 ATTORNEYS' FEES....................................55
Section 11.9 NO THIRD PARTY BENEFICIARIES.......................56
Section 11.10 DISCLOSURE SCHEDULES..............................56
Section 11.11 AMENDMENTS, WAIVERS, ETC..........................56
Section 11.12 NO WAIVER.........................................56
Schedule 6.1 (m) Company Employee Benefit Plan Amendments
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DEFINITIONS
DEFINED TERMS
Action..........................................................Section 7.3(a)
Affiliate.......................................................Section 3.3(a)
Ancillary Agreements...............................................Section 4.3
Assessment........................................................Section 7.17
Audit...........................................................Section 4.9(f)
Closing............................................................Section 3.5
Closing Date.......................................................Section 3.5
Closing Date Market Price.......................................Section 3.1(a)
Code...............................................................Section 1.3
Common Stock Certificate........................................Section 3.1(a)
Company...............................................................Preamble
Company Acquisition Proposal....................................Section 7.2(b)
Company Benefit Plans..........................................Section 4.11(a)
Company Breach.................................................Section 10.1(d)
Company Classified Property....................................Section 4.18(a)
Company Common Stock...............................................Section 3.1
Company Designees.................................................Section 7.12
Company Disclosure Schedule.....................................Section 4.1(a)
Company Engagement Letters .......................................Section 4.26
Company ERISA Affiliate........................................Section 4.11(a)
Company Financial Statements.......................................Section 4.6
Company Material Adverse Effect.................................Section 4.1(c)
Company Material Contracts.....................................Section 4.21(a)
Company Permitted Encumbrances.................................Section 4.18(a)
Company Reserve Report.........................................Section 4.16(a)
Company SEC Reports................................................Section 4.5
Company Special Meeting........................................Section 7.13(a)
Company Stock Options...........................................Section 3.3(a)
Company Stockholder Approval......................................Section 4.22
Customary Post-Closing Consents................................Section 4.18(a)
DGCL...............................................................Section 1.1
D&O Insurance...................................................Section 7.3(b)
Effective Time.....................................................Section 1.2
Enforceability Exception...........................................Section 4.3
Environmental Laws.............................................Section 4.12(a)
ERISA..........................................................Section 4.11(a)
Exchange Act....................................................Section 3.3(f)
Exchange Agent..................................................Section 3.2(a)
Exchange Fund...................................................Section 3.2(a)
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Exchange Ratio..................................................Section 3.1(a)
GAAP...............................................................Section 4.6
Governmental Authority..........................................Section 4.4(b)
Hazardous Substances...........................................Section 4.12(b)
Hydrocarbons...................................................Section 4.16(a)
Inspected Party...................................................Section 7.17
Inspecting Party..................................................Section 7.17
Intellectual Property.............................................Section 4.24
Liens..........................................................Section 4.18(a)
Lomak.................................................................Preamble
Lomak Benefit Plans............................................Section 5.11(a)
Lomak Classified Property......................................Section 5.18(a)
Lomak Common Stock..............................................Section 3.1(a)
Lomak Disclosure Schedule.......................................Section 5.1(a)
Lomak ERISA Affiliate..........................................Section 5.11(a)
Lomak Engagement Letters..........................................Section 5.26
Lomak Financial Statements.........................................Section 5.5
Lomak Material Adverse Effect...................................Section 5.1(d)
Lomak Material Contracts.......................................Section 5.20(a)
Lomak Permitted Encumbrances...................................Section 5.18(a)
Lomak Preferred Stock...........................................Section 5.2(a)
Lomak Reserve Report...........................................Section 5.16(a)
Lomak SEC Reports..................................................Section 5.8
Lomak Special Meeting..........................................Section 7.13(b)
Lomak Stockholder Approval........................................Section 5.22
Merger................................................................Preamble
Merger Consideration............................................Section 3.1(a)
Merger Sub............................................................Preamble
NYSE............................................................Section 3.1(a)
Oil and Gas Interests..........................................Section 4.16(a)
PBGC...........................................................Section 4.11(b)
PCBs...........................................................Section 4.12(e)
Permits...........................................................Section 4.20
Person..........................................................Section 3.2(d)
Principal Stockholder..............................................Section 4.3
Proxy Statement/Prospectus........................................Section 4.23
Registration Statement............................................Section 4.23
SEC.............................................................Section 3.1(a)
Securities Act..................................................Section 4.4(b)
Stockholders...................................................Section 10.1(c)
Stock Issuance.....................................................Section 5.3
Stock Purchase Agreement...........................................Section 4.3
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Subsidiary......................................................Section 4.1(c)
Surviving Corporation..............................................Section 1.1
Tax Authority...................................................Section 4.9(f)
Tax Returns.....................................................Section 4.9(f)
Taxes...........................................................Section 4.9(b)
Termination Fee....................................................Section 7.5
Trading Day.....................................................Section 3.1(a)
Voting Agreement...................................................Section 4.3
WARN Act.......................................................Section 4.15(b)
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated May 12, 1998,
by and among Lomak Petroleum, Inc., a Delaware corporation ("Lomak"), DEC
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of Lomak
("Merger Sub"), and Domain Energy Corporation, a Delaware corporation (the
"Company").
WHEREAS, the respective Boards of Directors of Lomak, Merger Sub and the
Company deem it advisable and in the best interests of their respective
stockholders that Merger Sub merge (the "Merger") with and into the Company upon
the terms and subject to the conditions set forth herein, and such Boards of
Directors have approved the Merger; and
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, at the Effective Time (as defined in Section 1.2 hereof), Merger Sub
shall be merged with and into the Company in accordance with the applicable
provisions of the General Corporation Law of the State of Delaware (the "DGCL")
and the separate corporate existence of Merger Sub shall thereupon cease, and
the Company shall be the surviving corporation in the Merger (sometimes referred
to herein as the "Surviving Corporation"). The Merger shall have the effects set
forth in Section 259 of the DGCL, including without limitation, the Surviving
Corporation's succession to and assumption of all rights and obligations of the
Company.
Section 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective (the "Effective Time") when a properly executed Certificate of Merger
is duly filed with the Secretary of State of the State of Delaware, which filing
shall be made as soon as practicable after the satisfaction or waiver of the
conditions set forth in Article VIII hereof.
Section 1.3 TAX TREATMENT. The parties acknowledge that the transactions
contemplated by this Agreement, taken together with the transactions
contemplated by the Stock Purchase Agreement (as defined below), are not
intended to be treated as a tax-free reorganization within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of the Company as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation at and after the
Effective Time.
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Section 2.2 BYLAWS. The Bylaws of the Company as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation at
and after the Effective Time, and thereafter may be amended in accordance with
their terms and as provided by the Certificate of Incorporation of the Surviving
Corporation and the DGCL.
Section 2.3 DIRECTORS AND OFFICERS. At and after the Effective Time, (a)
the Board of Directors of Merger Sub immediately prior to the Effective Time
shall be the Board of Directors of the Surviving Corporation and (b) the
officers of the Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in the case of both clause (a) and (b)
until their respective successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws and the
DGCL.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of the
Company's common stock, par value $.01 per share (the "Company Common Stock"):
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Company Common
Stock, if any, held by Lomak, Merger Sub or any Subsidiary of Lomak) shall be
converted into a number of shares of common stock, par value $.01 per share, of
Lomak ("Lomak Common Stock") equal to the Exchange Ratio. The Exchange Ratio
shall be equal to the quotient of (i) $14.50 divided by (ii) the Closing Date
Market Price (rounded to four decimal places); PROVIDED, HOWEVER, that in no
event shall the Exchange Ratio be greater than 1.2083 nor less than 0.8529. The
term "Closing Date Market Price" shall mean the average of the closing sales
price of Lomak Common Stock, rounded to four decimal places, as reported under
"NYSE Composite Transaction Reports" in THE WALL STREET JOURNAL during the
period of the 15 most recent Trading Days ending on the third Business Day prior
to the Closing Date. For purposes of this Agreement, (1) "Trading Day" shall
mean a day on which the New York Stock Exchange (the "NYSE") is open for trading
and (2) "Business Day" shall mean a day on which the principal offices of the
Securities and Exchange Commission ("SEC") in Washington, D.C. are open to
accept filings, or in the case of determining a date on which any payment is
due, a day other than Saturday, Sunday or any day on which banks located in New
York City are authorized or obligated by law to close. All such Company Common
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and the holder of a
certificate ("Common Stock Certificate") that, immediately prior to the
Effective Time, represented outstanding shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive, upon
the surrender of such Common Stock Certificate, the number of shares of Lomak
Common Stock determined pursuant to this Section 3.1(a) (the "Merger
Consideration") and, if applicable, the right to receive cash pursuant to
Section 3.6 of this Agreement. Until surrendered as contemplated by this Section
3.1, each Common Stock Certificate
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shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration as contemplated by this
Section 3.1. Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time the outstanding shares of Lomak Common Stock or
Company Common Stock shall have been changed into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(b) Each share of common stock, par value $.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one share of common stock of the Surviving
Corporation.
(c) Each share of Lomak Common Stock, issued and outstanding
immediately prior to the Effective Time shall remain an issued and outstanding
share of Lomak Common Stock, and shall not be affected by the Merger.
(d) Each share of Company Common Stock, if any, held by Lomak,
Merger Sub or any other Subsidiary of Lomak and each share of Company Common
Stock held by the Company or any Subsidiary of the Company as treasury stock
immediately prior to the Effective Time shall cease to be outstanding, shall be
canceled and retired without payment of any consideration therefor, and shall
cease to exist.
(e) All Lomak Common Stock issued upon the surrender of Common Stock
Certificates in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Common Stock
Certificates and the Company Common Stock formerly represented thereby.
Section 3.2 SURRENDER AND PAYMENT.
(a) Prior to the Effective Time, Lomak shall appoint an agent
reasonably acceptable to the Company (the "Exchange Agent") for the purpose of
exchanging Common Stock Certificates formerly representing Company Common Stock.
At or prior to the Effective Time, Lomak shall deposit with the Exchange Agent
for the benefit of the holders of Company Common Stock (other than Lomak, Merger
Sub, any other Subsidiary of Lomak, the Company or any Subsidiary of the
Company), for exchange in accordance with this Section 3.2 through the Exchange
Agent, (i) as of the Effective Time, certificates representing the Merger
Consideration to be issued pursuant to Section 3.1(a) and (ii) from time to time
as necessary, cash to be paid in lieu of fractional shares pursuant to Section
3.4 (such certificates for the Merger Consideration and such cash being
hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the Merger Consideration and any
cash in exchange for surrendered Common Stock Certificates formerly representing
Company Common Stock pursuant to Section 3.1 out of the Exchange Fund. Except as
contemplated by Section 3.2(f), the Exchange Fund shall not be used for any
other purpose.
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(b) Promptly after the Effective Time, but in any event not later
than five Business Days thereafter, Lomak will send, or will cause the Exchange
Agent to send, to each holder of a Common Stock Certificate or Certificates that
immediately prior to the Effective Time represented outstanding Company Common
Stock (other than Lomak, Merger Sub, any other Subsidiary of Lomak or the
Company or any Subsidiary of the Company) a letter of transmittal and
instructions for use in effecting the exchange of such Common Stock Certificates
for certificates representing the Merger Consideration and, if applicable, cash
in lieu of a fractional share. Provision also shall be made for holders of
Common Stock Certificates to procure in person immediately after the Effective
Time a letter of transmittal and instructions and to deliver in person
immediately after the Effective Time such letter of transmittal and Common Stock
Certificates in exchange for the Merger Consideration and, if applicable, cash.
(c) After the Effective Time, Common Stock Certificates shall
represent the right, upon surrender thereof to the Exchange Agent, together with
a duly executed and properly completed letter of transmittal relating thereto,
to receive in exchange therefor that number of whole shares of Lomak Common
Stock, and, if applicable, cash that such holder has the right to receive
pursuant to Sections 3.1 and 3.4 after giving effect to any required tax
withholding, and the Common Stock Certificate or Certificates so surrendered
shall be canceled. No interest will be paid or will accrue on any cash amount
payable upon the surrender of any such Common Stock Certificates. Until so
surrendered, each such Common Stock Certificate shall, after the Effective Time,
represent for all purposes only the right to receive, upon such surrender, the
Merger Consolidation and, if applicable, cash as contemplated by this Article
III.
(d) If any shares of Lomak Common Stock are to be issued and/or cash
to be paid to a Person other than the registered holder of the Common Stock
Certificate or Certificates surrendered in exchange therefor, it shall be a
condition to such issuance that the Common Stock Certificate or Certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such issuance shall pay to the Exchange
Agent any transfer or other taxes required as a result of such issuance to a
Person other than the registered holder or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable. For purposes of
this Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a governmental or political subdivision or any agency or
instrumentality thereof.
(e) After the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
of Company Common Stock outstanding prior to the Effective Time. If, at or after
the Effective Time, Common Stock Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided for, and in
accordance with the procedures set forth, in this Article III.
(f) Any Merger Consideration and any cash in the Exchange Fund that
remain unclaimed by the holders of Company Common Stock six months after the
Effective Time shall be returned to Lomak, upon demand of Lomak, and any such
holder who has not exchanged such holder's Common Stock Certificates in
accordance with this Section 3.2 prior to that time shall thereafter look only
to Lomak, as general creditors thereof, to exchange such Common Stock
Certificates or to pay amounts to which they are entitled pursuant to Section
3.1 or 3.4. If
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outstanding Common Stock Certificates are not surrendered prior to two years
after the Effective Time (or, in any particular case, prior to such earlier date
on which any Merger Consideration issuable in respect of such Common Stock
Certificates or the dividends and other distributions, if any, described below
would otherwise escheat to or become the property of any governmental unit or
agency), the Merger Consideration issuable in respect of such Common Stock
Certificates, and the amount of dividends and other distributions, if any, which
have become payable and which thereafter become payable on the Merger
Consideration evidenced by such Common Stock Certificates as provided herein
shall, to the extent permitted by applicable law, become the property of Lomak,
free and clear of all claims or interest of any Person previously entitled
thereto. Notwithstanding the foregoing, none of Lomak, the Company or the
Surviving Corporation shall be liable to any holder of Common Stock Certificates
for any amount paid, or Merger Consideration, cash or dividends delivered, to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) No dividends or other distributions declared or made after the
Effective Time shall be paid to the holder of any unsurrendered Common Stock
Certificates with respect to the Merger Consideration represented thereby until
such Common Stock Certificates are surrendered as provided in this Section 3.2.
Subject to the effect of applicable laws (including, without limitation, escheat
and abandoned property laws), following surrender of any such Common Stock
Certificate, there shall be paid, without interest, to the Person in whose name
the certificates representing the Merger Consideration issued in exchange
therefor are registered, (i) promptly all dividends and other distributions paid
in respect of such Merger Consideration with a record date on or after the
Effective Time and theretofore paid, and (ii) at the appropriate date, all
dividends or other distributions in respect of such Merger Consideration with a
record date after the Effective Time but prior to surrender and a payment date
occurring after surrender.
(h) If any Common Stock Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Common Stock Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as Lomak may direct as indemnity against any claim that may be
made against it with respect to such Common Stock Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Common Stock
Certificate the Merger Consideration and, if applicable, cash and unpaid
dividends and other distributions on any Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
Section 3.3 COMPANY STOCK OPTIONS.
(a) At the Effective Time, automatically and without any action on
the part of the holder thereof, each outstanding stock option of the Company
outstanding at the Effective Time (the "Company Stock Options") under the Second
Amended and Restated 1996 Stock Purchase and Option Plan for Domain Energy
Corporation and its affiliates, as defined in Rule 12b-2 of the Exchange Act
("Affiliates") (as proposed to be adopted by the stockholders of the Company at
their 1998 Annual Meeting (the "Company Employee Plan") and the Domain Energy
Corporation 1997 Stock Option Plan for Nonemployee Directors (the "Company
Director Plan") shall be assumed by Lomak and become an option to purchase that
number of shares of Lomak Common Stock obtained by multiplying the number of
shares of Company Common Stock issuable upon the exercise of such
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option by the Exchange Ratio at an exercise price per share equal to the per
share exercise price of such option divided by the Exchange Ratio and otherwise
upon the same terms and conditions as such outstanding options to purchase
Company Common Stock; PROVIDED, HOWEVER, that in the case of any option to which
Section 421 of the Code applies by reason of the qualifications under Section
422 or 423 of such Code, the exercise price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall comply with Section 424(a) of the Code.
(b) At the Effective Time, automatically and without any action by
any Person, (i) each outstanding Company Stock Option that constitutes a "Time
Option" (as defined in the Company Employee Plan) then held by an employee of
the Company or any of its Subsidiaries and (ii) each outstanding Company Stock
Option issued under the Company Director Plan shall become immediately
exercisable. Further, at the Effective Time and giving effect to consummation of
the Merger, automatically and without any action by any Person, Lomak
acknowledges and agrees that the Investment Return Hurdle (as defined in certain
of the Amended and Restated Non-Qualified Stock Option Agreements granted and
executed pursuant to the Company Employee Plan) will be satisfied. Prior to the
Effective Time, the Company may amend all Amended and Restated NonQualified
Stock Option Agreements granted and executed pursuant to the Company Employee
Plan to provide that after the date hereof, if an optionee's employment is
terminated as a result of death or disability, or if the Company or Lomak (as
successor to the Company's obligations under such agreements, as contemplated
elsewhere herein) terminates the optionee's employment without Cause (as defined
in such agreements), or if the optionee terminates his or her employment for
Good Reason (as defined in such agreements), all "Performance Options" granted
thereunder, if not then exercisable, shall, upon such termination of employment,
automatically and without any action by any Person, become immediately
exercisable. Prior to the Effective Time, the Company may also amend the Company
Director Plan or take such other action in each case to the extent necessary so
that all stock options granted pursuant thereto shall become fully exercisable.
(c) Lomak shall take all corporate actions necessary to reserve for
issuance a sufficient number of shares of Lomak Common Stock for delivery upon
exercise of Company Stock Options assumed by Lomak pursuant to Section 3.3(a)
above.
(d) As promptly as practicable after the Effective Time, Lomak shall
file a Registration Statement on Form S-8 (or any successor or other appropriate
forms) with respect to the shares of Lomak Common Stock subject to Company Stock
Options and shall use all reasonable efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
(e) Except as provided herein or as otherwise agreed to by the
parties, each of the Company Employee Plan and the Company Director Plan and
related stock option grant agreements providing for the issuance or grant of
options in respect to the stock of the Company shall be assumed as of the
Effective Time by Lomak with such amendments thereto as are permitted hereunder
or as otherwise may be required (i) to give effect to the provisions of this
Agreement and (ii) to reflect the Merger.
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(f) In connection with the submission of the Proxy
Statement/Prospectus to its stockholders, Lomak shall seek such stockholder
approval as may be necessary so that grants of options and issuances of
securities pursuant to the exercise of such options under the Company stock
option plans assumed by it hereunder, as amended, and all other Company stock
option plans as in effect on the date hereof shall qualify for the exemption for
such issuances provided by Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
Section 3.4 NO FRACTIONAL SHARES. No fractional shares of Lomak Common
Stock shall be issued in the Merger and fractional share interests shall not
entitle the owner thereof to vote or to any rights of a stockholder of Lomak.
All holders of fractional shares of Lomak Common Stock shall be entitled to
receive, in lieu thereof, an amount in cash determined by multiplying the
fraction of a share of Lomak Common Stock to which such holder would otherwise
have been entitled by the Closing Date Market Price of Lomak Common Stock on the
NYSE.
Section 3.5 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Vinson & Elkins
L.L.P., 2300 First City Tower, Houston, Texas, or at such other location as
shall be mutually acceptable to Lomak and the Company, at 10:00 a.m., local
time, on the first day (the "Closing Date") on which all of the conditions set
forth in Article VIII hereof are satisfied or waived, or at such other date and
time as Lomak and the Company shall agree in writing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Lomak and Merger Sub as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, is duly qualified
to do business as a foreign corporation and is in good standing in the
jurisdictions set forth in Section 4.1(a) of the disclosure letter delivered to
Lomak and Merger Sub contemporaneously with the execution hereof (the "Company
Disclosure Schedule"), which include each jurisdiction in which the character of
the Company's properties or the nature of its business makes such qualification
necessary, except in jurisdictions, if any, where the failure to be so qualified
would not result in a Company Material Adverse Effect (as defined below). The
Company has all requisite corporate power and authority to own, use or lease its
properties and to carry on its business as it is now being conducted and as it
is now proposed to be conducted. The Company has made available to Lomak and
Merger Sub a complete and correct copy of its certificate of incorporation and
bylaws, each as amended to date, and the Company's certificate of incorporation
and bylaws as so delivered are in full force and effect. The Company is not in
default in any respect in the performance, observation or fulfillment of any
provision of its certificate of incorporation or bylaws.
(b) Section 4.1(b) of the Company Disclosure Schedule lists the name
and jurisdiction of organization of each Subsidiary of the Company and the
jurisdictions in which each
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such Subsidiary (as defined below) is qualified or holds licenses to do business
as a foreign corporation or other organization as of the date hereof. Each of
the Company's Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, is duly qualified to do business as a foreign
corporation or other legal entity and is in good standing in the jurisdictions
listed in Section 4.1(b) of the Company Disclosure Schedule, which includes each
jurisdiction in which the character of such Subsidiary's properties or the
nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not result in
a Company Material Adverse Effect. Each of the Company's Subsidiaries has the
requisite corporate or other power and authority to own, use or lease its
properties and to carry on its business as it is now being conducted and as it
is now proposed to be conducted. The Company has made available to Lomak and
Merger Sub a complete and correct copy of the certificate of incorporation and
bylaws (or similar organizational documents) of each of the Company's
Subsidiaries, each as amended to date, and the certificate of incorporation and
bylaws (or similar organizational documents) as so delivered are in full force
and effect. No Subsidiary of the Company is in default in any respect in the
performance, observation or fulfillment of any provision of its certificate of
incorporation or bylaws (or similar organizational documents). Other than the
Company's Subsidiaries, the Company does not own (beneficially or otherwise) or
control, directly or indirectly, 5% or more of any class of equity or similar
securities of any corporation or other organization, whether incorporated or
unincorporated.
(c) For purposes of this Agreement, (i) a "Company Material Adverse
Effect" shall mean any event, circumstance, condition, development or occurrence
(x) causing, resulting in or having (or with the passage of time likely to
cause, result in or have) a material adverse effect on the financial condition,
business, assets, properties, prospects or results of operations of the Company
and its Subsidiaries, taken as a whole, or (y) preventing or delaying in any
material respect the consummation of the transactions contemplated by this
Agreement or any Ancillary Agreement by the Company or any of its Subsidiaries;
PROVIDED, that such term shall not include effects that result from market
conditions generally in the oil and gas industry; and (ii) "Subsidiary" shall
mean, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (x) at least a majority of the
securities or other interests having by their terms voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
beneficially owned or controlled by such party or by any one or more of its
subsidiaries, or by such party and one or more of its subsidiaries, or (y) such
party or any Subsidiary of such party is a general partner of a partnership or a
manager of a limited liability company.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Company Common Stock. As of the date of this Agreement, (i)
15,107,719 shares of Company Common Stock were issued and outstanding and (ii)
stock options to acquire 962,527 shares of Company Common Stock were outstanding
under all stock option plans and agreements of the Company. All of the
outstanding shares of Company Common Stock are validly issued, fully paid and
nonassessable, and free of preemptive rights. Section 4.2(a) of the Company
Disclosure Schedule sets forth each optionee under the Company Stock Options and
the numbers of shares of Company Common Stock issuable upon exercise of such
Company Stock Options. Except as set
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forth in Section 4.2(a) of the Company Disclosure Schedule, there are no
outstanding subscriptions, options, rights, warrants, convertible securities,
stock appreciation rights, phantom equity, or other agreements or commitments
obligating the Company to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its capital stock of any class.
(b) Except as set forth in Section 4.2(b) of the Company Disclosure
Schedule and except as expressly contemplated by this Agreement, the Company is,
directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each Company Subsidiary, there are no
irrevocable proxies with respect to any such shares, and no equity securities of
any Company Subsidiary are or may become required to be issued by reason of any
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
or exercisable for, shares of any capital stock of any Company Subsidiary, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any Company Subsidiary is or may be bound to issue additional shares
of capital stock of any Company Subsidiary or securities convertible into or
exchangeable or exercisable for any such shares. All of such shares so owned by
the Company are validly issued, fully paid and nonassessable and, except as set
forth in Section 4.2(b) of the Company Disclosure Schedule, are owned by it free
and clear of all Liens.
Section 4.3 AUTHORITY. The Company has full corporate power and authority
to execute and deliver this Agreement and the other agreements contemplated
hereby (the "Ancillary Agreements") to which the Company is or will be a party
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Ancillary
Agreements to which the Company is or will be a party and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Company's Board of Directors, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Ancillary Agreements to which the Company is or will be a party or to
consummate the transactions contemplated hereby or thereby, other than the
approval of this Agreement and the Merger by its stockholders as contemplated by
Section 7.13 hereof. This Agreement has been, and the Ancillary Agreements to
which the Company is or will be a party are, or upon execution will be, duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof and thereof by the other parties
hereto and thereto, constitute, or upon execution will constitute, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be subject to the
effects of bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting the rights of creditors and of general principles of
equity (the "Enforceability Exception"). The Company has taken all actions
necessary to satisfy or render inapplicable the restrictions on business
combinations contained in Section 203 of the DGCL with respect to the
transactions contemplated hereby, including the Merger, as well as the execution
and delivery by Lomak and First Reserve Fund VII, Limited Partnership, a
Delaware limited partnership (the "Principal Stockholder"), of each of that
certain Stock Purchase Agreement dated of even date herewith (the "Stock
Purchase Agreement") and that certain Voting and Standstill Agreement dated of
even date herewith (the "Voting Agreement"), as well as the consummation of the
transactions contemplated by each such agreement. No other state takeover
statute or similar statute or regulation of the State of Delaware (and, to the
knowledge of the Company, of any other domestic state or jurisdiction) applies
or purports to apply to the Company or any of its Subsidiaries, or to this
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Agreement, the Merger, the Stock Purchase Agreement, the Voting Agreement or any
of the other transactions contemplated hereby or thereby.
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATION. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and the performance by the Company of its obligations hereunder will not:
(a) subject to the obtaining of any requisite approvals of the
Company's stockholders as contemplated by Section 7.13 hereof, conflict with any
provision of the Company's certificate of incorporation or bylaws or the
certificates of incorporation or bylaws (or other similar organizational
documents) of any of its Subsidiaries;
(b) require on the part of the Company or any of its Subsidiaries or
Affiliates any consent, waiver, approval, order, authorization or permit of, or
registration, filing with or notification to, (i) any governmental or regulatory
authority or agency (a "Governmental Authority"), except for applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
the Exchange Act, state laws relating to takeovers, if applicable, state
securities or blue sky laws and Customary Post-Closing Consents (as defined
below), (ii) filings by the Principal Stockholder under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") or (iii) except
as set forth in Section 4.4(b) of the Company Disclosure Schedule, any third
party other than a Governmental Authority, other than such non-Governmental
Authority third party consents, waivers, approvals, orders, authorizations and
permits that would not (A) result in a Company Material Adverse Effect or (B)
materially impair the ability of the Company or any of its Subsidiaries, as the
case may be, to perform its obligations under this Agreement or any Ancillary
Agreement;
(c) except as set forth in Section 4.4(c) of the Company Disclosure
Schedule, result in any violation of or the breach of or constitute a default
(with notice or lapse of time or both) under, or give rise to any right of
termination, cancellation or acceleration or guaranteed payments or a loss of a
material benefit under, any of the terms, conditions or provisions of any note,
lease, mortgage, indenture, license, agreement or other instrument or obligation
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or any of their respective properties or
assets may be bound, except for such violations, breaches, defaults, or rights
of termination, cancellation or acceleration, or losses as to which requisite
waivers or consents have been obtained or which, individually or in the
aggregate, would not (i) result in a Company Material Adverse Effect or (ii)
materially impair the ability of the Company or any of its Subsidiaries to
perform its obligations under this Agreement or any Ancillary Agreement;
(d) violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to the Company or any Subsidiary
of the Company;
(e) result in the creation of any Lien upon any shares of capital
stock, properties or assets of the Company or any of its Subsidiaries under any
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective properties or assets may be bound; or
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(f) result in any holder of any securities of the Company being
entitled to appraisal, dissenters' or similar rights.
Section 4.5 COMPANY SEC REPORTS. The Company has filed with the SEC, and
has heretofore made available to Lomak and Merger Sub true and complete copies
of, each form, registration statement, report, schedule, proxy or information
statement and other document (including exhibits and amendments thereto),
including without limitation its Annual Reports to Stockholders incorporated by
reference in certain of such reports, required to be filed with the SEC since
December 31, 1996 under the Securities Act or the Exchange Act (collectively,
the "Company SEC Reports"). As of the respective dates such Company SEC Reports
were filed or, if any such Company SEC Reports were amended, as of the date such
amendment was filed, each of the Company SEC Reports, including without
limitation any financial statements or schedules included therein, (a) complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and the applicable rules and
regulations promulgated thereunder, and (b) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.6 FINANCIAL STATEMENTS. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
the Company (including any related notes and schedules) included (or
incorporated by reference) in its Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (collectively, the "Company Financial Statements") have
been prepared from, and are in accordance with, the books and records of the
Company and its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis (except as may be indicated in the notes thereto and subject, in the case
of quarterly financial statements, to normal and recurring year-end adjustments
that are not material individually or in the aggregate) and fairly present, in
conformity with GAAP applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of the Company and
its Subsidiaries as of the date thereof and the consolidated results of
operations and cash flows (and changes in financial position, if any) of the
Company and its Subsidiaries for the periods presented therein (subject to
normal year-end adjustments that are not material individually or in the
aggregate and the absence of financial footnotes in the case of any unaudited
interim financial statements).
Section 4.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except (a) as specifically
disclosed in the Company SEC Reports and (b) for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since December 31, 1997, neither the Company nor any of its Subsidiaries has
incurred any liabilities or obligations of any nature (contingent or otherwise)
that would have a Company Material Adverse Effect or would be required by GAAP
to be reflected on a consolidated balance sheet of the Company and its
Subsidiaries or the notes thereto which is not so reflected.
Section 4.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company
SEC Reports or as expressly contemplated by this Agreement, since December 31,
1997 (a) the Company
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and its Subsidiaries have conducted their business in all material respects in
the ordinary course consistent with past practices, (b) there has not been any
change or development, or combination of any of the foregoing that, individually
or in the aggregate, would have a Company Material Adverse Effect, (c) there has
not been any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries, (d)
there has not been any amendment of any term of any outstanding security of the
Company or any of its Subsidiaries, and (e) there has not been any change in any
method of accounting or accounting practice by the Company or any of its
Subsidiaries, except for any such change required by reason of a concurrent
change in GAAP or to conform a Subsidiary's accounting policies and practices to
those of the Company.
Section 4.9 TAXES. Except as otherwise disclosed in Section 4.9 of the
Company Disclosure Schedule (and for matters that would have no adverse effect
on the Company):
(a) The Company and each of its Subsidiaries have timely filed (or
have had timely filed on their behalf) or will file or cause to be timely filed,
all material Tax Returns (as defined below) required by applicable law to be
filed by any of them prior to or as of the Closing Date. All such Tax Returns
and amendments thereto are or will be true, complete and correct in all material
respects.
(b) The Company and each of its Subsidiaries have paid (or have had
paid on their behalf), or where payment is not yet due, have established (or
have had established on their behalf and for their sole benefit and recourse),
or will establish or cause to be established on or before the Closing Date, an
adequate accrual for the payment of all material Taxes due with respect to any
period ending prior to or as of the Closing Date.
(c) No Audit by a Tax Authority is pending or threatened with
respect to any Tax Returns filed by, or Taxes due from, the Company or any
Subsidiary of the Company. No issue has been raised by any Tax Authority in any
Audit of the Company or any of its Subsidiaries that if raised with respect to
any other period not so audited could be expected to result in a material
proposed deficiency for any period not so audited. No material deficiency or
adjustment for any Taxes has been threatened, proposed, asserted or assessed
against the Company or any of its Subsidiaries. There are no liens for Taxes
upon the assets of the Company or any of its Subsidiaries, except liens for
current Taxes not yet delinquent.
(d) Neither the Company nor any of its Subsidiaries has given or
been requested to give any waiver of statutes of limitations relating to the
payment of Taxes or has executed powers of attorney with respect to Tax matters
that will be outstanding as of the Closing Date.
(e) Prior to the date hereof, the Company and its Subsidiaries have
disclosed, and provided or made available true and complete copies to Lomak of,
all material Tax sharing, Tax indemnity, or similar agreements to which the
Company or any of its Subsidiaries is a party to, is bound by, or has any
obligation or liability for Taxes.
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(f) As used in this Agreement, (i) "Audit" shall mean any audit,
assessment of Taxes, other examination by any Tax Authority, proceeding or
appeal of such proceeding relating to Taxes; (ii) "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), including any
interest, additions to tax, or penalties applicable thereto; (iii) "Tax
Authority" shall mean the Internal Revenue Service and any other domestic or
foreign Governmental Authority responsible for the administration of any Taxes;
and (iv) "Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax Return relating to Taxes.
Section 4.10LITIGATION. Except as disclosed in the Company SEC Reports or
Section 4.10 of the Company Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending or, to the Company's knowledge,
threatened against or directly affecting the Company, any Subsidiary of the
Company or any of the directors or officers of the Company or any of its
Subsidiaries in their capacity as such, nor is there any reasonable basis
therefor that could reasonably be expected to have a Company Material Adverse
Effect, if adversely determined. Neither the Company nor any of its
Subsidiaries, nor any officer, director or employee of the Company or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other Governmental Authority from
engaging in or continuing any conduct or practice in connection with the
business, assets or properties of the Company or such Subsidiary nor, to the
knowledge of the Company, is the Company, any Subsidiary of the Company or any
officer, director or employee of the Company or its Subsidiaries under
investigation by any Governmental Authority. Except as disclosed in the Company
SEC Reports or Section 4.10 of the Company Disclosure Schedule, there is not in
existence any order, judgment or decree of any court or other tribunal or other
agency enjoining or requiring the Company or any of its Subsidiaries to take any
action of any kind with respect to its business, assets or properties.
Notwithstanding the foregoing, no representation or warranty in this Section
4.10 is made with respect to Environmental Laws, which are covered exclusively
by the provisions set forth in Section 4.12.
Section 4.11EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.11(a) of the Company Disclosure Schedule contains a
true and complete list of the employee benefit plans or arrangements of any type
(including but not limited to plans described in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), sponsored,
maintained or contributed to by the Company or any trade or business, whether or
not incorporated, which together with the Company would be deemed a "single
employer" within the meaning of Section 414(b), (c) or (m) of the Code or
section 4001(b)(1) of ERISA (a "Company ERISA Affiliate") within six years prior
to the Effective Time, which provide benefits to the Company's employees
("Company Benefit Plans").
(b) With respect to each Company Benefit Plan: (i) if intended to
qualify under Section 401(a) or 401(k) of the Code, such plan satisfies the
requirements of such sections, has received a favorable determination letter
from the Internal Revenue Service with respect to its qualification, and its
related trust has been determined to be exempt from tax under Section 501(a) of
the Code and, to the knowledge of the Company, nothing has occurred since the
date of such letter to adversely affect such qualification or exemption; (ii)
each such plan has been administered in
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substantial compliance with its terms and applicable law; (iii) neither the
Company nor any Company ERISA Affiliate has engaged in, and the Company and each
Company ERISA Affiliate does not have any knowledge of any Person that has
engaged in, any transaction or acted or failed to act in any manner that would
subject the Company or any Company ERISA Affiliate to any liability for a breach
of fiduciary duty under ERISA that could reasonably be expected to result in a
Company Material Adverse Effect; (iv) no disputes are pending or, to the
knowledge of the Company or any Company ERISA Affiliate, threatened; (v) neither
the Company nor any Company ERISA Affiliate has engaged in, and the Company and
each Company ERISA Affiliate do not have any knowledge of any Person that has
engaged in, any transaction in violation of section 406(a) or (b) of ERISA for
which no exemption exists under Section 4975(c)(1) of the Code or Section
4975(d) of the Code that could reasonably be expected to result in a Company
Material Adverse Effect; (vi) there have been no "reportable events" within the
meaning of section 4043 of ERISA for which the 30 day notice requirement of
ERISA has not been waived by the Pension Benefit Guaranty Corporation (the
"PBGC"); (vii) all contributions due have been made on a timely basis (within,
where applicable, the time limit established under section 302 of ERISA or Code
Section 412); (viii) no notice of intent to terminate such plan has been given
under section 4041 of ERISA and no proceeding has been instituted under section
4042 of ERISA to terminate such plan; and (ix) except for defined benefit plans,
such plan may be terminated on a prospective basis without any continuing
liability for benefits other than benefits accrued to the date of such
termination. All contributions made or required to be made under any Company
Benefit Plan meet the requirements for deductibility under the Code, and all
contributions which are required and which have not been made have been properly
recorded on the books of the Company or a Company ERISA Affiliate.
(c) No Company Benefit Plan is a "multiemployer plan" (as defined in
section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning
of Section 413(c) of the Code). No event has occurred with respect to the
Company or a Company ERISA Affiliate in connection with which the Company could
be subject to any liability, lien or encumbrance with respect to any Company
Benefit Plan or any employee benefit plan described in section 3(3) of ERISA
maintained, sponsored or contributed to by a Company ERISA Affiliate under ERISA
or the Code.
(d) Except as set forth in Section 4.11(d) of the Company Disclosure
Schedule, no employees of the Company or any of its Subsidiaries are covered by
any severance plan or similar arrangement.
Section 4.12 ENVIRONMENTAL LIABILITY. Except as set forth in Section 4.12
of the Company Disclosure Schedule:
(a) The businesses of the Company and its Subsidiaries have been and
are operated in material compliance with all federal, state and local
environmental protection, health and safety or similar laws, statutes,
ordinances, restrictions, licenses, rules, regulations, permit conditions and
legal requirements, including without limitation the Federal Clean Water Act,
Safe Drinking Water Act, Resource Conservation & Recovery Act, Clean Air Act,
Comprehensive Environmental Response, Compensation and Liability Act, and
Emergency Planning and Community Right to Know, each as amended and currently in
effect (together, "Environmental Laws").
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(b) Neither the Company nor any of its Subsidiaries has caused or
allowed the generation, treatment, manufacture, processing, distribution, use,
storage, discharge, release, disposal, transport or handling of any chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum, petroleum products or any substance regulated under any Environmental
Law ("Hazardous Substances") at any of its properties or facilities, except in
material compliance with all Environmental Laws, and, to the Company's
knowledge, no generation, manufacture, processing, distribution, use, treatment,
handling, storage, discharge, release, disposal, transport or handling of any
Hazardous Substances has occurred at any property or facility owned, leased or
operated by the Company or any of its Subsidiaries except in material compliance
with all Environmental Laws.
(c) Neither the Company nor any of its Subsidiaries has received any
written notice from any Governmental Authority or, to the knowledge of the
Company, any other communication alleging or concerning any material violation
by the Company or any of its Subsidiaries of, or responsibility or liability of
the Company or any of its Subsidiaries under, any Environmental Law. There are
no pending, or to the knowledge of the Company, threatened, claims, suits,
actions, proceedings or investigations with respect to the businesses or
operations of the Company or any of its Subsidiaries alleging or concerning any
material violation of or responsibility or liability under any Environmental Law
that, if adversely determined, could reasonably be expected to have a Company
Material Adverse Effect, nor does the Company have any knowledge of any fact or
condition that could give rise to such a claim, suit, action, proceeding or
investigation.
(d) The Company and its Subsidiaries are in possession of all
material approvals, permits, licenses, registrations and similar type
authorizations from all Governmental Authorities under all Environmental Laws
with respect to the operation of the businesses of the Company and its
Subsidiaries; there are no pending or, to the knowledge of the Company,
threatened, actions, proceedings or investigations seeking to modify, revoke or
deny renewal of any of such approvals, permits, licenses, registrations and
authorizations; and the Company does not have knowledge of any fact or condition
that is reasonably likely to give rise to any action, proceeding or
investigation to modify, revoke or deny renewal of any of such approvals,
permits, licenses, registrations and authorizations.
(e) Without in any way limiting the generality of the foregoing, (i)
all off-site locations where the Company or any of its Subsidiaries has
transported, released, discharged, stored, disposed or arranged for the disposal
of pollutants, contaminants, hazardous wastes or toxic substances required by
law to be disposed at a licensed disposal site are identified in Section 4.12 of
the Company Disclosure Schedule, (ii) to the Company's knowledge, all
underground storage tanks, and the operating status, capacity and contents of
such tanks, located on any property owned, leased or operated by the Company or
any of its Subsidiaries are identified in Section 4.12 of the Company Disclosure
Schedule, (iii) to the knowledge of the Company, there is no asbestos contained
in or forming part of any building, building component, structure or office
space owned or leased by the Company, and (iv) no polychlorinated biphenyls
("PCBs") or PCB-containing items are used or stored at any property owned,
leased or operated by the Company or any of its Subsidiaries.
Section 4.13 COMPLIANCE WITH APPLICABLE LAWS. The Company and each of its
Subsidiaries holds all material approvals, licenses, permits, registrations and
similar type authorizations necessary
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for the lawful conduct of its respective businesses, as now conducted, and such
businesses are not being, and neither the Company nor any of its Subsidiaries
has received any notice from any Governmental Authority or Person that any such
business has been or is being conducted in violation of any law, ordinance or
regulation, including without limitation any law, ordinance or regulation
relating to occupational health and safety, except for possible violations which
either individually or in the aggregate have not resulted and would not result
in a Company Material Adverse Effect; PROVIDED, HOWEVER, notwithstanding the
foregoing, no representation or warranty in this Section 4.13 is made with
respect to Environmental Laws, which are covered exclusively by the provisions
set forth in Section 4.12.
Section 4.14INSURANCE. Except as disclosed in Section 4.14 of the Company
Disclosure Schedule, the Company and each of its Subsidiaries is, and has been
continuously since January 1, 1997, insured in such amounts and against such
risks and losses as are customary for companies conducting the respective
businesses conducted by the Company and its Subsidiaries during such time
period. Except as disclosed in Section 4.14 of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy
thereof. All material insurance policies of the Company and its Subsidiaries are
valid and enforceable policies.
Section 4.15LABOR MATTERS; EMPLOYEES.
(a) Except as set forth in Section 4.15 of the Company Disclosure
Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its Subsidiaries and, during the past five
years, there has not been any such action, (ii) none of the Company or any of
its Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to employees of the
Company or any of its Subsidiaries, (iii) none of the employees of the Company
or any of its Subsidiaries are represented by any labor organization and none of
the Company or any of its Subsidiaries have any knowledge of any current union
organizing activities among the employees of the Company or any of its
Subsidiaries nor does any question concerning representation exist concerning
such employees, (iv) the Company and its Subsidiaries have each at all times
been in material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation, (v) there is no unfair labor practice charge or
complaint against any of the Company or any of its Subsidiaries pending or, to
the knowledge of the Company, threatened before the National Labor Relations
Board or any similar state or foreign agency, (vi) there is no grievance or
arbitration proceeding arising out of any collective bargaining agreement or
other grievance procedure relating to the Company or any of its Subsidiaries,
and (vii) neither the Occupational Safety and Health Administration nor any
corresponding state agency has threatened to file any citation, and there are no
pending citations, relating to the Company or any of its Subsidiaries.
(b) Since the enactment of the Worker Adjustment and Retraining
Notification Act of 1988 ("WARN Act"), none of the Company or any of its
Subsidiaries has effectuated (i) a
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"plant closing" (as defined in the WARN Act) affecting any site of employment or
one or more facilities or operating units within any site of employment or
facility of any of the Company or any of its Subsidiaries, or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or any of its Subsidiaries, nor has the Company or any
of its Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law, in each case that could reasonably be expected to
have a Company Material Adverse Effect.
Section 4.16RESERVE REPORTS.
(a) Except as set forth in Section 4.16(a) of the Company Disclosure
Schedule, all information supplied to Netherland, Sewell & Associates, Inc. and
DeGolyer & MacNaughton by or on behalf of the Company and its Subsidiaries that
was material to each such firm's estimates of proved oil and gas reserves
attributable to the Oil and Gas Interests of the Company and its Subsidiaries in
connection with the preparation of the proved oil and gas reserve reports
concerning the Oil and Gas Interests of the Company and its Subsidiaries as of
December 31, 1997 and prepared by Netherland, Sewell & Associates, Inc. and
DeGolyer & MacNaughton, respectively (such reserve reports, the "Company Reserve
Report"), was (at the time supplied or as modified or amended prior to the
issuance of the Company Reserve Report) true and correct in all material
respects and the Company has no knowledge of any material errors in such
information that existed at the time of such issuance. For purposes of this
Agreement, "Oil and Gas Interests" means direct and indirect interests in and
rights with respect to oil, gas, mineral, and related properties and assets of
any kind and nature, direct or indirect, including working, leasehold and
mineral interests and operating rights and royalties, overriding royalties,
production payments, net profit interests and other nonworking interests and
nonoperating interests; all interests in rights with respect to oil, condensate,
gas, casinghead gas and other liquid or gaseous hydrocarbons (collectively,
"Hydrocarbons") and other minerals or revenues therefrom, 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 wells, well equipment and machinery), oil and gas
production, gathering, transmission, 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. Except
for changes (including changes in commodity prices) generally affecting the oil
and gas industry, there has been no change in respect of the matters addressed
in the Company Reserve Report that would have a Company Material Adverse Effect.
(b) Set forth in Section 4.16(b) of the Company Disclosure Schedule
is a list of all material Oil and Gas Interests that were included in the
Company Reserve Report that have been disposed of prior to the date of this
Agreement.
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Section 4.17 OIL AND GAS RESERVES; EQUIPMENT. Except as otherwise set
forth in Section 4.17 of the Company Disclosure Schedule:
(a) None of the wells included in the Oil and Gas Interests of the
Company and its Subsidiaries has been overproduced, except where such
overproduction individually, or in the aggregate with all other such
overproduction, would not have a Company Material Adverse Effect;
(b) There have been no material changes proposed in the production
allowables for any wells included in the Oil and Gas Interests of the Company
and its Subsidiaries;
(c) All wells included in the Oil and Gas Interests of the Company
and its 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 respects with applicable oil and gas leases and applicable
laws, rules, and regulations, except where any failure or violation would not
have a Company Material Adverse Effect;
(d) Except as set forth in Section 4.17(d) of the Company Disclosure
Schedule, there are no wells included in the Oil and Gas Interests of the
Company and its Subsidiaries that:
(i) the Company or any of its Subsidiaries is currently
obligated by law or contract to plug and abandon or will be obligated by
law or contract to plug and abandon with the lapse of time or notice or
both because the well is not currently capable of producing in commercial
quantities, except for such wells that will not individually, or in the
aggregate with all other such wells, result in the Company and its
Subsidiaries incurring plugging and abandonment costs (net of salvage
value) in an amount in excess of $2,000,000;
(ii) are subject to exceptions to a requirement to plug and
abandon issued by a Governmental Authority having jurisdiction over the
wells; or
(iii) have been plugged and abandoned but have not been
plugged or reclaimed in accordance with all applicable requirements of
each Governmental Authority having jurisdiction over such wells;
(e) Proceeds from the sale of Hydrocarbons produced from the Oil and
Gas Interests of the Company and its Subsidiaries are being received by the
Company and its 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 $250,000 and held in suspense in the ordinary course
of business);
(f) No Person has any call on, option to purchase, or similar rights
with respect to the production of Hydrocarbons attributable to the Oil and Gas
Interests of the Company and its Subsidiaries, except where any call, option or
similar right would not have a Company Material Adverse Effect and except for
any such call, option or similar right at market prices, and upon consummation
of the transactions contemplated by this Agreement, the Company or its
Subsidiaries will have the right to market production from the Oil and Gas
Interests of the Company and its
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Subsidiaries on terms no less favorable than the terms upon which such
production is currently being marketed;
(g) Except for gas imbalances between the Company or any of its
Subsidiaries and any third party working interest owners or pipelines relative
to the Oil and Gas Interests of the Company or any of its Subsidiaries, which
gas imbalances (to the extent constituting overproduction or underproduction
from the wells in which the Company or any of its Subsidiaries has an interest)
are described in Section 4.17(g) of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries is obligated by any gas prepayment
arrangement or by any "take-or-pay" requirement to deliver any gas at a future
time without then or thereafter receiving payment therefor;
(h) To the knowledge of the Company, all equipment and machinery
currently in use and material to the operation of the Oil and Gas Interests of
the Company or any of its Subsidiaries as conducted prior to the date hereof are
in reasonable working condition, ordinary wear and tear excepted; and
(i) With respect to Oil and Gas Interests of the Company and its
Subsidiaries that are not operated by the Company or any of its Subsidiaries,
the Company makes the foregoing representations and warranties set forth in
paragraphs (b), (c) and (d)(iii) of this Section 4.17 and those set forth in
Sections 4.12, 4.13 and 4.20 only to its knowledge.
Section 4.18TITLE TO OIL AND GAS INTERESTS.
(a) Except as set forth in Section 4.18 of the Company Disclosure
Schedule, the Company or its Subsidiaries has defensible title to all of the Oil
and Gas Interests classified as proved developed producing, proved developed
nonproducing and proved undeveloped in the Company Reserve Report (each, a
"Company Classified Property") except to the extent that such interests have
thereafter been disposed of in the ordinary course of business consistent with
past practice. For the purposes of this Agreement, "defensible title" means,
with respect to any Company Classified Property, such record and beneficial
title that (x) entitles the party named to receive, from its ownership of such
interest, a percentage of all Hydrocarbons produced, saved, and marketed from
each well or property included in the Company Classified Properties not less
than the net revenue interest set forth in the Company Reserve Report for such
well or property, without reduction, suspension, or termination for the
productive life of such well or property, except as a result of elections not to
participate in an operation under an applicable operating, unit or other
agreement, or readjustments of interest provided for under the terms of the
applicable operating, unit or other agreement, in each case, after the date
hereof; (y) obligates the party named to bear a percentage of the costs and
expenses relating to operations on, and the maintenance and production of, such
well or property, not greater than the working or operating interest set forth
in the Company Reserve Report without increase for the productive life of such
well or property, except as a result of an election of other parties not to
participate in an operation under an applicable operating, unit or other
agreement, contribution requirements with respect to defaulting co-owners, or
readjustments of interest provided for under the terms of the applicable
operating or unit agreement, in each case, after the date hereof; and (z) is
free and clear of any liens, mortgages, pledges, security interests,
encumbrances, claims or charges of any kind (collectively, "Liens") except the
Company Permitted Encumbrances. For the purposes of this Agreement, "Company
Permitted Encumbrances" means
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(i) royalties, overriding royalties, reversionary interests and similar burdens
if the cumulative effect of such burdens does not and will not reduce the net
revenue interest with respect to a well or property below the net revenue
interest shown therefor in the Company Reserve Report or increase the working
interest with respect to such well or property above the working interest shown
therefor in the Company Reserve Report; (ii) the terms and conditions of all
leases, servitudes, production sales contracts, division orders, contracts for
sale, purchase, exchange, refining or processing of Hydrocarbons, unitization
and pooling designations, declarations, orders and agreements, operating
agreements, agreements of development, area of mutual interest agreements,
farmout agreements, gas balancing or deferred production agreements, processing
agreements, plant agreements, pipeline, gathering and transportation agreements,
injection, repressuring and recycling agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other agreements
including, without limitation, the terms and conditions of any and all contracts
and agreements set forth in the Company Reserve Report covering production sales
contracts and all other contracts and agreements disclosed in such Company
Disclosure Schedule, to the extent that such contracts and agreements do not and
will not reduce the net revenue interest of any well or property included in the
Company Classified Properties below the net revenue interest shown therefor in
the Company Reserve Report or increase the working interest with respect to such
well or property above the working interest shown therefor in the Company
Reserve Report without a proportionate increase in the net revenue interest with
respect to such well or property; (iii) easements, rights of way, servitudes,
permits, surface leases and other rights with respect to surface obligations,
pipelines, grazing, canals, ditches, reservoirs, or the like, conditions,
covenants or other restrictions, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other easements and rights
of way on, over or in respect of any of the Company Classified Properties, so
long as they are not such that would have a Company Material Adverse Effect;
(iv) any preferential purchase rights, required third party consents to
assignment and similar agreements and obligations not applicable to the
transactions contemplated hereby, or if applicable to the transactions
contemplated hereby, with respect to which prior to the Effective Time (A)
waivers or consents have been obtained from the appropriate Person, or (B) the
applicable period of time for asserting such rights has expired without any
exercise of such rights; (v) liens for Taxes or assessments not yet delinquent;
(vi) materialmen's, mechanic's, repairman's, employee's, contractor's,
operator's, and other similar liens or charges arising in the ordinary course of
business (A) if they have not been filed pursuant to law, (B) if filed, they
have not yet become due and payable or payment is being withheld as provided by
law or (C) if their validity is being contested in good faith in the ordinary
course of business by appropriate action; (vii) approvals that are ministerial
in nature and are customarily obtained from Governmental Authorities after the
Effective Time in connection with transactions of the same nature as are
contemplated hereby ("Customary Post-Closing Consents"); (viii) conventional
rights of reassignment arising in respect of abandonment, cessation of
production or expiration of leases; (ix) all rights reserved to or vested in any
Governmental Authority to control or regulate any of the Company Classified
Properties in any manner, and all applicable laws, rules and orders of
Governmental Authorities; and (x) any other liens, charges, encumbrances,
contracts, agreements, instruments, obligations, defects or irregularities of
any kind whatsoever that would not have a Company Material Adverse Effect or
that are set forth in Section 4.18(a) of the Company Disclosure Schedule.
Notwithstanding the foregoing, title to the Company Classified Properties is of
a type and nature customarily acceptable to the reasonably prudent oil and gas
operator of oil and gas interests.
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(b) Except as set forth in Section 4.18(b) of the Company Disclosure
Schedule, (i) each oil and gas lease included in the Oil and Gas Interests of
the Company and its Subsidiaries is valid, binding and enforceable in accordance
with its terms, except for the Enforceability Exception, and (ii) neither the
Company nor the Company Subsidiary that is party to each such lease, nor, to the
knowledge of the Company, any other party to any such lease, is in breach or
default thereunder in any material respect, no notice of default or termination
thereunder has been given or received by the Company or any of its Subsidiaries,
and no event has occurred which would, with the giving of notice or passage of
time or both, constitute a breach or default thereunder or permit termination,
modification or acceleration thereunder that could reasonably be expected to
result in a Company Material Adverse Effect.
Section 4.19TITLE TO OTHER PROPERTIES. Except as set forth in Section 4.19
of the Company Disclosure Schedule, the Company or its Subsidiaries owns, of
record (to the extent applicable) and beneficially, all material personal
property and all real property (other than oil and gas leasehold interests
included in the Company Classified Properties) in each case, as reflected on the
consolidated financial statements of the Company included in the Company SEC
Documents as being owned by it or any of its Subsidiaries and all such property
thereafter acquired by it or any of its Subsidiaries (except to the extent that
such properties have thereafter been disposed of in the ordinary course of
business consistent with past practice or after the date hereof in compliance
with Section 6.1(d)), free and clear of any Liens except the Company Permitted
Encumbrances.
Section 4.20PERMITS. The Company holds all of the permits, licenses,
certificates, consents, approvals, entitlements, plans, surveys, relocation
plans, environmental impact reports and other authorizations of Governmental
Authorities ("Permits") required or necessary to construct, own, operate, use
and/or maintain its properties and conduct its operations as presently
conducted, except for such Permits, the lack of which, individually or in the
aggregate, would not have a Company Material Adverse Effect; PROVIDED, HOWEVER,
that notwithstanding the foregoing, no representation or warranty in this
Section 4.20 is made with respect to Permits issued pursuant to Environmental
Laws, which are covered exclusively by the provisions set forth in Section 4.12.
Section 4.21MATERIAL CONTRACTS.
(a) Set forth in Section 4.21(a) of the Company Disclosure Schedule
is a list of each contract, lease, indenture, agreement, arrangement or
understanding to which the Company or any of its Subsidiaries is a party or to
which any of the assets or operations of the Company or any of its Subsidiaries
is subject that is of a type that would be required to be included as an exhibit
to a Form S-1 Registration Statement pursuant to the rules and regulations of
the SEC if such a registration statement was filed by the Company or is
otherwise, in the judgment of the Company, deemed material to the business of
the Company and its Subsidiaries, taken as a whole (collectively, the "Company
Material Contracts").
(b) Except as set forth in Section 4.21(a) or 4.21(b) of the Company
Disclosure Schedule, the Company Oil and Gas Interests are not subject to (i)
any instrument or agreement evi dencing or related to indebtedness for borrowed
money, whether directly or indirectly, or (ii) any agreement not entered into in
the ordinary course of business in which the amount involved is in excess of
$250,000. With respect to the Company Oil and Gas Interests, (A) all Company
Material
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Contracts are in full force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in accordance with their
respective terms; (B) the Company is not in material breach or default with
respect to its obligations under any Company Material Contract and, to the
knowledge of the Company, no other party to any Company Material Contract is in
material breach or default with respect to its obligations thereunder, including
with respect to payments or otherwise; (C) no party to any Company Material
Contract has given notice of any action to terminate, cancel, rescind or procure
a judicial reformation thereof; and (D) no Company Material Contract contains
any provision that prevents the Company or any of its Subsidiaries from owning,
managing and operating the Company Oil and Gas Interests substantially in
accordance with histori cal practices.
(c) As of the date of this Agreement, except as set forth in Section
4.21(c) of the Company Disclosure Schedule, with respect to authorizations for
expenditure executed on or after January 1, 1998, (i) there are no material
outstanding calls for payments that are due or that the Company or its
Subsidiaries are committed to make that have not been made; (ii) there are no
material operations with respect to which the Company or its Subsidiaries have
become a nonconsenting party; and (iii) there are no commitments for the
material expenditure of funds for drilling or other capital projects other than
projects with respect to which the operator is not required under the applicable
operating agreement to seek consent.
(d) Except as set forth in Section 4.21(d) of the Company Disclosure
Schedule, (i) there are no express contractual obligations to engage in
continuous development operations in order to maintain any producing Company Oil
and Gas Interest in force and effect; (ii) there are no provisions applicable to
the Company Oil and Gas Interests that increase the royalty percentage of the
lessor thereunder; and (iii) none of the Company Oil and Gas Interests are
limited by terms fixed by a certain number of years (other than primary terms
under oil and gas leases).
Section 4.22REQUIRED STOCKHOLDER VOTE OR CONSENT. The only vote of the
holders of any class or series of the Company's capital stock that will be
necessary to consummate the Merger and the other transactions contemplated by
this Agreement is the approval of the Merger by the holders of a majority of the
votes cast by holders of Company Common Stock entitled to vote (the "Company
Stockholder Approval").
Section 4.23PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. None of
the information to be supplied by the Company for inclusion in (a) the proxy
statement relating to the Company Special Meeting and the Lomak Special Meeting
(also constituting the prospectus in respect of Lomak Common Stock into which
shares of Company Common Stock will be converted) (the "Proxy
Statement/Prospectus"), to be filed by the Company and Lomak with the SEC, and
any amendments or supplements thereto, or (b) the Registration Statement on Form
S-4 (the "Registration Statement") to be filed by Lomak with the SEC in
connection with the Merger, and any amendments or supplements thereto, will, (i)
in the case of the Registration Statement, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Proxy Statement/Prospectus, at
the time of the mailing of the Proxy Statement/Prospectus and at the time of the
Company Special Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
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necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior to the Effective
Time any event with respect to the Company, its officers and directors or any of
its Subsidiaries should occur which is required to be described in an amendment
of, or a supplement to, the Proxy Statement/Prospectus or the Registration
Statement, the Company shall notify Lomak thereof by reference to this Section
4.23 and such event shall be so described to Lomak.
Section 4.24INTELLECTUAL PROPERTY. The Company and its Subsidiaries own,
or are licensed or otherwise have the right to use, all patents, patent rights,
trademarks, rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs ("Intellectual Property")
currently used in the conduct of the business and operations of the Company and
its Subsidiaries, except where the failure to so own or otherwise have the right
to use such intellectual property would not, individually or in the aggregate,
have a Company Material Adverse Effect. No Person has notified either the
Company or any of its Subsidiaries that their use of the Intellectual Property
infringes on the rights of any Person, subject to such claims and infringements
as do not, individually or in the aggregate, give rise to any liability on the
part of the Company and its Subsidiaries that could have a Company Material
Adverse Effect, and, to the Company's knowledge, no Person is infringing on any
right of the Company or any of its Subsidiaries with respect to any such
Intellectual Property. No claims are pending or, to the Company's knowledge,
threatened that the Company or any of its Subsidiaries is infringing or
otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property.
Section 4.25HEDGING. Section 4.25 of the Company Disclosure Schedule sets
forth for the periods shown obligations of the Company and each of its
Subsidiaries for the delivery of Hydrocarbons attributable to any of the
properties of the Company or any of its Subsidiaries in the future on account of
prepayment, advance payment, take-or-pay or similar obligations without then or
thereafter being entitled to receive full value therefor. Except as set forth in
Section 4.25 of the Company Disclosure Schedule and except for fixed price gas
contracts entered into by the Company in the ordinary course of business, as of
the date of this Agreement, neither the Company nor any of its Subsidiaries is
bound by futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from or reduce or eliminate the risk of
fluctuations in the price of com modities, including Hydrocarbons, or
securities.
Section 4.26BROKERS. No broker, finder or investment banker (other than
Credit Suisse First Boston Corporation, the fees and expenses of which will be
paid by the Company and will not exceed the fee currently set forth in the
Company Engagement Letter described below, plus reimbursement of reasonable out
of pocket expenses) is entitled to any brokerage, finder's fee or other fee or
commission payable by the Company or any of its Subsidiaries in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of the Company or any of its Subsidiaries. True and correct copies
of all agreements and engagement letters currently in effect with Credit Suisse
First Boston Corporation (the "Company Engagement Letters") have been provided
to Lomak.
Section 4.27 OPINION OF FINANCIAL ADVISOR. Credit Suisse First Boston
Corporation has delivered to the Board of Directors of the Company its oral
opinion, to be confirmed in writing, to
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the effect that, as of the date of this Agreement, the Exchange Ratio was fair,
from a financial point of view, to the holders of the Company Common Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF LOMAK AND MERGER SUB
Lomak and Merger Sub jointly and severally represent and warrant to the
Company as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION.
(a) Lomak is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, is duly qualified to do
business as a foreign corporation and is in good standing in the jurisdictions
set forth in Section 5.1(a) of the disclosure letter delivered to the Company
contemporaneously with the execution hereof (the "Lomak Disclosure Schedule"),
which include each jurisdiction in which the character of Lomak's properties or
the nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not result in
a Lomak Material Adverse Effect. Lomak has all requisite corporate power and
authority to own, use or lease its properties and to carry on its business as it
is now being conducted. Lomak has made available to the Company a complete and
correct copy of its certificate of incorporation and bylaws, each as amended to
date, and Lomak's certificate of incorporation and bylaws as so delivered are in
full force and effect. Lomak is not in default in any respect in the
performance, observation or fulfillment of any provision of its certificate of
incorporation or bylaws.
(b) Section 5.1(b) of the Lomak Disclosure Schedule lists the name
and jurisdiction of organization of each Subsidiary of Lomak and the
jurisdictions in which each such Subsidiary is qualified or holds licenses to do
business as a foreign corporation or other organization as of the date hereof.
Each of Lomak's Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, is duly qualified to do business as a foreign
corporation or other legal entity and is in good standing in the jurisdictions
set forth in Section 5.1(b) of the Lomak Disclosure Schedule, which includes
each jurisdiction in which the character of such Subsidiary's properties or the
nature of its business makes such qualification necessary, except in
jurisdictions, if any, where the failure to be so qualified would not result in
a Lomak Material Adverse Effect. Each of Lomak's Subsidiaries has all requisite
corporate or other power and authority to own, use or lease its properties and
to carry on its business as it is now being conducted and as it is now proposed
to be conducted. Lomak has made available to the Company a complete and correct
copy of the certificate of incorporation and bylaws (or similar organizational
documents) of each of Lomak's Subsidiaries, each as amended to date, and the
certificate of incorporation and bylaws (or similar organizational documents) as
so delivered are in full force and effect. No Subsidiary of Lomak is in default
in any respect in the performance, observation or fulfillment of any provision
of its certificate of incorporation or bylaws (or similar organizational
documents). Other than Lomak's Subsidiaries, Lomak does not own
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(beneficially or otherwise) or control, directly or indirectly, 5% or more of
any class of equity or similar securities of any corporation or other
organization, whether incorporated or unincorporated.
(c) Merger Sub has no Subsidiaries.
(d) For purposes of this Agreement, a "Lomak Material Adverse
Effect" shall mean any event, circumstance, condition, development or occurrence
(i) causing, resulting in or having (or with the passage of time likely to
cause, result in or have) a material adverse effect on the financial condition,
business, assets, properties, prospects or results of operations of Lomak and
its Subsidiaries, taken as a whole or (ii) preventing or delaying in any
material respect the consummation of the transactions contemplated by this
Agreement or any Ancillary Agreement by Lomak or any of its Subsidiaries;
PROVIDED, that such term shall not include effects that result from market
conditions generally in the oil and gas industry.
Section 5.2 CAPITALIZATION.
(a) The authorized capital stock of Lomak consists of 50,000,000
shares of Lomak Common Stock, and 10,000,000 shares of preferred stock of Lomak,
par value $1.00 per share, of which 1,150,000 shares have been designated as
$2.03 Convertible Preferred Stock. As of the date of this Agreement, Lomak has
(i) 21,193,742 shares of Lomak Common Stock issued and outstanding, (ii)
1,149,840 shares of preferred stock outstanding (all of which is designated
$2.03 Convertible Preferred Stock) and (iii) outstanding stock options to
acquire 2,076,092 shares of Lomak Common Stock under all stock option plans and
agreements of Lomak. All such shares have been validly issued, are fully paid
and nonassessable, and are free of preemptive rights. Except as set forth in
Section 5.2(a) of the Lomak Disclosure Schedule, and other than this Agreement,
there are no outstanding subscriptions, options, rights, warrants, convertible
securities, stock appreciation rights, phantom equity, or other agreements or
commitments obligating Lomak to issue, transfer, sell, redeem, repurchase or
otherwise acquire any shares of its capital stock of any class.
(b) Except as set forth in Section 5.2(b) of the Lomak Disclosure
Schedule, Lomak is, directly or indirectly, the record and beneficial owner of
all of the outstanding shares of capital stock of each Lomak Subsidiary, there
are no irrevocable proxies with respect to any such shares, and no equity
securities of any Lomak Subsidiary are or may become required to be issued by
reason of any options, warrants, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable or exercisable for, shares of any capital stock of any Lomak
Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which Lomak or any Lomak Subsidiary is or may be bound to issue
additional shares of capital stock of any Lomak Subsidiary or securities
convertible into or exchangeable or exercisable for any such shares. All of such
shares so owned by Lomak are validly issued, fully paid and nonassessable and
are owned by it free and clear of all Liens.
Section 5.3 AUTHORITY. Each of Lomak and Merger Sub has full corporate
power and authority to execute and deliver this Agreement and the Ancillary
Agreements to which it is or will be a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the Ancillary Agreements to which it is or will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
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and validly authorized by the Board of Directors of each of Lomak and Merger
Sub, and no other corporate proceedings on the part of Lomak or Merger Sub are
necessary to authorize this Agreement or the Ancillary Agreements to which any
of them are or will be a party or to consummate the transactions contemplated
hereby or thereby, other than the approval of the issuance of such number of
shares required to effect the Merger in accordance with the rules of the New
York Stock Exchange, Inc. (the "Stock Issuance") by Lomak's stockholders as
contemplated by Section 7.13 hereof. This Agreement has been, and the Ancillary
Agreements to which Lomak or Merger Sub are or will be a party are, or upon
execution will be, duly and validly executed and delivered by each of Lomak and
Merger Sub and, assuming the due authorization, execution and delivery hereof
and thereof by the other parties hereto and thereto, constitute or upon
execution will constitute, valid and binding obligations of each of Lomak and
Merger Sub enforceable against each of Lomak and Merger Sub in accordance with
their respective terms, except for the Enforceability Exception.
Section 5.4 CONSENTS AND APPROVALS; NO VIOLATION. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and the performance by each of Lomak and Merger Sub of its obligations
hereunder will not:
(a) conflict with any provision of the certificate of incorporation
or bylaws of either Lomak or Merger Sub; PROVIDED, HOWEVER, that it is
acknowledged that the Name Change (as defined below) would require approval of
the holders of at least a majority of the outstanding shares of Lomak Common
Stock;
(b) subject to obtaining of the approval of Lomak's stockholders of
the Stock Issuance as contemplated by Section 7.13 hereof, require on the part
of Lomak or any of its Subsidiaries or Affiliates, any consent, waiver,
approval, order, authorization or permit of, or registration, filing with or
notification to, (i) any Governmental Authority, except for applicable
requirements of the Securities Act, the Exchange Act, state laws relating to
takeovers, if applicable, state securities or blue sky laws and Customary
Post-Closing Consents, (ii) filings by Lomak under the HSR Act in connection
with the acquisition of shares of Lomak Common Stock pursuant to the Merger or
(iii) except as set forth in Section 5.4(b) of the Lomak Disclosure Schedule,
any third party other than a Governmental Authority, other than such
non-Governmental Authority third party consents, waivers, approvals, orders,
authorizations and permits that would not (A) result in a Lomak Material Adverse
Effect or (B) materially impair the ability of Lomak or Merger Sub or any other
Subsidiaries of Lomak to perform its obligations under this Agreement or any
Ancillary Agreement; PROVIDED, HOWEVER, that it is acknowledged that the Name
Change (as defined below) would require approval of the holders of at least a
majority of the outstanding shares of Lomak Common Stock;
(c) except as set forth in Section 5.4(c) of the Lomak Disclosure
Schedule, result in any violation of or the breach of or constitute a default
(with notice or lapse of time or both) under, or give rise to any right of
termination, cancellation or acceleration or guaranteed payments or a loss of a
material benefit under, any of the terms, conditions or provisions of any note,
lease, mortgage, indenture, license, agreement or other instrument or obligation
to which Lomak or any of its Subsidiaries is a party or by which Lomak or any of
its Subsidiaries or any of their respective properties or assets may be bound,
except for such violations, breaches, defaults, or rights of termination,
cancellation or acceleration, or losses as to which requisite waivers or
consents have been obtained or which, individually or in the aggregate, would
not (i) result in a Lomak Material
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Adverse Effect or (ii) materially impair the ability of Lomak or Merger Sub or
any other Subsidiaries to perform its obligations under this Agreement or any
Ancillary Agreement;
(d) violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to Lomak or any Subsidiary of
Lomak; or
(e) result in the creation of any Lien upon any material assets or
on any shares of capital stock, properties or assets of Lomak or its
Subsidiaries under any agreement or instrument to which Lomak or any of its
Subsidiaries is a party or by which Lomak or any of its Subsidiaries or any of
their properties or assets is bound.
Section 5.5 LOMAK FINANCIAL STATEMENTS. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
Lomak (including any related notes and schedules) included (or incorporated by
reference) in its Annual Reports on Form 10-K for each of the three fiscal years
ended December 31, 1995, 1996 and 1997 (collectively, the "Lomak Financial
Statements") have been prepared from, and are in accordance with, the books and
records of Lomak and its consolidated Subsidiaries, comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
in the notes thereto and subject, in the case of quarterly financial statements,
to normal and recurring year-end adjustments that are not material individually
or in the aggregate) and fairly present, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of Lomak and its Subsidiaries as of the date
thereof and the consolidated results of operations and cash flows (and changes
in financial position, if any) of Lomak and its Subsidiaries for the periods
presented therein (subject to normal year-end adjustments that are not material
individually or in the aggregate and the absence of financial footnotes in the
case of any unaudited interim financial statements).
Section 5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except (a) as specifically
disclosed in the Lomak SEC Reports (as defined below) and (b) for liabilities
and obligations incurred in the ordinary course of business and consistent with
past practice, since December 31, 1997, neither Lomak nor any of its
Subsidiaries has incurred any liabilities or obligations of any nature
(contingent or otherwise) that would have a Lomak Material Adverse Effect or
would be required by GAAP to be reflected on a consolidated balance sheet of
Lomak and its Subsidiaries or the notes thereto which is not so reflected.
Section 5.7 ABSENCE OF CERTAIN CHANGES. Except as expressly contemplated
by this Agreement or disclosed in the Lomak SEC Reports, since December 31, 1997
(a) Lomak and its Subsidiaries have conducted their business in all material
respects in the ordinary course consistent with past practices, (b) there has
not been any change or development, or combination of any of the foregoing that,
individually or in the aggregate, would have a Lomak Material Adverse Effect,
(c) there has not been any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of Lomak or
Merger Sub or any repurchase, redemption or other acquisition by Lomak or any of
its Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, Lomak or Merger Sub, (d) there has not been
any amendment of any term of any outstanding security of Lomak or Merger Sub,
and (e) there has
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not been any change in any method of accounting or accounting practice by Lomak
or Merger Sub, except for any such change required by reason of a concurrent
change in GAAP or to conform Merger Sub's accounting policies and practices to
those of Lomak.
Section 5.8 LOMAK SEC REPORTS. Lomak has filed with the SEC, and has
heretofore made available to the Company true and complete copies of, each form,
registration statement, report, schedule, proxy or information statement and
other document (including exhibits and amendments thereto), including without
limitation its Annual Reports to Stockholders incorporated by reference in
certain of such reports, required to be filed with the SEC since December 31,
1995 under the Securities Act or the Exchange Act (collectively, the "Lomak SEC
Reports"). As of the respective dates such Lomak SEC Reports were filed or, if
any such Lomak SEC Reports were amended, as of the date such amendment was
filed, each of the Lomak SEC Reports, including without limitation any financial
statements or schedules included therein, (a) complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and the applicable rules and regulations promulgated
thereunder, and (b) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Section 5.9 TAXES. Except as otherwise disclosed in Section 5.9 of the
Lomak Disclosure Schedule and for matters that would have no adverse effect on
Lomak or Merger Sub:
(a) Lomak and each of its Subsidiaries have timely filed (or have
had timely filed on their behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by any of them prior
to or as of the Closing Date. All such Tax Returns and amendments thereto are or
will be true, complete and correct in all material respects.
(b) Lomak and each of its Subsidiaries have paid (or have had paid
on their behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Closing Date, an adequate
accrual for the payment of all material Taxes due with respect to any period
ending prior to or as of the Closing Date.
(c) No Audit by a Tax Authority is pending or threatened with
respect to any Tax Returns filed by, or Taxes due from, Lomak or any Subsidiary
of Lomak. No issue has been raised by any Tax Authority in any Audit of Lomak or
any of its Subsidiaries that if raised with respect to any other period not so
audited could be expected to result in a material proposed deficiency for any
period not so audited. No material deficiency or adjustment for any Taxes has
been threatened, proposed, asserted or assessed against Lomak or any of its
Subsidiaries. There are no liens for Taxes upon the assets of Lomak or any of
its Subsidiaries, except liens for current Taxes not yet delinquent.
(d) Neither Lomak nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the payment
of Taxes or has executed powers of attorney with respect to Tax matters that
will be outstanding as of the Closing Date.
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(e) Prior to the date hereof, Lomak and its Subsidiaries have
disclosed, and provided or made available true and complete copies to the
Company of, all material Tax sharing, Tax indemnity, or similar agreements to
which Lomak or any of its Subsidiaries is a party to, is bound by, or has any
obligation or liability for Taxes.
Section 5.10LITIGATION. Except as disclosed in the Lomak SEC Reports or
Section 5.10 of the Lomak Disclosure Schedule and for matters that would not
have a Lomak Material Adverse Effect, there is no suit, claim, action,
proceeding or investigation pending or, to Lomak's knowledge, threatened against
or directly affecting Lomak, any Subsidiary of Lomak or any of the directors or
officers of Lomak or any of its Subsidiaries in their capacity as such, nor is
there any reasonable basis therefor that could reasonably be expected to have a
Lomak Material Adverse Effect, if adversely determined. Neither Lomak nor any of
its Subsidiaries, nor any officer, director or employee of Lomak or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other Governmental Authority from
engaging in or continuing any conduct or practice in connection with the
business, assets or properties of Lomak or such Subsidiary, nor, to the
knowledge of Lomak, is Lomak, any Subsidiary of Lomak or any officer, director
or employee of Lomak or its Subsidiaries under investigation by any Governmental
Authority. Except as disclosed in the Lomak SEC Reports or Section 5.10 of the
Lomak Disclosure Schedule, there is not in existence any order, judgment or
decree of any court or other tribunal or other agency enjoining or requiring
Lomak or any of its Subsidiaries to take any action of any kind with respect to
its business, assets or properties. Notwithstanding the foregoing, no
representation or warranty in this Section 5.10 is made with respect to
Environmental Laws, which are covered exclusively by the provisions set forth in
Section 5.12.
Section 5.11EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 5.11 of the Lomak Disclosure Schedule contains a true
and complete list of the employee benefit plans or arrangements of any type
(including but not limited to plans described in section 3(3) of ERISA),
sponsored, maintained or contributed to by Lomak or any trade or business,
whether or not incorporated, which together with Lomak would be deemed a "single
employer" within the meaning of Section 414(b), (c) or (m) of the Code or
section 4001(b)(1) of ERISA (a "Lomak ERISA Affiliate") within six years prior
to the Effective Time, which provide benefits to Lomak's employees ("Lomak
Benefit Plans").
(b) With respect to each Lomak Benefit Plan: (i) if intended to
qualify under Section 401(a) or 401(k) of the Code, such plan satisfies the
requirements of such sections, has received a favorable determination letter
from the Internal Revenue Service with respect to its qualification, and its
related trust has been determined to be exempt from tax under Section 501(a) of
the Code and, to the knowledge of Lomak, nothing has occurred since the date of
such letter to adversely affect such qualification or exemption; (ii) each such
plan has been administered in substantial compliance with its terms and
applicable law; (iii) neither Lomak nor any Lomak ERISA Affiliate has engaged
in, and Lomak and each Lomak ERISA Affiliate do not have any knowledge of any
Person that has engaged in, any transaction or acted or failed to act in any
manner that would subject Lomak or any Lomak ERISA Affiliate to any liability
for a breach of fiduciary duty under ERISA that could reasonably be expected to
result in a Lomak Material Adverse Effect; (iv) no disputes are pending, or, to
the knowledge of Lomak or any Lomak ERISA Affiliate, threatened; (v)
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neither Lomak nor any Lomak ERISA Affiliate has engaged in, and Lomak and each
Lomak ERISA Affiliate do not have any knowledge of any Person that has engaged
in, any transaction in violation of Section 406(a) or (b) of ERISA for which no
exemption exists under Section 4975(c)(1) of the Code or Section 4975(d) of the
Code that could reasonably be expected to result in a Lomak Material Adverse
Effect; (vi) there have been no "reportable events" within the meaning of
section 4043 of ERISA for which the 30 day notice requirement of ERISA has not
been waived by the PBGC; (vii) all contributions due have been made on a timely
basis (within, where applicable, the time limit established under section 302 of
ERISA or Code Section 412); (viii) no notice of intent to terminate such plan
has been given under section 4041 of ERISA and no proceeding has been instituted
under section 4042 of ERISA to terminate such plan; and (ix) such plan may be
terminated on a prospective basis without any continuing liability for benefits
other than benefits accrued to the date of such termination. All contributions
made or required to be made under any Lomak Benefit Plan meet the requirements
for deductibility under the Code, and all contributions which are required and
which have not been made have been properly recorded on the books of Lomak or a
Lomak ERISA Affiliate.
(c) No Lomak Benefit Plan is a "multiemployer plan" (as defined in
section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning
of Section 413(c) of the Code). No event has occurred with respect to Lomak or a
Lomak ERISA Affiliate in connection with which Lomak could be subject to any
liability, lien or encumbrance with respect to any Lomak Benefit Plan or any
employee benefit plan described in section 3(3) of ERISA maintained, sponsored
or contributed to by a Lomak ERISA Affiliate under ERISA or the Code.
Section 5.12 ENVIRONMENTAL LIABILITY. Except as set forth in Section 5.12
of the Lomak Disclosure Schedule:
(a) The businesses of Lomak and its Subsidiaries have been and are
operated in material compliance with all Environmental Laws.
(b) Neither Lomak nor any of its Subsidiaries has caused or allowed
the generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Substances
at any of its properties or facilities except in material compliance with all
Environmental Laws, and, to Lomak's knowledge, no generation, manufacture,
processing, distribution, use, treatment, handling, storage, discharge, release,
disposal, transport or handling of any Hazardous Substances has occurred at any
property or facility owned, leased or operated by Lomak or any of its
Subsidiaries except in material compliance with all Environmental Laws.
(c) Neither Lomak nor any of its Subsidiaries has received any
written notice from any Governmental Authority or, to the knowledge of Lomak,
any other communication alleging or concerning any material violation by Lomak
or any of its Subsidiaries of, or responsibility or liability of Lomak or any of
its Subsidiaries under, any Environmental Law. There are no pending, or to the
knowledge of Lomak, threatened, claims, suits, actions, proceedings or
investigations with respect to the businesses or operations of Lomak or any of
its Subsidiaries alleging or concerning any material violation of or
responsibility or liability under any Environmental Law that, if adversely
determined, could reasonably be expected to have a Lomak Material Adverse
Effect, nor does Lomak
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have any knowledge of any fact or condition that could give rise to such a
claim, suit, action, proceeding or investigation.
(d) Lomak and its Subsidiaries are in possession of all material
approvals, permits, licenses, registrations and similar type authorizations from
all Governmental Authorities under all Environmental Laws with respect to the
operation of the businesses of Lomak and its Subsidiaries; there are no pending
or, to the knowledge of Lomak, threatened, actions, proceedings or
investigations seeking to modify, revoke or deny renewal of any of such
approvals, permits, licenses, registrations and authorizations; and Lomak does
not have knowledge of any fact or condition that is reasonably likely to give
rise to any action, proceeding or investigation to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations.
(e) Without in any way limiting the generality of the foregoing, (i)
all off-site locations where Lomak or any of its Subsidiaries has transported,
released, discharged, stored, disposed or arranged for the disposal of
pollutants, contaminants, hazardous wastes or toxic substances required by law
to be disposed at a licensed disposal site are identified in Section 5.12 of
Lomak Disclosure Schedule, (ii) to Lomak's knowledge, all underground storage
tanks, and the operating status, capacity and contents of such tanks, located on
any property owned, leased or operated by Lomak or any of its Subsidiaries are
identified in Section 5.12 of the Lomak Disclosure Schedule, (iii) to the
knowledge of Lomak, there is no asbestos contained in or forming part of any
building, building component, structure or office space owned or leased by Lomak
and (iv) no PCBs or PCB-containing items are used or stored at any property
owned, leased or operated by Lomak or any of its Subsidiaries.
Section 5.13COMPLIANCE WITH APPLICABLE LAWS. Lomak and each of its
Subsidiaries holds all material approvals, licenses, permits, registrations and
similar type authorizations necessary for the lawful conduct of its respective
businesses, as now conducted, and such businesses are not being, and neither
Lomak nor any of its Subsidiaries has received any notice from any Governmental
Authority or Person that any such business has been or is being conducted in
violation of any law, ordinance or regulation, including without limitation any
law, ordinance or regulation relating to occupational health and safety, except
for possible violations which either individually or in the aggregate have not
resulted and would not result in a Lomak Material Adverse Effect; PROVIDED,
HOWEVER, notwithstanding the foregoing, no representation or warranty in this
Section 5.13 is made with respect to Environmental Laws, which are covered
exclusively by the provisions set forth in Section 5.12.
Section 5.14INSURANCE. Except as disclosed in Section 5.14 of the Lomak
Disclosure Schedule, Lomak and each of its Subsidiaries is, and has been
continuously since January 1, 1997, insured in such amounts and against such
risks and losses as are customary for companies conducting the respective
businesses conducted by Lomak and its Subsidiaries during such time period.
Except as disclosed in Section 5.14 of the Lomak Disclosure Schedule, neither
Lomak nor any of its Subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy thereof. All material
insurance policies of Lomak and its Subsidiaries are valid and enforceable
policies.
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Section 5.15LABOR MATTERS; EMPLOYEES.
(a) Except as set forth in Section 5.15 of the Lomak Disclosure
Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of Lomak, threatened against or
affecting Lomak or any of its Subsidiaries and, during the past five years,
there has not been any such action, (ii) none of Lomak or any of its
Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to employees of Lomak
or any of its Subsidiaries, (iii) none of the employees of Lomak or any of its
Subsidiaries are represented by any labor organization and none of Lomak or any
of its Subsidiaries has any knowledge of any current union organizing activities
among the employees of Lomak or any of its Subsidiaries nor does any question
concerning representation exist concerning such employees, (iv) Lomak and its
Subsidiaries have each at all times been in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation,
(v) there is no unfair labor practice charge or complaint against any of Lomak
or any of its Subsidiaries pending or, to the knowledge of Lomak, threatened
before the National Labor Relations Board or any similar state or foreign
agency, (vi) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure relating to Lomak
or any of its Subsidiaries, and (vii) neither the Occupational Safety and Health
Administration nor any corresponding state agency has threatened to file any
citation, and there are no pending citations, relating to Lomak or any of its
Subsidiaries.
(b) Since the enactment of the WARN Act, none of Lomak or any of its
Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of any of Lomak or any of its
Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any
site of employment or facility of Lomak or any of its Subsidiaries, nor has
Lomak or any of its Subsidiaries been affected by any transaction or engaged in
layoffs or employment terminations sufficient in number to trigger application
of any similar state or local law, in each case that could reasonably be
expected to have a Lomak Material Adverse Effect.
Section 5.16RESERVE REPORTS.
(a) All information supplied to Netherland, Sewell & Associates,
Inc., Wright & Company, Inc., H.J. Gruy and Associates, Inc., Huddleston & Co.,
Inc. and Clay, Holt & Klammer by or on behalf of Lomak and its Subsidiaries that
was material to each such firm's estimates of proved oil and gas reserves
attributable to the Oil and Gas Interests of Lomak and its Subsidiaries in
connection with the preparation of the proved oil and gas reserve report
concerning the Oil and Gas Interests of Lomak and its Subsidiaries as of
December 31, 1997 by such firms (the "Lomak Reserve Report") was (at the time
supplied or as modified or amended prior to the issuance of the Lomak Reserve
Report) true and correct in all material respects and Lomak has no knowledge of
any material errors in such information that existed at the time of such
issuance. Except for changes (including changes in commodity prices) generally
affecting the oil and gas industry, there has been
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no change in respect of the matters addressed in the Lomak Reserve Report that
would have a Lomak Material Adverse Effect.
(b) Set forth in Section 5.16(b) of the Lomak Disclosure Schedule is
a list of all material Oil and Gas Interests that were included in the Lomak
Reserve Report that have been disposed of prior to the date of this Agreement.
Section 5.17 OIL AND GAS RESERVES; EQUIPMENT. Except as otherwise set
forth in Section 5.17 of the Lomak Disclosure Schedule:
(a) None of the wells included in the Oil and Gas Interests of Lomak
and its Subsidiaries has been overproduced, except where such overproduction
individually, or in the aggregate with all other such overproduction, would not
have a Lomak Material Adverse Effect;
(b) There have been no material changes proposed in the production
allowables for any wells included in the Oil and Gas Interests of Lomak and its
Subsidiaries;
(c) All wells included in the Oil and Gas Interests of Lomak and its
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 respects with applicable oil and gas leases and applicable laws, rules,
and regulations, except where any failure or violation would not have a Lomak
Material Adverse Effect;
(d) Except as set forth in Section 5.17(d) of the Lomak Disclosure
Schedule, there are no wells included in the Oil and Gas Interests of Lomak and
its Subsidiaries that:
(i) Lomak or any of its Subsidiaries is currently obligated by
law or contract to plug and abandon or will be obligated by law or
contract to plug and abandon with the lapse of time or notice or both
because the well is not currently capable of producing in commercial
quantities, except for such wells that will not individually, or in the
aggregate with all other such wells, result in Lomak and its Subsidiaries
incurring plugging and abandonment costs (net of salvage value) in an
amount in excess of $2,000,000 in addition to any plugging and abandonment
costs that have been provided for in the Lomak Financial Statements;
(ii) are subject to exceptions to a requirement to plug and
abandon issued by a Governmental Authority having jurisdiction over the
wells; or
(iii) have been plugged and abandoned but have not been
plugged or reclaimed in accordance with all applicable requirements of
each Governmental Authority having jurisdiction over such wells;
(e) Proceeds from the sale of Hydrocarbons produced from the Oil and
Gas Interests of Lomak and its Subsidiaries are being received by Lomak and its
Subsidiaries in a timely manner and are not being held by third parties in
suspense for any reason (except for amounts,
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individually or in the aggregate, not in excess of $250,000 and held in suspense
in the ordinary course of business);
(f) No Person has any call on, option to purchase, or similar rights
with respect to the production of Hydrocarbons attributable to the Oil and Gas
Interests of Lomak and its Subsidiaries, except where any call, option or
similar right would not have a Lomak Material Adverse Effect and except for any
such call, option or similar right at market prices, and upon consummation of
the transactions contemplated by this Agreement, Lomak or its Subsidiaries will
have the right to market production from the Oil and Gas Interests of Lomak and
its Subsidiaries on terms no less favorable than the terms upon which such
production is currently being marketed;
(g) Except for gas imbalances between Lomak or any of its
Subsidiaries and any third party working interest owners or pipelines relative
to the Oil and Gas Interests of Lomak or any of its Subsidiaries, which gas
imbalances (to the extent constituting overproduction or underproduction from
the wells in which Lomak or any of its Subsidiaries has an interest) are
described in Section 5.17(g) of the Lomak Disclosure Schedule, neither Lomak nor
any of its Subsidiaries is obligated by any gas prepayment arrangement or by any
"take-or-pay" requirement to deliver any gas at a future time without then or
thereafter receiving payment therefor;
(h) To the knowledge of Lomak, all equipment and machinery currently
in use and material to the operation of the Oil and Gas Interests of Lomak or
any of its Subsidiaries as conducted prior to the date hereof are in reasonable
working condition, ordinary wear and tear excepted; and
(i) With respect to wells in which the only Oil and Gas Interests of
Lomak and its Subsidiaries that are not operated by Lomak or any of its
Subsidiaries, Lomak makes the foregoing representations and warranties set forth
in paragraphs (b), (c) and (d)(iii) of this Section 5.17 and those set forth in
Sections 5.12, 5.13 and 5.20 only to its knowledge.
Section 5.18TITLE TO OIL AND GAS INTERESTS.
(a) Except as set forth in Section 5.18(a) of the Lomak Disclosure
Schedule, Lomak or its Subsidiaries has defensible title to all of the real
property included in the Oil and Gas Interests classified as proved developed
producing, proved developed nonproducing and proved undeveloped in the Lomak
Reserve Report (each, a "Lomak Classified Property") except to the extent that
such interests have thereafter been disposed of in the ordinary course of
business consistent with past practice. For the purposes of this Agreement,
"defensible title" means, with respect to any Lomak Classified Property, such
record and beneficial title that (x) entitles the party named to receive, from
its ownership of such interest, a percentage of all Hydrocarbons produced,
saved, and marketed from each well or property included in the Lomak Classified
Properties, not less than the net revenue interest set forth in the Lomak
Reserve Report for such well or property, without reduction, suspension, or
termination for the productive life of such well or property, except as a result
of elections not to participate in an operation under an applicable operating,
unit or other agreement, or readjustments of interest provided for under the
terms of the applicable operating, unit or other agreement, in each case, after
the date hereof; (y) obligates the party named to bear a percentage of the costs
and expenses relating to operations on, and the maintenance and production
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of, such well or property, not greater than the working or operating interest
set forth in the Lomak Reserve Report without increase for the productive life
of such well or property, except as a result of an election of other parties not
to participate in an operation under an applicable operating, unit or other
agreement, contribution requirements with respect to defaulting co-owners, or
readjustments of interest provided for under the terms of the applicable
operating or unit agreement, in each case, after the date hereof; and (z) is
free and clear of any Liens except the Lomak Permitted Encumbrances. For the
purposes of this Agreement, "Lomak Permitted Encumbrances" means (i) royalties,
overriding royalties, reversionary interests and similar burdens if the
cumulative effect of such burdens does not and will not reduce the net revenue
interest with respect to a well or property below the net revenue interest shown
therefor in the Lomak Reserve Report or increase the working interest with
respect to such well or property above the working interest shown therefor in
the Lomak Reserve Report; (ii) the terms and conditions of all leases,
servitudes, production sales contracts, division orders, contracts for sale,
purchase, exchange, refining or processing of Hydrocarbons, unitization and
pooling designations, declarations, orders and agreements, operating agreements,
agreements of development, area of mutual interest agreements, farmout
agreements, gas balancing or deferred production agreements, processing
agreements, plant agreements, pipeline, gathering and transportation agreements,
injection, repressuring and recycling agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other agreements
including, without limitation, the terms and conditions of any and all contracts
and agreements set forth in the Lomak Reserve Report covering production sales
contracts and all other contracts and agreements disclosed in such Lomak
Disclosure Schedule, to the extent that such contracts and agreements do not and
will not reduce the net revenue interest of any well or property included in the
Lomak Classified Properties below the net revenue interest shown therefor in the
Lomak Reserve Report or increase the working interest of such well above the
working interest shown therefor in the Lomak Reserve Report without a
proportionate increase in the net revenue interest of such well or property;
(iii) easements, rights of way, servitudes, permits, surface leases and other
rights with respect to surface obligations, pipelines, grazing, canals, ditches,
reservoirs, or the like, conditions, covenants or other restrictions, and
easements of streets, alleys, highways, pipelines, telephone lines, power lines,
railways and other easements and rights of way on, over or in respect of any of
the Lomak Classified Properties, so long as they are not such that would have a
Lomak Material Adverse Effect; (iv) any preferential purchase rights, required
third party consents to assignment and similar agreements and obligations not
applicable to the transactions contemplated hereby, or if applicable to the
transactions contemplated hereby, with respect to which prior to the Effective
Time (A) waivers or consents have been obtained from the appropriate Person, or
(B) the applicable period of time for asserting such rights has expired without
any exercise of such rights; (v) liens for Taxes or assessments not yet
delinquent; (vi) materialmen's, mechanic's, repairman's, employee's,
contractor's, operator's, and other similar liens or charges arising in the
ordinary course of business (A) if they have not been filed pursuant to law, (B)
if filed, they have not yet become due and payable or payment is being withheld
as provided by law or (C) if their validity is being contested in good faith in
the ordinary course of business by appropriate action; (vii) Customary
Post-Closing Consents; (viii) conventional rights of reassignment arising in
respect of abandonment, cessation of production or expiration of leases; (ix)
all rights reserved to or vested in any Governmental Authority to control or
regulate any of the Lomak Classified Properties in any manner, and all
applicable laws, rules and orders of Governmental Authorities; (x) any other
liens, charges, encumbrances, contracts, agreements, instruments, obligations,
defects or irregularities of any kind whatsoever that would not have a Lomak
Material Adverse Effect or that are set forth in Section 5.18(a) of the Lomak
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Disclosure Schedule. Notwithstanding the foregoing, title to the Lomak
Classified Properties is of a type and nature customarily acceptable to the
reasonably prudent oil and gas operator of oil and gas interests.
(b) Except as set forth in Section 5.18(b) of the Lomak Disclosure
Schedule, (i) each oil and gas lease included in the Lomak Classified Properties
is valid, binding and enforceable in accordance with its terms, except for the
Enforceability Exception (to the extent applicable), and (ii) neither Lomak nor
the Lomak Subsidiary that is party to each such lease, nor, to the knowledge of
Lomak, any other party to any such lease, is in breach or default thereunder in
any material respect, no notice of default or termination thereunder has been
given or received by Lomak or any of its Subsidiaries, and no event has occurred
which would, with the giving of notice or passage of time or both, constitute a
breach or default thereunder or permit termination, modification or acceleration
thereunder that could reasonably be expected to result in a Lomak Material
Adverse Effect.
Section 5.19TITLE TO OTHER PROPERTIES. Except as set forth in Section 5.19
of the Lomak Disclosure Schedule, Lomak or its Subsidiaries owns, of record (to
the extent applicable) and beneficially, all material personal property and all
real property (other than oil and gas leasehold interests included in the Lomak
Classified Properties), purported to be owned by Lomak or its Subsidiaries
(except to the extent that such properties have thereafter been disposed of in
the ordinary course of business consistent with past practice or after the date
hereof in compliance with Section 6.2(d)), free and clear of any Liens except
Lomak Permitted Encumbrances.
Section 5.20MATERIAL CONTRACTS.
(a) Set forth in Section 5.20(a) of the Lomak Disclosure Schedule is
a list of each contract, lease, indenture, agreement, arrangement or
understanding to which Lomak or any of its Subsidiaries is subject that is of a
type that would be required to be included as an exhibit to a Form S-1
Registration Statement pursuant to the rules and regulations of the SEC if such
a registration was filed by Lomak or is otherwise, in the judgment of Lomak,
deemed material to the business of Lomak and its Subsidiaries, taken as a whole
(the "Lomak Material Contracts").
(b) Except as set forth in Section 5.20(a) or 5.20(b) of the Lomak
Disclosure Schedule, the Oil and Gas Interests of Lomak and its Subsidiaries are
not subject to (i) any instrument or agreement evidencing or related to
indebtedness for borrowed money, whether directly or indirectly, or (ii) any
agreement not entered into in the ordinary course of business in which the
amount involved is in excess of $250,000. With respect to the Oil and Gas
Interests of Lomak and its Subsidiaries, (A) all Lomak Material Contracts are in
full force and effect and are the valid and legally binding obligations of the
parties thereto and are enforceable in accordance with their respective terms;
(B) Lomak is not in material breach or default with respect to the obligations
under any Lomak Material Contract and, to the knowledge of Lomak, no party to
any Lomak Material Con tract is in material breach or default with respect to
its obligations thereunder, including with respect to payments or otherwise; (C)
no party to any Lomak Material Contract has given notice of any action to
terminate, cancel, rescind or procure a judicial reformation thereof; and (D) no
Lomak Material Contract contains any provision that prevents Lomak or any of its
Subsidiaries from own ing, managing and operating the Oil and Gas Interests of
Lomak and its Subsidiaries substantially in accordance with historical
practices.
(c) As of the date of this Agreement, except as set forth in Section
5.20(c) of the Lomak Disclosure Schedule, with respect to authorizations for
expenditure executed on or after January 1, 1998, (i) there are no material
outstanding calls for payments that are due or which Lomak or its Subsidiaries
are committed to make that have not been made; (ii) there are no material
operations with respect to which Lomak or its Subsidiaries have become a
non-consenting party; and (iii) there are no commitments for the material
expenditure of funds for drilling or other capital pro jects other than projects
with respect to which the operator is not required under the applicable
operating agreement to seek consent.
(d) Except as set forth in Section 5.20(d) of the Lomak Disclosure
Schedule, (i) there are no express contractual obligations to engage in
continuous development operations in order to maintain any producing Oil and Gas
Interest of Lomak or its Subsidiaries in force and effect; (ii) there are no
provisions applicable to the Oil and Gas Interests of Lomak and its Subsidiaries
that increase the royalty percentage of the lessor thereunder; and (iii) none of
the Oil and Gas Interests of Lomak and its Subsidiaries are limited by terms
fixed by a certain number of years (other than primary terms under oil and gas
leases).
Section 5.21PERMITS. Immediately prior to the Effective Time and except
for Customary Post-Closing Consents, Lomak or its Subsidiaries will hold all of
the Permits required or necessary to construct, own, operate, use and/or
maintain their properties and conduct their operations as presently conducted,
except for such Permits, the lack of which, individually or in the aggregate,
would not have a Lomak Material Adverse Effect; PROVIDED, HOWEVER, that
notwithstanding the foregoing, no representation or warranty in this Section
5.21 is made with respect to Permits issued pursuant to Environmental Laws,
which are covered exclusively by the provisions set forth in Section 5.12.
Section 5.22REQUIRED STOCKHOLDER VOTE OR CONSENT. The only vote of the
holders of any class or series of Lomak's capital stock that will be necessary
to consummate the Merger and the other transactions contemplated by this
Agreement is the approval of the Stock Issuance by the holders of a majority of
the shares of Lomak Voting Stock represented in person or by proxy and voting
with respect thereto (the "Lomak Stockholder Approval"); PROVIDED, HOWEVER, that
it is acknowledged that the Name Change (as defined below) would require
approval of the holders of at least a majority of the outstanding shares of
Lomak Common Stock. The "Lomak Voting Stock" shall include the outstanding
shares of Lomak Common Stock (on the basis of one vote per share) and the
outstanding shares of $2.03 Convertible Preferred Stock (on the basis of one
vote per share).
Section 5.23PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. None of
the information to be supplied by Lomak or Merger Sub for inclusion in (a) the
Proxy Statement/Prospectus to be filed by the Company and Lomak with the SEC,
and any amendments or supplements thereto, or (b) the Registration Statement to
be filed by Lomak with the SEC in connection with the Merger, and any amendments
and supplements thereto, will, (i) in the case of the Registration Statement, at
the time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not
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misleading or (ii) in the case of the Proxy Statement/Prospectus, at the time of
the mailing of the Proxy Statement/Prospectus and at the time of the Lomak
Special Meeting, contain any untrue statement of material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that Lomak makes no representation with
respect to information supplied in writing by the Company for inclusion in the
Registration Statement or the Proxy Statement/Prospectus. If at any time prior
to the Effective Time any event with respect to Lomak, its officers and
directors or any of its Subsidiaries shall occur which is required to be
described in the Proxy Statement/Prospectus or the Registration Statement, such
event shall be so described, and an amendment or supplement shall be promptly
filed with the SEC and, as required by law, disseminated to the stockholders of
Lomak and such amendment or supplement shall comply with all provisions of
applicable law. The Registration Statement will, at the time it becomes
effective, comply as to form in all material respects with the provisions of the
Securities Act.
Section 5.24INTELLECTUAL PROPERTY. Lomak and its Subsidiaries own, or are
licensed or otherwise have the right to use all Intellectual Property currently
used in the conduct of the business of Lomak and its Subsidiaries, except where
the failure to so own or otherwise have the right to use such intellectual
property would not, individually or in the aggregate, have a Lomak Material
Adverse Effect. No Person has notified either Lomak or any of its Subsidiaries
that their use of the Intellectual Property infringes on the rights of any
Person, subject to such claims and infringements as do not, individually or in
the aggregate, give rise to any liability on the part of Lomak and its
Subsidiaries that could have a Lomak Material Adverse Effect, and, to Lomak's
knowledge, no Person is infringing on any right of Lomak or any of its
Subsidiaries with respect to any such Intellectual Property. No claims are
pending or, to Lomak's knowledge, threatened that Lomak or any of its
Subsidiaries is infringing or otherwise adversely affecting the rights of any
Person with regard to any Intellectual Property.
Section 5.25HEDGING. Section 5.25 of the Lomak Disclosure Schedule sets
forth for the periods shown obligations of Lomak and each of its Subsidiaries
for the delivery of Hydrocarbons attributable to any of the properties of Lomak
or any of its Subsidiaries in the future on account of prepayment, advance
payment, take-or-pay or similar obligations without then or thereafter being
entitled to receive full value therefor. Except as set forth in Section 5.25 of
the Lomak Disclosure Schedule and except for fixed price gas contracts entered
into in the ordinary course of business, as of the date of this Agreement,
neither Lomak nor any of its Subsidiaries is bound by futures, hedge, swap,
collar, put, call, floor, cap, option or other contracts that are intended to
benefit from or reduce or eliminate the risk of fluctuations in the price of
commodities, including Hydrocarbons or securities.
Section 5.26BROKERS. No broker, finder or investment banker (other than
PaineWebber Incorporated, the fees and expenses of which will be paid by Lomak
and will not exceed the fee currently set forth in the Lomak Engagement Letter
described below, plus reimbursement of reasonable out of pocket expenses) is
entitled to any brokerage, finder's fee or other fee or commission payable by
Lomak or any of its Subsidiaries in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
Lomak or any of its Subsidiaries. True and correct copies of all agreements and
engagement letters currently in
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effect with PaineWebber Incorporated (the "Lomak Engagement Letters") have been
provided to the Company.
Section 5.27MERGER SUB'S OPERATIONS. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby and has not engaged
in any business activities or conducted any operations other than in connection
with the transactions contemplated hereby.
Section 5.28OPINION OF FINANCIAL ADVISOR. PaineWebber Incorporated has
delivered to the Board of Directors of Lomak its written opinion to the effect
that, as of the date of this Agreement, the Exchange Ratio is fair to Lomak from
a financial point of view.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. From
the date hereof until the Effective Time, unless Lomak shall otherwise agree in
writing, or except as set forth in the Company Disclosure Schedule or as
otherwise contemplated by this Agreement, the Company and its Subsidiaries shall
conduct their business in the ordinary course consistent with past practice and
shall use all reasonable efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and key employees, subject to the terms of this Agreement.
Except as set forth in the Company Disclosure Schedule or as otherwise
contemplated by or provided in this Agreement, and without limiting the
generality of the foregoing, from the date hereof until the Effective Time,
without the written consent of Lomak, which consent shall not be unreasonably
withheld:
(a) Neither the Company nor its Subsidiaries will adopt or propose
any change to its Certificate of Incorporation or Bylaws;
(b) The Company will not, and will not permit any of its
Subsidiaries to (i) declare, set aside or pay any dividend or other distribution
with respect to any shares of capital stock of the Company or its Subsidiaries
or (ii) repurchase, redeem or otherwise acquire any outstanding shares of
capital stock or other securities of, or other ownership interests in, the
Company or any of its Subsidiaries, other than intercompany acquisitions of
stock;
(c) The Company will not, and will not permit any of its
Subsidiaries to, merge or consolidate with any other Person or acquire assets
having an individual purchase price of more than $2.5 million or aggregate
purchase prices of more than $10 million;
(d) Except as set forth in Section 6.1(d) of the Company Disclosure
Schedule, the Company will not, and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise surrender, relinquish or dispose of any assets
or properties with an individual fair market value exceeding $1 million or an
aggregate fair market value exceeding $5 million;
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(e) The Company will not settle any material Audit, make or change
any material Tax election or file any material amended Tax Return;
(f) Except as otherwise permitted by this Agreement, the Company
will not issue any securities (except pursuant to existing obligations disclosed
in the Company SEC Reports or the Company Disclosure Schedule), enter into any
amendment of any term of any outstanding security of the Company or of any of
its Subsidiaries, incur any indebtedness except trade debt in the ordinary
course of business or pursuant to existing credit facilities or arrangements,
fail to make any required contribution to any Company ERISA Plan, increase
compensation, bonus (except as set forth in Section 6.1(f) of the Company
Disclosure Schedule) or other benefits payable to any executive officer or
former employee or enter into any settlement or consent with respect to any
pending litigation;
(g) The Company will not change any method of accounting or
accounting practice by the Company or any of its Subsidiaries, except for any
such change required by GAAP;
(h) The Company will not take any action that would give rise to a
claim under the WARN Act or any similar state law or regulation because of a
"plant closing" or "mass layoff" (each as defined in the WARN Act);
(i) The Company will not amend or otherwise change the terms of the
Company Engagement Letters, except to the extent that any such amendment or
change would result in terms more favorable to the Company;
(j) Neither the Company nor any of its Subsidiaries will become
bound or obligated to participate in any operation, or consent to participate in
any operation, with respect to any Oil and Gas Interests that will individually
cost in excess of $2.5 million unless the operation is a currently existing
obligation of the Company or any of its Subsidiaries or necessary to extend,
preserve or maintain an Oil and Gas Interest;
(k) Neither the Company nor any of its Subsidiaries will enter into
any futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons, or securities,
other than in the ordinary course of business in accordance with the Company's
current policies;
(l) The Company will not, and will not permit any of its
Subsidiaries to (i) take, or agree or commit to take, any action that would make
any representation and warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time or (ii)
omit, or agree or commit to omit, to take any action necessary to prevent any
such representation or warranty from being materially inaccurate in any respect
at any such time;
(m) Neither the Company nor any of its Subsidiaries shall (i) adopt,
amend (other than amendments that reduce the amounts payable by the Company or
any Subsidiary, or amendments required by law to preserve the qualified status
of a Company Benefit Plan) or assume an obligation to contribute to any employee
benefit plan or arrangement of any type or collective
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bargaining agreement or, except as described in Schedule 6.1(m) attached hereto,
enter into any employment, severance or similar contract with any Person
(including, without limitation, contracts with management of the Company or any
Subsidiaries that might require that payments be made upon the consummation of
the transactions contemplated hereby) or amend any such existing contracts to
increase any amounts payable thereunder or benefits provided thereunder, (ii)
engage in any transaction (either acting alone or in conjunction with any
Company Benefit Plan or trust created thereunder) in connection with which the
Company or any Subsidiary could be subjected (directly or indirectly) to either
a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502
of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code,
(iii) terminate any Company Benefit Plan in a manner, or take any other action
with respect to any Company Benefit Plan, that could result in the liability of
the Company or any Subsidiary to any Person, (iv) take any action that could
adversely affect the qualification of any Company Benefit Plan or its compliance
with the applicable requirements of ERISA, (v) fail to make full payment when
due of all amounts which, under the provisions of any Company Benefit Plan, any
agreement relating thereto or applicable law, the Company or any Subsidiary are
required to pay as contributions thereto or (vi) fail to file, on a timely
basis, all reports and forms required by federal regulations with respect to any
Company Benefit Plan; and
(n) The Company will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
Section 6.2 CONDUCT OF BUSINESS BY LOMAK PENDING THE MERGER. From the date
hereof until the Effective Time, unless the Company shall otherwise agree in
writing, or except as set forth in the Lomak Disclosure Schedule or as otherwise
contemplated by this Agreement, Lomak shall conduct, and shall cause its
Subsidiaries to conduct, its business in the ordinary course consistent with
past practice and shall use, and shall cause its each of its Subsidiaries to
use, all reasonable efforts to preserve intact its business organizations and
relationships with third parties and to keep available the services of its key
employees, subject to the terms of this Agreement. Except as set forth in the
Lomak Disclosure Schedule or as otherwise contemplated by or provided in this
Agreement, and without limiting the generality of the foregoing, from the date
hereof until the Effective Time, without the written consent of the Company,
which consent shall not be unreasonably withheld:
(a) Neither Lomak nor Merger Sub will adopt or propose any change to
its Certificate of Incorporation or Bylaws;
(b) Lomak will not, and will not permit any of its Subsidiaries to
(i) declare, set aside or pay any dividend or other distribution with respect to
any shares of capital stock of Lomak or its Subsidiaries other than regular
quarterly dividends not in excess of 150% of the per share dividends currently
paid or (ii) repurchase, redeem or otherwise acquire any outstanding shares of
capital stock or other securities of, or other ownership interests in, Lomak or
any of its Subsidiaries, other than intercompany acquisitions of stock;
(c) Neither Lomak nor Merger Sub will merge or consolidate with any
other Person or acquire assets having an individual purchase price of more than
$5 million or aggregate purchase prices of more than $20 million;
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(d) Except as set forth in Section 6.2(d) of the Lomak Disclosure
Schedule, neither Lomak nor any of its Subsidiaries will sell, lease, license or
otherwise surrender, relinquish or dispose of any assets or properties with an
individual fair market value exceeding $2 million or an aggregate fair market
value exceeding $10 million;
(e) Lomak will not settle any material Audit, make or change any
material Tax election or file any material amended Tax Return;
(f) Except as otherwise permitted by this Agreement, Lomak will not
issue any securities (except pursuant to existing obligations disclosed in the
Lomak SEC Reports or the Lomak Disclosure Schedule), enter into any amendment of
any term of any outstanding security of Lomak or of any of its Subsidiaries,
incur any indebtedness except trade debt in the ordinary course of business or
pursuant to existing credit facilities or arrangements, fail to make any
required contribution to any Lomak ERISA Plan, increase compensation, bonus
(except as set forth in Section 6.2(f) of the Lomak Disclosure Schedule) or
other benefits payable to any executive officer or former employee or enter into
any settlement or consent with respect to any pending litigation;
(g) Lomak will not change any method of accounting or accounting
practice, except for any such change required by GAAP;
(h) Lomak will not amend or otherwise change the terms of the Lomak
Engagement Letters, except to the extent that any such amendment or change would
result in terms more favorable to Lomak;
(i) Neither Lomak nor any of its Subsidiaries will become bound or
obligated to participate in any operation, or consent to participate in any
operation, with respect to any Oil and Gas Interest that will individually cost
in excess of $2.5 million unless the operation is a currently existing
obligation of Lomak or any of its Subsidiaries or necessary to extend, preserve
or maintain an Oil and Gas Interest;
(j) Neither Lomak nor any of its Subsidiaries will enter into any
futures, hedge, swap, collar, put, call, floor, cap, option or other contracts
that are intended to benefit from or reduce or eliminate the risk of
fluctuations in the price of commodities, including Hydrocarbons, or securities,
other than in the ordinary course of business in accordance with Lomak's current
policies;
(k) Lomak will not, and will not permit any of its Subsidiaries to
(i) take, or agree or commit to take, any action that would make any
representation and warranty of Lomak or Merger Sub hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time or (ii)
omit, or agree or commit to omit, to take any action necessary to prevent any
such representation or warranty from being materially inaccurate in any respect
at any such time;
(l) Neither Lomak nor any of its Subsidiaries shall (i) adopt, amend
(other than amendments that reduce the amounts payable by Lomak or any
Subsidiary, or amendments required by law to preserve the qualified status of a
Lomak Benefit Plan) or assume an obligation to contribute to any employee
benefit plan or arrangement of any type or collective bargaining agreement or
enter into any employment, severance or similar contract with any Person
(including,
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without limitation, contracts with management of Lomak or any Subsidiaries that
might require that payments be made upon consummation of the transactions
contemplated hereby) or amend any such existing contracts to increase any
amounts payable thereunder or benefits provided thereunder, (ii) engage in any
transaction (either acting alone or in conjunction with any Lomak Benefit Plan
or trust created thereunder) in connection with which Lomak or any Subsidiary
could be subjected (directly or indirectly) to either a civil penalty assessed
pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code, (iii) terminate any Lomak
Benefit Plan in a manner, or take any other action with respect to any Lomak
Benefit Plan, that could result in the liability of Lomak or any Subsidiary to
any Person, (iv) take any action that could adversely affect the qualification
of any Lomak Benefit Plan or its compliance with the applicable requirements or
ERISA, (v) fail to make full payment when due of all amounts which, under the
provisions of any Lomak Benefit Plan, any agreement relating thereto or
applicable law, Lomak or any Subsidiary are required to pay as contributions
thereto or (vi) fail to file, on a timely basis, all reports and forms required
by federal regulations with respect to any Lomak Benefit Plan; and
(m) Lomak will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
Section 6.3 CONDUCT OF BUSINESS OF MERGER SUB. From the date hereof to the
Effective Time, Merger Sub shall not engage in any activities of any nature
except as provided in or contemplated by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS AND INFORMATION. The parties shall each afford to the
other and to the other's financial advisors, legal counsel, accountants,
consultants, financing sources and other authorized representatives access
during normal business hours throughout the period prior to the Effective Time
to all of its books, records, properties, contracts, leases, plants and
personnel and, during such period, each shall furnish promptly to the other (a)
a copy of each report, schedule and other document filed or received by it
pursuant to the requirements of federal or state securities laws, and (b) all
other information as such other party reasonably may request, provided that no
investigation pursuant to this Section 7.1 shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Merger. Each party shall hold in confidence all
non-public information until such time as such information is otherwise publicly
available and, if this Agreement is terminated, each party will deliver to the
other all documents, work papers and other materials (including copies) obtained
by such party or on its behalf from the other party as a result of this
Agreement or in connection herewith, whether so obtained before or after the
execution hereof. Notwithstanding the foregoing, the Confidentiality Agreement
dated March 31, 1998 between Lomak and the Company shall survive the execution
and delivery of this Agreement.
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Section 7.2 ACQUISITION PROPOSALS.
(a) From the date hereof until the termination hereof, the Company
and its Subsidiaries will not, and will cause their respective officers,
directors, employees or other agents not to, directly or indirectly, (i) take
any action to solicit, initiate or encourage any Company Acquisition Proposal or
(ii) engage in negotiations with, or disclose any nonpublic information relating
to the Company or its Subsidiaries, respectively, or afford access to their
respective properties, books or records to any Person that may be considering
making, or has made, a Company Acquisition Proposal. Nothing contained in this
Section 7.2 shall prohibit the Company and its Board of Directors from taking
and disclosing a position with respect to a tender offer by a third party
pursuant to Rules 14d-9 and 14e-2(a) promulgated by the SEC under the Exchange
Act.
(b) The term "Company Acquisition Proposal" as used herein means any
offer or proposal for, or any indication of interest in, a merger or other
business combination directly or indirectly involving the Company or any Company
Subsidiary or the acquisition of a substantial equity interest in, or a
substantial portion of the assets of, any such party, other than the
transactions contemplated by this Agreement.
Section 7.3 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) For six years after the Effective Time, Lomak shall indemnify,
defend and hold harmless the present and former officers and directors of the
Company and its Subsidiaries (each an "Indemnified Party") against all losses,
claims, damages, liabilities, fees and expenses (including reasonable fees and
disbursements of counsel and judgments, fines, losses, claims, liabilities and
amounts paid in settlement (provided that any such settlement is effected with
the prior written consent of Lomak, which shall not be unreasonably withheld))
in connection with any claim, action, suit, proceeding or investigation (an
"Action") arising out of actions or omissions in their capacity as such
occurring at or prior to the Effective Time to the full extent permitted under
the DGCL or the Company's Certificate of Incorporation, Bylaws or written
indemnification agreements in effect at the date hereof, including provisions
therein relating to the advancement of expenses incurred in the defense of any
action or suit; provided, that in the event any claim or claims are asserted or
made within such six-year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims; and PROVIDED, FURTHER, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under the DGCL, the Company's Certificate of Incorporation or Bylaws
or such agreements, as the case may be, shall be made by independent counsel
mutually acceptable to Lomak and the Indemnified Party; and PROVIDED, FURTHER,
that nothing herein shall impair any rights or obligations of any present or
former directors or officers of the Company. In the event of any Action, any
Indemnified Party wishing to claim indemnification will promptly notify Lomak
thereof (provided that failure to so notify Lomak will not affect the
obligations of Lomak to provide indemnification except to the extent that Lomak
shall have been prejudiced as a result of such failure). With respect to any
Action for which indemnification is requested, Lomak will be entitled to
participate therein at its own expense and, except as otherwise provided below,
to the extent that it may wish, Lomak may assume the defense thereof, with
counsel reasonably satisfactory to the Indemnified Party. After notice from
Lomak to the Indemnified Party of its election to assume the defense of an
Action, Lomak will not be liable to the Indemnified Party in connection with the
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defense thereof, other than as provided below. Lomak will not settle any Action
without the Indemnified Party's written consent (which consent will not be
unreasonably withheld). The Indemnified Party will have the right to employ
counsel in any Action, but the fees and expenses of such counsel incurred after
notice from Lomak of its assumption of the defense thereof will be at the
expense of the Indemnified Party, unless (i) the employment of counsel by the
Indemnified Party has been authorized by Lomak, (ii) the Indemnified Party will
have reasonably concluded upon the advice of counsel that there may be a
conflict of interest between the Indemnified Party and Lomak in the conduct of
the defense of an action, or (iii) Lomak shall not in fact have employed counsel
to assume the defense of an Action, in each of which cases the reasonable fees
and expenses of counsel selected by the Indemnified Party will be at the expense
of Lomak. Notwithstanding the foregoing, Lomak will not be liable for any
settlement effected without its written consent (which shall not be unreasonably
withheld) and Lomak will not be obligated pursuant to this Section 7.3(a) to pay
the fees and disbursements of more than one counsel for all Indemnified Parties
in any single Action, except to the extent two or more of such Indemnified
Parties have conflicting interests in the outcome of such action.
(b) Lomak shall maintain the Company's existing officers' and
directors' liability insurance policy ("D&O Insurance") for a period of not less
than six years after the Effective Time, but only to the extent related to
actions or omissions prior to the Effective Time; PROVIDED, that Lomak may
substitute therefor policies of substantially similar coverage and amounts with
a comparably rated underwriter containing terms no less advantageous in any
material respect to such former directors or officers; PROVIDED FURTHER, that
the aggregate amount of premiums to be paid with respect to the maintenance of
such D&O Insurance for such six year period shall not exceed $600,000.
(c) Lomak will cause the Surviving Corporation to keep in effect
provisions in its certificate of incorporation and bylaws providing for
exculpation of director and officer liability and its indemnification of the
Indemnified Parties to the fullest extent permitted under the DGCL, which
provisions will not be amended except as required by applicable law or except to
make changes permitted by law that would enlarge the Indemnified Parties' right
of indemnification.
(d) The provisions of this Section 7.3 will survive the consummation
of the Merger and expressly are intended to benefit each of the Indemnified
Parties.
Section 7.4 FURTHER ASSURANCES. Each party hereto agrees to use all
reasonable efforts to obtain all consents and approvals and to do all other
things necessary for the consummation of the transactions contemplated by this
Agreement. The parties agree to take such further action to deliver or cause to
be delivered to each other at the Closing and at such other times thereafter as
shall be reasonably agreed such additional agreements or instruments as any of
them may reasonably request for the purpose of carrying out this Agreement and
agreements and transactions contemplated hereby and thereby.
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Section 7.5 EXPENSES.
(a) All Expenses (as defined below) incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such expenses except as expressly provided herein and except that both
(i) the filing fee in connection with the filing of the Registration Statement
or Proxy Statement/Prospectus with the SEC and (ii) the expenses incurred in
connection with printing and mailing the Registration Statement and the Proxy
Statement/Prospectus will be shared equally by the Company and Lomak.
(b) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including, without limitation, all reasonable
fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement, the Proxy
Statement/Prospectus, the solicitation of stockholder approvals and all other
matters related to the consummation of the transactions contemplated hereby.
Section 7.6 COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of the parties hereto shall
confer on a regular and frequent basis with one or more representatives of the
other parties to report operational matters of materiality and the general
status of ongoing operations and shall promptly provide the other party or its
counsel with copies of all filings made by such party with any Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby.
Section 7.7 PUBLICITY. Neither the Company, Lomak nor any of their
respective affiliates shall issue or cause the publication of any press release
or other announcement with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by any listing agreement with a
national securities exchange. The parties agree to respond promptly to any press
release or other announcement submitted for comment pursuant to this Section
7.7.
Section 7.8 ADDITIONAL ACTIONS. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, to consummate and make
effective the Merger and the other transactions contemplated by this Agreement,
subject, however, to the appropriate vote of stockholders of the Company and
Lomak required so to vote.
Section 7.9 FILINGS. Each party hereto shall make all filings required to
be made by such party in connection herewith or desirable to achieve the
purposes contemplated hereby, and shall cooperate as needed with respect to any
such filing by any other party hereto.
Section 7.10CONSENTS. Each of Lomak, Merger Sub and the Company shall use
all reasonable efforts to obtain all consents necessary or advisable in
connection with its obligations hereunder.
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Section 7.11EMPLOYEE MATTERS; BENEFIT PLANS. After the Effective Time,
Lomak will provide to any employees of the Company who are employed by the
Company as of the Effective Time (the "Retained Employees") the same base salary
or wages provided to such employees prior to the Effective Time. From and after
the Effective Time until January 1, 1999, Lomak will provide, or cause to be
provided to, the Retained Employees employee plans that are comparable to the
employee plans that Lomak provides to its similarly situated employees or
provide coverage under existing Lomak benefit plans provided to similarly
situated employees. Further, Lomak shall (i) waive, or cause to be waived, any
preexisting condition limitations applicable to the Retained Employees under any
group medical plan to the extent that a Retained Employee's condition would not
have operated as a preexisting condition limitation under the Company's group
medical plan, (ii) cause any employee pension benefit plan (as such term is
defined in section 3(2) of ERISA) which is intended to be qualified under
Section 401 of the Code to be amended to provide that the Retained Employees
shall receive credit for participation and vesting purposes under such plan for
their period of employment with the Company and its predecessors to the extent
such predecessor employment was recognized by the Company, and (iii) credit the
Retained Employees under each other employee benefit plan or policy which is not
described in clause (ii) above for their period of employment with the Company
or its predecessors to the extent such predecessor employment was recognized by
the Company, but not in excess of the maximum credit available to Lomak's
employees under such plan or policy. At the Effective Time, Lomak shall assume,
and shall, and shall cause the Surviving Corporation to, honor and perform all
obligations of the Company under (i) the employment arrangements described in
Schedule 6.1(m), (ii) the Company's employment agreements with each of Michael
V. Ronca and Michael L. Harvey, as in effect on the date hereof and as may be
amended in the manner described in Schedule 6.1(m), (iii) the Company Employee
Plan and all Amended and Restated Non-Qualified Stock Option Agreements executed
thereunder, as same may be amended as contemplated by Section 3.3 hereof and
(iv) the Company Director Plan and all stock option grant agreements executed
thereunder, as the same may be amended as contemplated by Section 3.3 hereof.
Section 7.12LOMAK BOARD. Lomak shall take action to cause the number of
directors on the Lomak Board immediately after the Effective Time to be
increased by two directors and shall cause the President of the Company and
Chairman of the Board of the Company elected to the Board of Directors
immediately after the Effective Time. Lomak agrees to nominate such newly
appointed directors for election by Lomak's stockholders at Lomak's 1999 Annual
Meeting of Stockholders.
Section 7.13STOCKHOLDERS MEETINGS.
(a) APPROVAL OF THE COMPANY STOCKHOLDERS. The Company shall, as
promptly as reasonably practicable after the date hereof (i) take all steps
reasonably necessary to call, give notice of, convene and hold a special meeting
of its stockholders (the "Company Special Meeting") for the purpose of securing
the Company Stockholder Approval, (ii) distribute to its stockholders the Proxy
Statement/Prospectus in accordance with applicable federal and state law and
with its certificate of incorporation and bylaws, which Proxy
Statement/Prospectus shall contain the recommendation of the Board of Directors
of the Company that its stockholders approve the Merger, this Agreement and the
transactions contemplated hereby, (iii) use all reasonable efforts to solicit
from its stockholders proxies in favor of the approval and adoption of the
Merger, this Agreement and the transactions contemplated hereby and to secure
the Company Stockholder Approval, and (iv) cooperate and
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consult with Lomak with respect to each of the foregoing matters. The parties
acknowledge that, in lieu of the Company Special Meeting, the Company
Stockholder Approval may be obtained by the execution of written stockholder
consents pursuant to Section 228 of the DGCL by the holders of at least a
majority of the outstanding shares of Company Common Stock, and that in such
event, the Registration Statement shall include an information statement with
respect to the holders of Company Common Stock pursuant to Section 14(c) under
the Exchange Act.
(b) APPROVAL OF LOMAK STOCKHOLDERS. Lomak shall, as promptly as
reasonably practicable after the date hereof (i) take all steps reasonably
necessary to call, give notice of, convene and hold a special meeting of its
stockholders (the "Lomak Special Meeting") for the purpose of securing the Lomak
Stockholder Approval, (ii) distribute to its stockholders the Proxy
Statement/Prospectus in accordance with applicable federal and state law and its
certificate of incorporation and bylaws, which Proxy Statement/Prospectus shall
contain the recommendation of the Lomak Board of Directors that its stockholders
approve the Stock Issuance and (iii) use all reasonable efforts to solicit from
its stockholders proxies in favor of the approval of the Stock Issuance and to
secure the Lomak Stockholder Approval, and (iv) cooperate and consult with the
Company with respect to each of the foregoing matters. Lomak, as the sole
stockholder of Merger Sub, has consented to the adoption of this Agreement by
Merger Sub and agrees that such consent shall be treated for all purposes as a
vote duly adopted at a meeting of the stockholders of Merger Sub held for this
purpose.
(c) MEETING DATE. The Lomak Special Meeting and the Company Special
Meeting shall be held on the same day unless otherwise agreed by Lomak and the
Company.
Section 7.14PREPARATION OF THE PROXY STATEMENT/PROSPECTUS AND REGISTRATION
STATEMENT.
(a) Lomak and the Company shall promptly prepare and file with the
SEC a preliminary version of the Proxy Statement/Prospectus and will use all
reasonable efforts to respond to the comments of the SEC in connection therewith
and to furnish all information required to prepare the definitive Proxy
Statement/Prospectus. Each of Lomak and the Company shall use all reasonable
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing and to keep the
Registration Statement effective as long as is necessary to consummate the
Merger. Lomak shall also take any action (other than qualifying to do business
in any jurisdiction in which it is not now so qualified or filing a general
consent to service of process in any jurisdiction) required to be taken under
any applicable state securities laws in connection with the issuance of Lomak
Common Stock in the Merger and the Company shall furnish all information
concerning the Company and the holders of shares of the Company Common Stock as
may be reasonably requested in connection with any such action. The Company
authorizes Lomak to utilize in the Registration Statement the information
concerning the Company and its Subsidiaries provided to Lomak for the purpose of
inclusion in the Proxy Statement/Prospectus. The Company shall have the right to
review and comment on the form of proxy statement and prospectus included in the
Registration Statement. Promptly after the effectiveness of the Registration
Statement, each of Lomak and the Company shall cause the Proxy
Statement/Prospectus to be mailed to its respective stockholders, and if
necessary, after the definitive Proxy Statement/Prospectus shall have been
mailed, promptly circulate amended, supplemented or supplemental proxy materials
and, if required in connection therewith, resolicit proxies. Lomak shall advise
the Company and the
47
<PAGE>
Company shall advise Lomak, as applicable, promptly after it receives notice
thereof, of the time when the Registration Statement shall become effective or
any supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Lomak Common Stock for offering or sale
in any jurisdiction, or any request by the SEC for amendment of the Proxy
Statement/Prospectus or the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information. Prior to
the Effective Time or the termination of this Agreement, each party shall
consult with each other with respect to any material (other than the Proxy
Statement/Prospectus) that constitutes a "prospectus" relating to the Merger
within the meaning of the Securities Act. Lomak shall furnish such information
concerning Lomak as is necessary to cause the Proxy Statement/Prospectus,
insofar as it relates to Lomak, to be prepared in accordance with this Section
7.14. Lomak agrees promptly to advise the Company if at any time prior to the
Company Special Meeting (or in the case of the delivery of an information
statement pursuant to Section 14(c) under the Exchange Act, the date of mailing
thereof) any information provided by Lomak in the Proxy Statement/Prospectus
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or omission. The Company shall
furnish Lomak such information concerning the Company and its Subsidiaries as is
necessary to cause the Proxy Statement/Prospectus, insofar as it relates to the
Company and its Subsidiaries, to be prepared in accordance with this Section
7.14. The Company agrees promptly to advise Lomak if at any time prior to the
Lomak Special Meeting any information provided by the Company in the Proxy
Statement/Prospectus becomes incorrect or incomplete in any material respect,
and to provide the information needed to correct such inaccuracy or omission.
(b) LETTER OF LOMAK'S ACCOUNTANTS. Following receipt by Arthur
Andersen LLP, Lomak's independent auditors, of an appropriate request from the
Company pursuant to SAS No. 72, Lomak shall use all reasonable efforts to cause
to be delivered to the Company a letter of Arthur Andersen LLP, dated a date
within two business days before the effective date of the Registration
Statement, and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements and proxy statements similar to the Proxy
Statement/Prospectus. Lomak shall also use all reasonable efforts to obtain from
Arthur Andersen LLP any consents of such firm required in connection with the
filing of the Proxy Statement/Prospectus with the SEC.
(c) LETTER OF THE COMPANY'S ACCOUNTANTS. Following receipt by
Deloitte & Touche LLP, the Company's independent auditors, of an appropriate
request from Lomak pursuant to SAS No. 72, the Company shall use all reasonable
efforts to cause to be delivered to Lomak a letter of Deloitte & Touche LLP,
dated a date within two business days before the effective date of the
Registration Statement, and addressed to Lomak, in form and substance
satisfactory to Lomak and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements and proxy statements similar to the Proxy
Statement/Prospectus. The Company shall also use all reasonable efforts to
obtain from Deloitte & Touche LLP any consents of such firm required in
connection with the filing of the Proxy Statement/Prospectus with the SEC.
48
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Section 7.15STOCK EXCHANGE LISTING. Lomak shall use all reasonable efforts
to cause the Lomak Common Stock to be issued in the Merger to be approved for
listing on the NYSE prior to the Effective Time, in each case, subject to
official notice of issuance.
Section 7.16NOTICE OF CERTAIN EVENTS. Each party to this Agreement shall
promptly as reasonably practicable notify the other parties hereto of:
(a) any notice or other communication from any Person alleging that
the consent of such Person (or other Person) is or may be required in connection
with the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge, threatened against, relating to or
involving or otherwise affecting it or any of its Subsidiaries which, if pending
on the date of this Agreement, would have been required to have been disclosed
pursuant to Sections 4.10, 4.12, 5.10 or 5.12 or which relate to the
consummation of the transactions contemplated by this Agreement;
(d) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received by it or any of its Subsidiaries subsequent to the date of this
Agreement, under any material agreement; and
(e) any Company Material Adverse Effect or Lomak Material Adverse
Effect or the occurrence of any event which is reasonably likely to result in a
Company Material Adverse Effect or a Lomak Material Adverse Effect, as the case
may be.
Section 7.17SITE INSPECTIONS. Subject to compliance with applicable law
(including applicable Environmental Laws), from the date hereof until the
Effective Time, each of the parties hereto may undertake (at that party's sole
cost and expense) an environmental assessment or assessments (an "Assessment")
of any other party's operations, business and/or properties that are the subject
of this Agreement. An Assessment may include, but not be limited to, a review of
permits, files and records, as well as visual and physical inspections and
testing. Before conducting an Assessment, the party intending to conduct such
Assessment (the "Inspecting Party") shall confer with the party whose
operations, business or property is the subject of such Assessment (the
"Inspected Party") regarding the nature, scope and scheduling of such
Assessment, and shall comply with such conditions as the Inspected Party may
reasonably impose to avoid interference with the Inspected Party's operations or
business. The Inspected Party shall cooperate in good faith with the Inspecting
Party's effort to conduct an Assessment.
Section 7.18 CHIEF OPERATING OFFICER. Immediately after the Effective
Time, Michael V. Ronca shall be elected by the Lomak Board of Directors as Chief
Operating Officer of Lomak.
Section 7.19 CHARTER AMENDMENTS; NAME. At the Effective Time, the name of
Lomak shall be changed to "Range Resources Corporation" (the "Name Change"), and
Lomak shall use all
49
<PAGE>
reasonable efforts to take such actions as are necessary to amend the
Certificate of Incorporation of Lomak to reflect the Name Change; PROVIDED,
HOWEVER, that obtaining the requisite stockholder approval to effect the Name
Change shall not constitute a condition to the obligations of either party to
consummate the transactions contemplated by this Agreement.
Section 7.20VOTING AGREEMENT. Concurrently with the execution of this
Agreement, Lomak shall enter into the Voting Agreement with the Principal
Stockholder regarding, among other things, the voting of shares of Company
Common Stock. Concurrently with the execution of this Agreement, Lomak and the
Principal Stockholder shall enter into the Stock Purchase Agreement, pursuant to
which Lomak shall agree, on the terms and subject to the conditions set forth
therein, to acquire at least 3,250,000 of the outstanding shares of Company
Common Stock for $13.50 per share in cash.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 CONDITIONS TO THE OBLIGATION OF EACH PARTY. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by the party being benefitted
thereby, to the extent permitted by applicable law:
(a) The Company Stockholder Approval and the Lomak Stockholder
Approval shall have been obtained.
(b) No action, suit or proceeding instituted by any Governmental
Authority shall be pending and no statute, rule or regulation and no injunction,
order, decree or judgment of any court or Governmental Authority of competent
jurisdiction shall be in effect which would prohibit, restrain, enjoin or
restrict the consummation of the Merger.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and shall be effective at
the Effective Time, and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceeding for such purpose
shall be pending before or threatened by the SEC.
(d) Each of the Company and Lomak shall have obtained such permits,
authorizations, consents, or approvals required to be obtained by such party (or
its Subsidiaries or Affiliates) to consummate the transactions contemplated
hereby.
(e) The shares of Lomak Common Stock to be issued in the Merger
shall have been approved for listing on the NYSE subject to official notice of
issuance.
(f) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired.
50
<PAGE>
Section 8.2 CONDITIONS TO THE OBLIGATIONS OF LOMAK AND MERGER SUB. The
obligation of Lomak and Merger Sub to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by Lomak and Merger Sub, as
the case may be, to the extent permitted by applicable law:
(a) The Company shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all respects, in each
case except for such failures to be so true and correct (without giving effect
for purposes of this Section 8.2(a) to the individual materiality standards
otherwise contained in Article IV hereof) which would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect,
in each case as of the date of this Agreement and at and as of the Effective
Time as if made at and as of such time, except as expressly contemplated by this
Agreement, and Lomak shall have received a certificate of the President and
Chief Executive Officer and Chief Financial Officer of the Company as to the
satisfaction of this condition.
(b) The transactions contemplated by the Stock Purchase Agreement
shall have been consummated on or prior to the Effective Time in accordance with
the terms thereof, and as a result of such transactions, Lomak shall have
acquired at least 3,250,000 shares of outstanding Company Common Stock.
Section 8.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is subject to the satisfaction at or prior
to the Effective Time of the following conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
law:
(a) Each of Lomak and Merger Sub shall have performed in all
material respects its obligations under this Agreement required to be performed
by it at or prior to the Effective Time and the representations and warranties
of each of Lomak and Merger Sub contained in this Agreement, shall be true and
correct in all respects, in each case except for such failures to be so true and
correct (without giving effect for purposes of this Section 8.3(a) to the
individual materiality standards otherwise contained in Article V hereof) which
would not, individually or in the aggregate, reasonably be expected to have a
Lomak Material Adverse Effect, in each case as of the date of this Agreement and
at and as of the Effective Time as if made at and as of such time, except as
expressly contemplated by this Agreement, and the Company shall have received a
certificate of the President and Chief Executive Officer and Chief Financial
Officer of Lomak and an executive officer and the chief financial officer of
Merger Sub as to the satisfaction of this condition.
ARTICLE IX
SURVIVAL
Section 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in this Agreement shall
not survive the Closing.
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Section 9.2 SURVIVAL OF COVENANTS AND AGREEMENTS. The covenants and
agreements of the parties to be performed after the Closing contained in this
Agreement shall survive the Closing.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of Lomak and the Company:
(a) by the mutual written consent of the Boards of Directors of
Lomak and the Company;
(b) by either Lomak or the Company if the Effective Time shall not
have occurred on or before October 31, 1998 (provided that the right to
terminate this Agreement under this subsection (b) shall not be available to any
party who at the time of the proposed termination is in material breach of any
of its obligations under this Agreement);
(c) by the Company, if there has been a material breach by Lomak or
Merger Sub of any covenant or agreement set forth in this Agreement, the Voting
Agreement or the Stock Purchase Agreement or if there shall be a breach by Lomak
of any representation contained in Article V hereof that would result in a
failure to satisfy the conditions set forth in Section 8.3(a), in each case
which breach (if susceptible to cure) has not been cured in all material
respects within twenty business days following receipt by Lomak of notice of
such breach;
(d) by Lomak, if there has been a material breach by the Company or
the Principal Stockholder of any covenant or agreement set forth in this
Agreement, the Voting Agreement or the Stock Purchase Agreement, or if there
shall be a breach by the Company of any representation contained in Article IV
hereof that would result in a failure to satisfy the conditions set forth in
Section 8.2(a) or a material breach by the Principal Stockholder of the Voting
Agreement or Stock Purchase Agreement, in each case which breach (if susceptible
to cure) has not been cured in all material respects within twenty business days
following receipt by the Company or Principal Stockholder as applicable, of
notice of such breach (the "Company Breach");
(e) by either the Company or Lomak, if there shall be any applicable
domestic law, rule or regulation that makes consummation of the Merger illegal
or if any judgment, injunction, order or decree of a court or other Governmental
Authority of competent jurisdiction shall restrain or prohibit the consummation
of the Merger, and such judgment, injunction, order or decree shall become final
and nonappealable; or
(f) by either the Company or Lomak, if the stockholder approvals
referred to in Section 7.13 shall not have been obtained by reason of the
failure to obtain the requisite vote upon a vote at a duly held meeting of
stockholders or at any adjournment or postponement thereof.
52
<PAGE>
Section 10.2EFFECT OF TERMINATION. In the event of termination of the
Agreement and the abandonment of the Merger pursuant to this Article X, all
obligations of the parties shall terminate, except the obligations of the
parties pursuant to this Section 10.2 and except for the provisions of Sections
7.5, 7.7 and 11.8 and the last two sentences of Section 7.1, PROVIDED that
nothing herein shall relieve any party from liability for any willful breaches
hereof.
ARTICLE XI
MISCELLANEOUS
Section 11.1NOTICES. All notices or communications hereunder shall be in
writing (including facsimile or similar writing) addressed as follows:
To Lomak or Merger Sub:
Lomak Petroleum, Inc.
500 Throckmorton Street, Suite 1900
Fort Worth, Texas 76102
Attention: John H. Pinkerton
Facsimile No.: (817) 870-2316
With a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Attention: J. Mark Metts
Facsimile No.: (713) 615-5605
To the Company:
Domain Energy Corporation
16801 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
Attention: Michael V. Ronca
Facsimile No.: (281) 618-1977
With copies to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: James L. Rice III
Facsimile No.: (713) 224-9511
53
<PAGE>
and:
First Reserve Fund VII, Limited Partnership
c/o First Reserve Corporation
1801 California Street, Suite 4110
Denver, Colorado 80202
Attention: Thomas R. Denison
Facsimile No.: (303) 382-1275
Any such notice or communication shall be deemed given (a) when made, if made by
hand delivery, and upon confirmation of receipt, if made by facsimile, (b) one
Business Day after being deposited with a next-day courier, postage prepaid, or
(c) three Business Days after being sent certified or registered mail, return
receipt requested, postage prepaid, in each case addressed as above (or to such
other address as such party may designate in writing from time to time).
Section 11.2SEPARABILITY. 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.
Section 11.3ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and assigns; PROVIDED, HOWEVER, that neither this
Agreement nor any rights hereunder shall be assignable or otherwise subject to
hypothecation and any assignment in violation hereof shall be null and void.
Section 11.4INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 11.5COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each party.
Section 11.6ENTIRE AGREEMENT. This Agreement (together with the Company
Disclosure Schedules and the Lomak Disclosure Schedules) represents the entire
Agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings between
the parties hereto with respect to the subject matter hereof.
Section 11.7GOVERNING LAW. This Agreement shall be construed, interpreted,
and governed in accordance with the laws of Delaware, without reference to rules
relating to conflicts of law.
Section 11.8ATTORNEYS' FEES. If any action at law or equity, including an
action for declaratory relief, is brought to enforce or interpret any provision
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses from the other party, which fees and expenses shall
be in addition to any other relief which may be awarded.
54
<PAGE>
Section 11.9NO THIRD PARTY BENEFICIARIES. Except as provided in Section
7.3, no Person or entity other than the parties hereto is an intended
beneficiary of this Agreement or any portion hereof.
Section 11.10 DISCLOSURE SCHEDULES. The disclosures made on any disclosure
schedule, including the Company Disclosure Schedule and the Lomak Disclosure
Schedule, with respect to any representation or warranty shall be deemed to be
made with respect to any other representation or warranty requiring the same or
similar disclosure to the extent that the relevance of such disclosure to other
representations and warranties is evident from the face of the disclosure
schedule. The inclusion of any matter on any disclosure schedule will not be
deemed an admission by any party that such listed matter is material or that
such listed matter has or would have a Company Material Adverse Effect or a
Lomak Material Adverse Effect, as applicable.
Section 11.11 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified except by an instrument in
writing signed by all the parties hereto. This Agreement may be amended by the
parties hereto, by action taken by their respective Board of Directors, at any
time before or after approval of matters presented in connection with the Merger
by the stockholders of Lomak, Merger Sub and the Company, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval.
Section 11.12 NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
LOMAK PETROLEUM, INC.
By: /s/ JOHN H. PINKERTON
John H. Pinkerton
President and Chief Executive Officer
DEC ACQUISITION, INC.
By: /s/ JOHN H. PINKERTON
John H. Pinkerton
President
DOMAIN ENERGY CORPORATION
By: /s/ MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive Officer
56
EXHIBIT 10.6
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated May 12, 1998
(this "Amendment"), to the Agreement and Plan of Merger, dated as of May 12,
1998, by and among Lomak Petroleum, Inc., a Delaware corporation ("Lomak"),
Domain Energy Corporation, a Delaware corporation (the "Company"), and DEC
Acquisition, Inc., a Delaware corporation ("Merger Sub").
WITNESSETH:
WHEREAS, Lomak, the Company and Merger Sub are parties to an Agreement and
Plan of Merger, dated as of May 12, 1998 (the "Original Merger Agreement"),
providing for the merger of Merger Sub with and into the Company on the terms
and conditions set forth therein; and
WHEREAS, Lomak, the Company and Merger Sub desire to amend the Original
Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained and other valuable
consideration, the receipt and adequacy whereof are hereby acknowledged, the
parties hereto hereby, intending to be legally bound, represent, warrant,
covenant and agree as follows:
1. Capitalized terms used and not defined herein shall have the meaning
given to such terms in the Original Merger Agreement.
2. The Company hereby represents and warrants to Lomak and Merger Sub as
follows, which representations and warranties shall be deemed to form part of
the representations and warranties of the Company included in Article IV of the
Original Merger Agreement for all purposes of the Original Merger Agreement:
(a) First Reserve Fund VII, Limited Partnership (the "Principal
Stockholder") is the record owner of 7,820,718 shares of Company Common Stock;
(b) on the date hereof, 7,553,860 votes constituted a majority of
the outstanding voting power of Company Common Stock; and
(c) on the date hereof, the Principal Stockholder has delivered a
written consent to the Company approving and adopting the Original Merger
Agreement in accordance with applicable law, including without limitation the
DGCL, and such consent will, upon mailing by the Company of the notice as
described in Section 3 below, constitute the Company Stockholder Approval and no
other approvals of the stockholders of the Company other than such consent are
required to effect the Merger.
1
<PAGE>
3. The Company will, promptly after the execution of this Amendment, mail,
in accordance with Section 228(d) of the DGCL, notice of the corporation action
without a meeting taken by the Principal Stockholder to those Company
stockholders who have not consented to such action in writing and who, if the
action had been taken at a meeting of Company stockholders, would have been
entitled to notice of the meeting if the record date for such meeting had been
the date that written consents signed by a sufficient number of holders to take
such action were delivered to the Company in accordance with Section 228(c) of
the DGCL. The covenant of the Company in this Section 3 shall be deemed to form
part of the covenants of the Company included in Article VII of the Original
Merger Agreement for all purposes of the Original Merger Agreement.
4. All references to "Proxy Statement/Prospectus" in the Original Merger
Agreement shall be deemed in all cases in the Original Merger Agreement to
include the information statement required to be sent to the Company's
stockholders pursuant to Section 14(c) of the Exchange Act in connection with
the Principal Stockholder's consent described in this Amendment.
5. Notwithstanding anything contained in the Original Merger Agreement to
the contrary, including without limitation Section 7.13 thereof, the Company
shall not be required to hold the Company Special Meeting.
6. This Amendment shall constitute an Ancillary Agreement for all purposes
of the Original Merger Agreement.
7. The validity, interpretation, construction and performance of this
Amendment shall be governed by, and construed in accordance with, the laws of
Delaware without reference to rules relating to conflicts of laws.
8. This Amendment may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to each party.
9. Except as expressly modified and amended by this Amendment, the
Original Merger Agreement shall continue in full force and effect and is hereby
ratified and confirmed in all respects.
2
<PAGE>
IN WITNESS WHEREOF, Lomak, the Company and Merger Sub have duly executed
this Amendment on the date first above written.
LOMAK PETROLEUM, INC.
By: /s/ JOHN H. PINKERTON
John H. Pinkerton
President and Chief Executive Officer
DEC ACQUISITION, INC.
By: /s/ JOHN H. PINKERTON
John H. Pinkerton
President
DOMAIN ENERGY CORPORATION
By: /s/ MICHAEL V. RONCA
Michael V. Ronca
President and Chief Executive Officer
3
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<NET-INCOME> 2,161 673 354 1,634 1,988
<EPS-PRIMARY> .14 0.09 0.04 .11 0.19
<EPS-DILUTED> .14 0.08 0.04 .11 0.18
</TABLE>
